Fourteenth General Review of Quotas—Realigning Quota Shares: Further Considerations

Borrowing Agreement with the Bank of Slovenia

Abstract

Borrowing Agreement with the Bank of Slovenia

I. Introduction1

1. At its most recent meeting in April 2010, the IMFC pledged to complete the 14th General Review of Quotas before January 2011.2 This follows an earlier call by G-20 Leaders and the IMFC to bring forward the deadline for completing the 14th Review by two years as part of the multilateral response to the global financial crisis and the recognized need to enhance the Fund’s legitimacy and effectiveness.

2. The first formal meeting by the Committee of the Whole on realigning quota shares in the context of the 14th Review took place in March. The discussions drew on preliminary analysis based on a derived data set through 2008, largely using WEO rather than IFS data as the primary source.3 Directors stressed that their views were preliminary, pending release of the full 2008 data update. Nonetheless, a wide range of views were expressed, and it was evident that significant differences remain on several key issues.

3. The 2008 data update has now been finalized. As discussed in the recent update paper, 4 the new data confirm the broad trends that were evident in the earlier derived 2008 data set. In particular, they point to a further significant increase in calculated quota share of emerging market and developing countries (EMDCs) as a group relative to the 2007 data set (Table 1). In aggregate, EMDCs are now underrepresented by 2.2 percentage points compared with a position that was broadly aligned with their aggregate calculated quota share using data through 2007 (Table 2). As before, the aggregate data mask significant disparities across both regions—with Asia remaining the main under-represented region among EMDCs—and individual countries. Within the EMDC group, 50 out of 161 countries are under-represented by a total of 8.9 percentage points, while many EMDCs remain over-represented. Similarly, while advanced economies as a group are over-represented, 10 individual advanced economies also remain under-represented.

Table 1.

Distribution of Quotas and Calculated Quotas

(In percent)

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Source: Finance Department.

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo which became a member on June 29, 2009 and Tuvalu in anticipation of its forthcoming membership. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

Based on the following formula: CQS = (0.50*GDP + 0.30*Openness +0.15*Variability + 0.05*Reserves)^K. GDP blended using 60 percent market and 40 percent PPP exchange rates. K is a compression factor of 0.95.

Based on IFS data through 2005. Reflects the impact of adjustments to current receipts and payments for re-exports, international banking interest, and non-monetary gold.

Based on IFS data through 2007.

Based on IFS data through 2008.

Including Korea and Singapore.

Table 2.

Under- and Over-represented Countries by Major Groups 1/

(In percentage points)

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Source: Finance Department.

Under- and over-represented countries for the two datasets, respectively.

Difference between calculated quota shares and post second round actual quota shares.

Based on IFS data through 2007.

Based on IFS data through 2008.

4. This paper seeks to provide a basis for further discussions on the realignment of quota shares, but does not present any specific proposals. It begins with a brief stocktaking of the key outstanding issues, and then presents further illustrative simulations, based on the updated data set through 2008 and taking account of Directors’ views expressed in March. It would be premature to present specific proposals at this time, given that discussions are still at an early stage and many Directors have stressed that their views remain preliminary. Rather, it is hoped that the discussion of this paper will help lay the groundwork for beginning to narrow options and moving toward formulation of a specific proposal in the coming months.

II. Stocktaking

Discussions to date have been guided by the parameters agreed by the IMFC in Istanbul. These were that the review should achieve a shift in quota share to dynamic emerging market and developing countries of at least 5 percent from over-represented to under-represented countries using the current quota formula as the basis to work from. These changes would come on top of the 2008 reform, which when fully implemented will result in a net 2.7 percent shift in voting share to EMDCs as a group. The IMFC also indicated that the voting share of the poorest members should be protected.5

6. The March paper addressed several issues arising from this guidance. In particular, it noted that there were differences of view among the membership on whether the quota shift of at least 5 percent should be to dynamic EMDCs, from over- to under-represented countries, or to both groups, with some also emphasizing the net shift to EMDCs as a whole. The paper also discussed several alternative approaches to capturing the concept of dynamic EMDCs, and how to define the group of poorest members whose voting share should be protected, as well as alternative modalities for achieving that protection.

