Jakob Vestergaard and Robert H. Wade, Guest Bloggers

Part 2 of a two-part series.

The IMF’s existing quota formula allocates shares to member countries on the basis of four variables (with their weights in the formula given in parentheses):

• Size of a member’s economy, as measured by GDP (50%);
• Member’s integration into the world economy, or “openness” (30 %);
• Member’s potential need for Fund resources, measured in terms of “variability” of current receipts and net capital flows (15%); and
• Member’s financial strength and ability to contribute to the Fund’s finances, as measured by its foreign exchange reserves (5%).

Instead of announcing a new formula in January 2013, as planned, the Executive Board of Directors (EBD) reported to the Board of Governors on the outcome of the Quota Formula Review (IMF 2013). The main conclusions were:

(a) “it was agreed that GDP should remain the most important variable, with the largest weight in the formula and scope to further increase its weight”;  and

(b) there was “considerable support for dropping variability from the formula” (IMF 2013: 2-3).

Beyond these, the Executive Directors could agree on little. Read the rest of this entry »

Jakob Vestergaard and Robert H. Wade, Guest Bloggers

More than three years after the International Monetary Fund (IMF)’s governing body agreed to reform the organization’s governance so as to better reflect the increasing economic weight of dynamic emerging market economies in the world economy, only microscopic changes have been made. Emerging market and developing countries (EMDCs) have become increasingly frustrated with Western states as the latter have clinged to their inherited power in the IMF and other important international economic governance organizations. The emerging cooperation among the BRICS (Brazil, Russia, India, China, South Africa)—as seen in the advanced-stage negotiations to establish a Development Bank and a Contingent Reserve Arrangement—sends a “wakeup and smell the coffee” message. The West will carry a heavy responsibility for eroding global multilateral governance if it continues to drag its heels on the needed adjustments.

Part 1 of a two-part series.

Overview of the Current Stalemate

Everyone agrees, in principle, that the global governance organizations established after the Second World War—notably the IMF and the World Bank—must adapt their governance to the fact of a now more multipolar world. Everyone agrees, in principle, that member countries’ share of votes in the governing boards should reflect their present-day relative economic weight.

At first glance the IMF has already taken a big step towards raising the voting power of “emerging market and developing countries” (EMDCs). In 2010, its member countries agreed both to boost the lending power of the IMFand to shift 6.2% of quota shares, and hence voting power, in favour of “dynamic” EMDCs. In March 2010, then-Managing Director Dominique Strauss-Kahn hailed this agreement as “the most fundamental governance overhaul in the IMF’s 65-year history and the biggest-ever shift of influence in favor of emerging market and developing countries.”

However, more than three years later the shift has yet to be implemented, largely because the U.S. Congress has still not approved what the country’s executive branch agreed to (it remains an open question, though, whether the executive branch is using the Congress as an excuse for its own unwillingness to act). Read the rest of this entry »