Economic and financial policymakers, bankers, and other business and opinion leaders from around the world converge on Singapore September 14–20 for a series of formal sessions and informal gatherings and seminars centered on the Annual Meetings of the Boards of Governors of the IMF and the World Bank. Ministers, central bank governors, and officials from 184 member countries will review developments in the global economy and assess progress in implementing a new medium-term strategy for the IMF that was endorsed in April. They are expected to give the go-ahead to proposals for a phased reform of the global institution’s governance structure.
It is the first time since the 1997–98 Asian financial crisis that the meetings are being held in Asia. Close to 16,000 delegates and observers are expected to attend the meetings, which are being held in the Suntec Singapore International Convention and Exhibition Center. Since the crisis, the world’s most populous region has bounced back sharply. Asian growth is forecast at 7¼ percent in 2006 and 7 percent in 2007. Global growth is also strong, despite high oil prices, and credit outstanding to the IMF is at a 25-year low—partly reflecting the relatively rosy international picture.
Heavy security will be in place throughout the island state of 4.5 million people, which is an important business and trading hub for the region. The week’s events get an early start on September 12 with the release of the IMF’s Global Financial Stability Report, which provides semiannual assessments of global financial markets and addresses emerging market financing in a global context, followed on September 14 by the release of its World Economic Outlook, which analyzes global and country growth trends.
A series of meetings and seminars will be capped by the two-day plenary session of the Boards of Governors of the IMF and the World Bank that will be opened on September 19 by Singapore Prime Minister Lee Hsien Loong, following the meetings of the IMF’s main advisory committee of governors, the International Monetary and Financial Committee (IMFC), on September 17, and the joint IMF-World Bank Development Committee on September 18. Ministers and central bank governors from the Group of Seven industrial countries are also scheduled to meet in Singapore.
Implementing the strategy
The Singapore meetings will take up several issues central to IMF Managing Director Rodrigo de Rato’s medium-term strategy for the Fund. The strategy is designed to redirect the institution’s work to strengthen its effectiveness. Key issues include reform of the governance of the Fund, especially the representation and voice of member countries; adapting the IMF’s surveillance so that it can be more effective in addressing risks to financial stability and economic growth, including by sharpening the focus on financial sector and exchange rate issues, and international spillovers; and creating a new financing instrument for emerging markets to use if capital market conditions suddenly worsen. For low-income countries, following implementation in January 2006 of the Multilateral Debt Relief Initiative for 19 of the poorest countries, the focus will be on helping governments make the best use of stepped-up aid.
The Executive Board has recommended to the IMF Board of Governors a package of reforms on quotas and voice in the IMF to better align the Fund’s governance regime with members’ relative positions in the world economy and to make it more responsive to changes in global economic realities. Equally important, the package also seeks to enhance the participation and voice of low-income countries in the IMF. The Board of Governors is being asked to vote on the package of reforms by September 18, in time for the Annual Meetings in Singapore.
Commenting on the package, Managing Director Rodrigo de Rato said, “the Executive Board’s decision represents an endorsement of fundamental reform that will enable the Fund to evolve to meet the challenges of a changing global economy. To meet global challenges, we need to make sure the voice and representation of members is appropriate and the system that determines governance of the Fund is as transparent as possible.”
The quota and governance reforms are designed as an integrated two-year program that should be completed no later than the Annual Meetings in 2008. The reform package consists of the following elements: initial ad hoc increases in quotas for a small group of the most underrepresented countries comprising China, Korea, Mexico, and Turkey; a work program after Singapore involving agreement on a new formula to guide the assessment of the adequacy of members’ quotas in the IMF; a second round of ad hoc quota increases based on the new formula; and an increase in the basic votes that each member possesses to ensure adequate voice for low-income countries in the IMF.
A member’s quota determines its financial commitment to the IMF, plays an important role in determining its voting power, and has a bearing on its access to IMF financing (see box).
Stepping up surveillance
While the global economy is strong, the IMF has been taking steps to improve its regular surveillance of economic and financial developments at the global, regional, and national levels. Analytical tools are being bolstered, and the IMF has added a new vehicle—multilateral consultations—to help resolve issues of systemic or regional relevance. De Rato is likely to brief governors on progress in the first consultation, which is focusing on how to address global current account imbalances while maintaining robust global growth. These imbalances are seen as most likely to be unwound in a smooth, market-led way, but also to be potentially dangerous for the world economy.
As part of this first multilateral consultation, IMF staff have held initial talks separately with China, the euro area, Japan, Saudi Arabia, and the United States on how to curb the imbalances while maintaining global economic growth. In the coming months, it is envisaged that the IMF will organize multilateral talks jointly with the five participants. But de Rato has cautioned that the imbalances cannot be resolved swiftly. “Global imbalances are a complex problem that took many years to build up; it would be unrealistic to expect the problem to be resolved through a magic bullet.”
Also on the agenda is contingent financing. The IMF is looking at ways to adapt its financing facilities to the evolving needs of emerging market countries. Many of them have in the past been big borrowers from the Fund, but have recently not needed to borrow IMF resources. De Rato said in a speech at the Brookings Institution on September 5 that it was important that emerging market countries still be able to come to the Fund if financial market conditions worsen. “For this reason, I have proposed that we develop a new instrument to provide liquidity for emerging market countries that have strong fundamentals but remain vulnerable to shocks.”
Reviving trade talks?
As for the stalled Doha trade talks—a topic likely to surface in Singapore—de Rato said, in a September 8 speech in Calgary, Canada: “there is now a need to ensure that the current impasse marks a brief pause, rather than a collapse, in the negotiations.” He called for pro-trade voices to be heard more loudly. “It is untenable, for instance, that in rich countries, farm interests that account for less than 4 percent of employment are effectively able to block a deal to open new markets for services and manufactures, which account for over 90 percent of employment,” de Rato declared.
IMF External Relations Department
Why is a country’s IMF quota important?
A country’s quota in the IMF determines how much it must deposit at the IMF as a capital subscription, and how much it can borrow under the IMF’s various facilities and policies when it has a balance of payments need. It also plays a role, together with basic votes, in determining voting power in decision making at the Fund.
• Subscription. A member must pay its subscription in full on joining the Fund: up to 25 percent of its quota must be paid in the Fund’s unit of account, called special drawing rights (SDRs), or widely accepted currencies (such as the U.S. dollar, the euro, the yen, or the pound sterling); the rest is paid in the country’s own currency.
• Voting power. Each IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of its quota. Accordingly, the United States has 371,743 votes (17.1 percent of the total), and Palau has 281 votes (0.013 percent of the total).
• Borrowing. The amount of financing a member can obtain from the IMF (its access limit) is based on its quota. For nonconcessional lending, a member can borrow up to 100 percent of its quota annually and 300 percent cumulatively. However, higher access may be granted in exceptional circumstances.
Basic votes are intended to ensure that all members, however small, have some weight in influencing the Fund’s policies and operations. But because basic votes have not changed since the IMF was established, while quota-based votes have risen through several general increases in quotas, basic votes as a proportion of total votes have steadily eroded. Basic votes now account for 2.1 percent of total votes, compared with 11.3 percent in 1945 and a peak of 15.6 percent in 1958.
The IMF’s Thirteenth General Review of Quotas is scheduled to be completed by January 2008.