7. The paper also presented a set of initial simulations to illustrate some of these issues. The simulations allocated quota increases either equiproportionally (i.e., in proportion to a member’s post second round quota share), selectively (i.e., in proportion to calculated quota shares, using the quota formula), or on an ad hoc basis (based on other criteria). The combinations of these allocation mechanisms were geared, based on a doubling of quotas, to achieving at least a 5 percent shift to one or both of the groups referenced in the IMFC guidance. The net shift to EMDCs was somewhat smaller, in the range of 1-3½ percent, but the simulations also resulted in a substantial realignment among the largest quotas. Given the goal of realigning quota shares, the equiproportional element (which does not alter quota shares) was set either to zero or a relatively small part of the overall increase compared with previous general reviews, with the major part distributed either selectively to all members or as ad hoc increases to a subset of the membership.

8. The initial simulations gave prominent weight to the quota formula in determining quota increases. In particular, the formula was used both to distribute the selective increases and for allocating ad hoc increases, which were mainly confined to countries that were under-represented using the formula. The only exceptions were the inclusion of (i) a small number of moderately over-represented EMDCs that met alternative criteria for capturing dynamism based on their relative shares in PPP GDP; and (ii) over-represented PRGT-eligible members whose quota shares were protected through part of the ad hoc increases.

9. Directors expressed a range of views in the March discussion.6 In particular, there were clear differences on the broad goals of the quota realignment, with many emphasizing a 5 percent shift from over- to under-represented countries, while many others called for a shift in quota share of at least 5 percent to EMDCs. Several Directors were open to considering alternative criteria to the formula for capturing dynamic EMDCs, but a number were skeptical about the usefulness of such work or considered that dynamism would be better captured in the formula itself. On the issue of the formula, many Directors maintained that it should not be reopened, given the tight timeframe available for completing the review, but others called for further work on the formula before it is used again. Many Directors expressed an initial preference for a combination of selective and ad hoc increases, while a number considered it premature to rule out an equiproportional increase at this stage. Finally, while Directors supported the goal of protecting the voting share of the poorest members, views differed on how to define this group and on the modalities, with many Directors open to exploring all options.

10. Directors also held an initial discussion in April on the size of the overall quota increase under the 14th Review. The staff paper prepared as a basis for that discussion presented a range of indicators and scenarios that broadly pointed to the need for at least a doubling of quotas.7 Many Directors expressed preliminary views in support of a doubling of quotas, with some favoring a larger increase. A few other Directors were skeptical about the need for a quota increase beyond the amount needed to achieve a realignment of shares, and some considered it too early to express a view.

11. It is clear from these discussions that meeting the IMFC pledge of completing the 14th Review before January 2011 will require compromises from all sides. Many positions expressed to date, particularly on the realignment of quota shares, are in conflict. For example, while substantial shifts in individual quota shares are possible using the formula, a substantial net shift in quota share to EMDCs as a group is more difficult to achieve on this basis and additional elements are required. This reflects the fact that, within the EMDC group, many countries remain over-represented, as noted above. In particular, as illustrated in Table 2, more sizable net shifts would require a willingness of under-represented advanced economies to forego part of the increases they could expect under the formula and/or over-represented advanced economies to become modestly under- represented. Reopening the formula could in principle give a different result, but there seems little basis for expecting that it would be easier to agree on a revised formula than on an acceptable realignment of quota shares, and past experience suggests that changes in the formula have typically required protracted periods of discussions.

12. While compromise is essential, the whole membership stands to gain from enhanced legitimacy and effectiveness of the Fund. The needed compromises will inevitably require all members to sacrifice some of their individual interests for the broader good of the institution. However, there is wide agreement that enhanced legitimacy is critical to increasing the overall effectiveness of the Fund’s role as the pre-eminent international financial institution responsible for fostering global monetary and economic stability, and that realigning quota shares together with broader governance reforms are needed to achieve this goal. All members stand to gain if the realignment of shares under the 14th Review is seen as enhancing the Fund’s legitimacy and fostering greater engagement in the institution. Such an outcome would help support the Fund’s efforts in promoting sustainable global recovery and reducing the vulnerability of the international monetary system to future crises.

