Approved far-reaching reforms of IMF governance

The Executive Board of the International Monetary Fund (IMF) approved far-reaching reforms in the governance of this global financial institution on Friday, one week before the G-20 summit of leading world economies in Seoul, where further stimulation and strengthening of global recovery will be discussed.

"Overall, this is a significant shift in quotas and voting power. It is a very important increase in the voting and representation of emerging markets and developing countries. This is a historic reform of the IMF," said Fund Director Dominique Strauss-Kahn at a press conference after the board meeting.

"This means that we now have the top ten shareholders who truly represent the top ten countries in the world, namely the USA, Japan, four leading European economies – Germany, the United Kingdom, France, Italy, as well as Brazil, Russia, India, and China. The ranking of these countries is now a real ranking in the global economy," said Strauss-Kahn, according to a statement released by the IMF on Saturday.

At the core of the reforms will be the doubling of IMF quotas, which will produce a shift of six percent of the quota shares in favor of emerging markets and developing countries. A total of 80 percent of the shift comes from developed countries and oil producers, while only 20 percent comes from other emerging markets, Strauss-Kahn said. "It is crucial that for 110 countries out of 187, the share of governance quotas will increase or remain at the same level," he added.

The ten largest members of the Fund will now be the USA, Japan, Germany, France, Italy, the United Kingdom, Brazil, China, India, and Russia. Additionally, the voice of the poorest developing countries in the IMF will be preserved with the maintenance of their voting rights.

Once all reforms are implemented, they will also reflect on the composition of the IMF Executive Board. "There will be two fewer seats for advanced European countries. They have agreed to this. When this is completed, there will be two more developing countries on the board, which will reflect the change in quotas," Strauss-Kahn added.

The Executive Board supported a timeline that anticipates the increase in quotas and restructuring to take effect by the IMF and World Bank Annual Meetings in October 2012. It was also agreed that the composition of the board will be subject to review every eight years. The composition was last changed in 1992, when the board was expanded from 20 to 24 members due to the influx of new member countries after the collapse of the Soviet Union.

The quotas of member countries that are the main source of IMF funding will double under the 14th General Review of Quotas to 476.8 billion Special Drawing Rights – SDR (approximately 755.7 billion dollars at current exchange rates), from 238.4 billion SDR agreed upon in the 2008 quota and voting reform. SDR is the IMF’s unit of account.

The board also concluded that a new formula for calculating quotas should be agreed upon by January 2013, and that the next quota review should be completed by January 2014, two years ahead of schedule. The IMF Board of Governors, the fund’s highest governing body, must ratify the new agreement with an 85 percent majority for it to take effect. (H)