III. Illustrative Simulations

A. Overview

13. This section presents purely illustrative simulations that seek to provide a basis for the next round of discussions. As noted, all the simulations at this stage are illustrative only and do not in any way represent staff proposals. The simulations take account of Directors’ views expressed in March and can be divided into three broad groups. All three approaches would allow the 14th Review to proceed using the current quota formula as a key distribution tool, and without pre-judging the outcome of future work to improve the formula.

14. The three groups differ in their approach to the ad hoc increases. The first builds on the approach presented in the March paper, which focuses on EMDCs and relies primarily on the quota formula as the distribution key. The second group is intended to recognize the concerns that a number of Executive Directors have expressed about the formula, by giving a somewhat larger role to a country’s economic weight in allocating quota shares. Specifically, the second group of simulations incorporates the quota formula’s GDP blend variable8 in the distribution key for allocating ad hoc increases, along with the quota formula. The third group makes the GDP blend variable the primary distribution key for the ad hoc increases, while the formula continues to be used to distribute selective increases.

15. The simulations have several common features:9

  • Data base: all simulations use the updated data set through 2008, as presented in EB/CQuota/10/3.

  • Size of the overall quota increase: pending further discussions on the size of the overall increase, all simulations are presented for overall increases of 50 percent, 100 percent, and 150 percent, respectively.

  • Allocation mechanism: to facilitate comparability, all three sets of simulations employ the same mix of equiproportional/selective/ad hoc increases, namely: 0/60/40, 0/75/25, and 20/50/30.

  • Protecting the poorest: as in the March paper, the quota shares of individual PRGT-eligible members are protected at their post-2008 reform levels. However, as discussed in Section IV, other options could also be considered for meeting the goal of protecting the voting share of the poorest members.

16. The simulations include two other elements that could help facilitate a larger overall shift to EMDCs:

  • The ad hoc increases are concentrated on EMDCs that meet the specified criteria. Under-represented advanced economies benefit fully from the selective increases, but only participate in the ad hoc increases to the extent required to ensure that their increased quota share following the selective increase is not diluted by the ad hoc increase. This is similar to the approach presented in Tables 8, 10 and 12 of Fourteenth General Review of Quotas Realigning Quota Shares Initial Considerations (3/5/2010), except that the quota share of under-represented advanced economies following the selective increase was not protected in the previous simulations.

  • Some of the simulations allow over-represented countries to become modestly under-represented as a result of the realignment. In the 2008 reform, some over-represented countries (mainly EMDCs) became under-represented as a result of the agreed realignment. The extent of the resulting under-representation in these cases was modest, with the largest being 11.5 percent. In contrast, in the 11th Review, a limit was imposed to ensure that no over-represented country became under-represented. This limit affected a very small number of countries, reflecting the fact that the ad hoc increases themselves were a small part (10 percent) of the total distribution. The simulations in this paper illustrate two possible approaches: in the first (Tables 3A, 4A and 5A, and Tables A1, A3 and A5), 10 over-represented countries are fully protected from becoming under-represented; while in the second (Tables 3B, 4B and 5B, and Tables Table A2, A4, and A6) the protection is set at 95 percent of calculated quota share (allowing these countries to become modestly under-represented by up to 5 percent). Other thresholds could also be considered.

Table 3A.

Illustrative Scenarios: Ad hoc Increase to Dynamic EMDCs; Full Protection 1/

(In percent)

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Source: Finance Department.

The simulations assume a 50, 100, and 150 percent increase of post second round quotas. The ad hoc increase is distributed to dynamic EMDCs as defined in footnote 5. Eligible under- represented EMDCs receive a uniform reduction in out-of-lineness or the minimum percentage increase above their post-selective nominal quota as shown above, whichever is higher. Eligible over- represented EMDCs receive the minimum percentage increase above their post-selective nominal quota. Under-represented advanced countries maintain their post-selective quota share. Over- represented countries which would become under-represented as a result of the overall quota increase are capped at their calculated quota share. PRGT-eligible countries receive at least their post second round actual quota share.

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo which became a member on June 29, 2009 and Tuvalu in anticipation of its forthcoming membership. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

The overall increase is distributed to members on an equiproportional, selective and ad hoc basis in the proportion of x/y/z, respectively.

Including Korea and Singapore.

Includes all under-represented EMDCs plus other dynamic EMDCs defined as those whose PPP GDP share divided by post second round quota share is greater than 1 and who are not over-represented by more than 25 percent.

Uniform proportional reduction in the gap between calculated and post-selective quota share.

Table 3B.

Illustrative Scenarios: Ad hoc Increase to Dynamic EMDCs; 95 Percent Protection 1/

(In percent)

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Source: Finance Department.

The simulations assume a 50, 100, and 150 percent increase of post second round quotas. The ad hoc increase is distributed to dynamic EMDCs as defined in footnote 5. Eligible under-represented EMDCs receive a uniform reduction in out-of-lineness or the minimum percentage increase above their post-selective nominal quota as shown above, whichever is higher. Eligible over-represented EMDCs receive the minimum percentage increase above their post-selective nominal quota. Under-represented advanced countries maintain their post-selective quota share. Over-represented countries which would become under-represented as a result of the overall quota increase are capped at 95 percent of their calculated quota share. PRGT-eligible countries receive at least their post second round actual quota share.

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo which became a member on June 29, 2009 and Tuvalu in anticipation of its forthcoming membership. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

The overall increase is distributed to members on an equiproportional, selective and ad hoc basis in the proportion of x/y/z, respectively.

Including Korea and Singapore.

Includes all under-represented EMDCs plus other dynamic EMDCs defined as those whose PPP GDP share divided by post second round quota share is greater than 1 and who are not over-represented by more than 25 percent.

Uniform proportional reduction in the gap between calculated and post-selective quota share.

Table 4A.

Illustrative Scenarios: Ad hoc Increase Allocated Based on Either the Formula or the GDP Blend; Full Protection 1/

(In percent)

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Source: Finance Department.

The simulations assume a 50, 100, and 150 percent increase of post second round quotas. The ad hoc increase is distributed to all countries that are under-represented with respect to the formula or with respect to the GDP blend (see footnote 3). Eligible EMDCs receive a uniform reduction in out-of-lineness based on the formula (for those EMDCs under-represented under the formula only), or the GDP-blend (for those EMDCs under-represented under the GDP blend only), or the greater of the two (for those EMDCs that qualify under both criteria). Eligible advanced countries are capped at their post second round or post-selective quota share, whichever is greater. Over-represented countries which would become under-represented as a result of the overall quota increase are capped at their calculated quota share. PRGT-eligible countries receive at least their post second round actual quota share.

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo which became a member on June 29, 2009 and Tuvalu in anticipation of its forthcoming membership. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

GDP blended using 60 percent market and 40 percent PPP exchange rates, compressed using a factor of 0.95.

The overall increase is distributed to members on an equiproportional, selective and ad hoc basis in the proportion of x/y/z, respectively.

Including Korea and Singapore.

Includes all under-represented EMDCs plus other dynamic EMDCs defined as those whose PPP GDP share divided by post second round quota share is greater than 1 and who are not over-represented by more than 25 percent.

Uniform proportional reduction in the gap between calculated and post-selective quota share or GDP blend (see footnote 3) and post-selective quota share, whichever is applicable.

Table 4B.

Illustrative Scenarios: Ad hoc Increase Allocated Based on Either the Formula or the GDP Blend; 95 Percent Protection 1/

(In percent)

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Source: Finance Department.

The simulations assume a 50, 100, and 150 percent increase of post second round quotas. The ad hoc increase is distributed to all countries that are under-represented with respect to the formula or with respect to the GDP blend (see footnote 3). Eligible EMDCs receive a uniform reduction in out-of-lineness based on the formula (for those EMDCs under-represented under the formula only), or the GDP-blend (for those EMDCs under-represented under the GDP blend only), or the greater of the two (for those EMDCs that qualify under both criteria). Eligible advanced countries are capped at their post second round or post-selective quota share, whichever is greater. Over-represented countries which would become under-represented as a result of the overall quota increase are capped at 95 percent of their calculated quota share. PRGT-eligible countries receive at least their post second round actual quota share.

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo which became a member on June 29, 2009 and Tuvalu in anticipation of its forthcoming membership. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

GDP blended using 60 percent market and 40 percent PPP exchange rates, compressed using a factor of 0.95.

The overall increase is distributed to members on an equiproportional, selective and ad hoc basis in the proportion of x/y/z, respectively.

Including Korea and Singapore.

Includes all under-represented EMDCs plus other dynamic EMDCs defined as those whose PPP GDP share divided by post second round quota share is greater than 1 and who are not over-represented by more than 25 percent.

Uniform proportional reduction in the gap between calculated and post-selective quota share or GDP blend (see footnote 3) and post-selective quota share, whichever is applicable.

Table 5A.

Illustrative Scenarios: Ad hoc Increase Allocated Based on the GDP Blend; Full Protection 1/

(In percent)

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Source: Finance Department.

The simulations assume a 50, 100, and 150 percent increase of post second round quotas. The ad hoc increase is distributed to all countries that are under-represented with respect to the GDP blend (see footnote 3). Eligible EMDCs receive a uniform reduction in out-of-lineness based on the GDP blend. Eligible advanced countries are capped at their post second round or post-selective quota share, whichever is greater. Over-represented countries that would become under-represented as a result of the overall quota increase are capped at their calculated quota share. PRGT-eligible countries receive at least their post second round actual quota share. The quota shares of EMDCs and advanced economies that are under-represented under the formula but not eligible for the ad hoc are protected at their post-selective quota share.

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo which became a member on June 29, 2009 and Tuvalu in anticipation of its forthcoming membership. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

GDP blended using 60 percent market and 40 percent PPP exchange rates, compressed using a factor of 0.95.

The overall increase is distributed to members on an equiproportional, selective and ad hoc basis in the proportion of x/y/z, respectively.

Including Korea and Singapore.

Includes all under-represented EMDCs plus other dynamic EMDCs defined as those whose PPP GDP share divided by post second round quota share is greater than 1 and who are not over-represented by more than 25 percent.

Uniform proportional reduction in the gap between GDP blend (see footnote 3) and post-selective quota share.

Table 5B.

Illustrative Scenarios: Ad hoc Increase Allocated Based on the GDP Blend; 95 Percent Protection 1/

(In percent)

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Source: Finance Department.

The simulations assume a 50, 100, and 150 percent increase of post second round quotas. The ad hoc increase is distributed to all countries that are under-represented with respect to the GDP blend (see footnote 3). Eligible EMDCs receive a uniform reduction in out-of-lineness based on the GDP blend. Eligible advanced countries are capped at their post second round or post-selective quota share, whichever is greater. Over-represented countries that would become under-represented as a result of the overall quota increase are capped at 95 percent of their calculated quota share. PRGT-eligible countries receive at least their post second round actual quota share. The quota shares of EMDCs and advanced economies that are under-represented under the formula but not eligible for the ad hoc are protected at their post-selective quota share.

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo which became a member on June 29, 2009 and Tuvalu in anticipation of its forthcoming membership. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

GDP blended using 60 percent market and 40 percent PPP exchange rates, compressed using a factor of 0.95.

The overall increase is distributed to members on an equiproportional, selective and ad hoc basis in the proportion of x/y/z, respectively.

Including Korea and Singapore.

Includes all under-represented EMDCs plus other dynamic EMDCs defined as those whose PPP GDP share divided by post second round quota share is greater than 1 and who are not over-represented by more than 25 percent.

Uniform proportional reduction in the gap between GDP blend (see footnote 3) and post-selective quota share.

17. Taking account of the above elements, the method used for allocating ad hoc increases in each group can be summarized as follows:

Set 1: Ad hoc increases to dynamic EMDCs (Tables 3A and 3B, and Tables A1 and A2):

Ad hoc increases are allocated mainly to under-represented EMDCs and other EMDCs that meet the dynamic criterion based on their share in PPP GDP (i.e., the third option in Section III.C of Fourteenth General Review of Quotas Realigning Quota Shares Initial Considerations (3/5/2010)—see Box 1). Under-represented EMDCs receive a uniform reduction in out-of-lineness based on the formula or a fixed percentage increase above their post selective nominal quota, whichever is greater, while other dynamic EMDCs receive the fixed percentage increase.11 A smaller portion of the ad hoc increase is allocated to protect against (i) the share of under-represented advanced economies being diluted as a result of the ad hoc increases; (ii) over-represented countries becoming (more than modestly) under-represented; and (iii) a decline in the post second round quota share of individual PRGT-eligible countries.

Dynamic EMDCs

The March paper (Fourteenth General Review of Quotas Realigning Quota Shares Initial Considerations (3/5/2010)) discussed three alternative criteria for capturing ―dynamic? EMDCs. Staff has updated these calculations using the 2008 data base, and the set of countries meeting these criteria remains broadly unchanged. In particular, in the case of the criteria based on PPP GDP and contribution to growth, only Pakistan no longer meets the threshold (of 25 percent) for over-representation applied for all criteria. In the case of average GDP growth, Uganda no longer meets this threshold with the data update. In all, between 19 and 32 countries meet the criteria following the data update, compared with the previous range of between 20 and 33.

Alternative Approaches to Capturing Dynamism 1/

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Shading denotes over-represented countries. An asterisk in front indicates that the country meets the criteria under all three approaches.

Includes EDMCs whose PPP GDP share divided by post second round quota share is greater than 1 and not over-represented by more than 25 percent.

Includes EDMCs whose contribution to global GDP growth during 2004-08 is above 0.5% and not over-represented by more than 25 percent.

Includes EDMCs whose real GDP growth during 2004-08 is above EDMC average and not over-represented by more than 25 percent.

Set 2: Ad hoc increases allocated based on either the formula or the GDP blend (Tables 4A and 4B, and Tables A3 and A4):

Ad hoc increases are allocated mainly to countries that are under-represented either under the formula or the compressed GDP blend variable (i.e., a country’s share in the compressed GDP blend variable is greater than its quota share after the selective increase). Eligible EMDCs receive the higher of the increase indicated by a uniform reduction in their out-of-lineness with respect to each of these two variables, respectively. The same protections apply as in the first set. In addition, advanced economies that are only under-represented with respect to the GDP blend (i.e., are over-represented using the formula) are capped at their post second-round quota share so that they do not gain quota share as a result of this approach.

Set 3: Ad hoc increases allocated based on the GDP blend variable (Tables 5A and 5B, and A5 and A6):

Ad hoc increases are allocated mainly to countries that are under-represented on the basis of the GDP blend. Eligible EMDCs receive a uniform reduction in their out-of-lineness with respect to the GDP blend variable. The same protection as in the first two sets applies to over-represented and to PRGT-eligible countries, and eligible advanced economies that are over-represented using the formula are again capped at their post-2008 reform quota share. In addition, the quota shares of EMDCs and advanced economies that are under-represented under the formula but not eligible for an ad hoc increase are protected at their quota share after the selective quota increase, so that their quota share does not decline as a result of the ad hoc increase.

B. Main Results

18. Key results of the simulations are summarized in the Text Table below (see also Tables 3–5 and the individual country results in Tables A1–A6). All three approaches considered in this paper can result in sizable shifts in quota shares, as well as a significant realignment in rankings among the largest quota countries. In general, the impact of the different approaches on country rankings is more stable (with a few exceptions) than the shifts in shares, particularly when comparing the first set of simulations with the second and third sets. The first set of simulations achieves the largest overall shifts in shares, resulting in increases that are significantly above the IMFC targets. However, this mainly reflects a decline in the U.S. quota share (and to a smaller extent that of Japan) and a correspondingly larger increase in the share of China. The second and third sets of simulations generally also achieve the IMFC targets provided the overall quota increase is large enough (a doubling rather than 50 percent).

Summary Table:

Shifts of Quota Share under Alternative Simulations 1/

(In percentage points)

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Results for quota increases of 50, 100, and 150 percent; see Tables 3-5 for details.

Includes all under-represented EMDCs plus other dynamic EMDCs defined as those whose PPP GDP share divided by post second round quota share is greater than 1 and who are not over-represented by more than 25 percent.

Ad hoc increase to all under-represented countries and other dynamic EMDCs.

As described in the text, under full protection the quota share of initially over-represented countries cannot fall below the calculated quota share as a result of the quota increase. In the case of partial protection, the quota share of initially over-represented countries cannot fall below 95 percent of the calculated quota share.

Ad hoc increase to countries under-represented with respect to the formula or the GDP blend.

Ad hoc to countries under-represented with respect to the GDP blend.

IV. Protecting the Poorest

19. The modalities for protecting the voting share of the poorest members, as called for by the IMFC, still need to be decided. In the 2008 reform, it was agreed that the share of basic votes in total votes would be maintained as quotas increase, implying that a member’s voting share would remain unchanged as long as its quota share does not change. However, low income countries remain over-represented on average and will tend to lose quota and therefore voting share as part of a formula-based realignment of quotas. One way of providing protection would be to further increase the ratio of basic votes to total votes over and above that agreed in the 2008 reform. This option would require another amendment of the Fund’s Articles. An alternative, and the focus of the remainder of this section, is to set aside part of an ad hoc increase to the poorest countries to maintain their quota share.

20. Protection of the poorest countries through ad hoc quota increases can be undertaken either individually or for the poorest members as a group. Individual country protection (used in the simulations discussed above) has the effect of partially reversing the adjustments in quota share that result from the selective increases. In particular, eligible countries that are over-represented and therefore lose quota share after the selective increase receive (in some cases relatively large) ad hoc increases to reverse that decline. As a result, relatively little realignment in shares takes place within the group of PRGT-eligible countries. Conversely, when protection is applied at the group level, realignment within the group still takes place and the overall cost of the protection is somewhat reduced.

21. These effects are illustrated in Tables 6 and A7 for two of the simulations presented in the previous section. Overall, the impact of applying protection at the group rather than individual country level is to reduce somewhat the amount of the ad hoc increases set aside for protection, leaving more available for distribution to other eligible members. As a result, the shifts to the IMFC targeted groups are slightly higher (by 0.1 – 0.2 percent in these simulations) with no change in aggregate share of EMDCs. Within the group, the share of Africa declines by about 0.2 percent, while the shares of Asia and the Middle East, Malta, and Turkey increase.

Table 6.

Illustrative Scenarios: Ad hoc Increase Allocated Based on Either the Formula or the GDP Blend; Alternative Protection Mechanisms for Poorest Members 1/

(In percent)

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Source: Finance Department.

The simulations assume a 100 percent increase of post second round quotas. The ad hoc increase is distributed to all countries that are under-represented with respect to the formula or with respect to the GDP blend (see footnote 3). Eligible EMDCs receive a uniform reduction in out-of-lineness based on the formula (for those EMDCs under-represented under the formula only), or the GDP-blend (for those EMDCs under-represented under the GDP blend only), or the greater of the two (for those EMDCs that qualify under both criteria). Eligible advanced countries are capped at their post second round or post-selective quota share, whichever is greater. Over-represented countries which would become under-represented as a result of the overall quota increase are capped at their calculated quota share. Three alternative protection mechanisms for poorest members are implemented (see footnotes 4, 5, and 6).

Includes ad hoc increases for 54 eligible members that are not yet effective; also includes Kosovo which became a member on June 29, 2009 and Tuvalu in anticipation of its forthcoming membership. For the two countries that have not yet consented to, and paid for, their quota increases, 11th Review proposed quotas are used.

GDP blended using 60 percent market and 40 percent PPP exchange rates, compressed using a factor of 0.95.

PRGT-eligible countries receive at least their post second round actual quota share.

PRGT-eligible countries as a group maintain their post second round actual quota share.

PCDR-eligible countries receive at least their post second round actual quota share.

The overall increase is distributed to members on an equiproportional, selective and ad hoc basis in the proportion of x/y/z, respectively.

Including Korea and Singapore.

Includes all under-represented EMDCs plus other dynamic EMDCs defined as those whose PPP GDP share divided by post second round quota share is greater than 1 and who are not over-represented by more than 25 percent.

Uniform proportional reduction in the gap between calculated and post-selective quota share or GDP blend (see footnote 3) and post-selective quota share, whichever is applicable.