Prepared by a staff team led by M.S. Kumar and S. Bassett, and comprising H. Treichel, R. Rozenov, C. Janada, A. Buzaushina, F. Bacall, and A. Perez.
G20 Seoul Summit Document, paragraph 16. The Seoul Action Plan included a commitment to a modernized IMF that better reflects the changes in the world economy through greater representation of dynamic emerging markets and developing countries. In requesting the Executive Board to advance the timetable for completing the 15th Review to January 2014, the Board of Governors noted that “any realignment is expected to result in increases in the quota shares of dynamic economies in line with their relative positions in the world economy, and hence likely in the share of emerging market and developing countries as a whole. Steps shall be taken to protect the voice and representation of the poorest members.” (See Board of Governors Resolution No. 66-2, para 10).
IMFC Communiqué, September, 2011.
See Reform of Quota and Voice in the International Monetary Fund—Report of the Executive Board to the Board of Governors (3/28/08).
See Quota Formula Review—Data Update and Issues (8/17/11).
For example, in the 14th Review, while the formula was used to allocate 60 percent of the overall increase, it played only a supplementary role in allocating the remainder through various protection mechanisms.
The country classifications used in this paper are unchanged from those in the 14th Review. As discussed in Appendix I, the current classification is becoming significantly out-dated and a case can be made for updating this classification to bring it into line with the current WEO ahead of the 15th Review. Against this, maintaining continuity in the classifications could be useful to the extent that the 15th Review is viewed as part of a broader process of governance reform that was initiated in 2008.
The next data update through 2010 is expected to be issued in July.
The charts are based on a logarithmic scale.
The results are sensitive to the underlying data set and the order in which variables are dropped from the formula.
The Acting Chair’s Summing Up Review of Access Policy Under the Credit Tranches and the Extended Fund Facility, and Access Policy in Capital Account Crises-Modifications to the Supplemental Reserve Facility and Follow-Up Issues Related to Exceptional Access Policy, (3/5/2003). As noted in Annex III of Quota Formula Review—Data Update and Issues (8/17/2011), there are indications that market GDP is closely linked to members’ access to Fund resources in recent exceptional access cases.
The revisions are expected to be more limited than the previous survey, which resulted in a substantial improvement in methodology and consistency. Nonetheless, the changes could be significant in some cases.
Note that in the forthcoming implementation of BPM6 (Balance of Payments and International Investment Position Manual, 6th edition) in the latter half of 2012, the measure of some types of exports and imports will more closely approximate value added trade.
See, for example, A New Quota Formula—Additional Considerations (3/14/07, pp. 11-13).
See, for example, Quota Distribution-Selected Issues (7/17/03).
See A New Quota Formula—Additional Considerations (3/14/07, pp 6-10).
This issue appears to be receding over time: recorded payments exceeded recorded receipts by US$125 billion per year in 1994-2000 (Annual Report of the IMF Committee on Balance of Payments Statistics, 2001) but the differential fell to US$47 billion in 2006-09.
For instance, reinvested earnings reflect net profits or net losses for direct investment abroad on the credit side; similarly for foreign direct investment in the reporting country on the debit side. The recording on a net basis in the formula is due to lack of more disaggregated information reported by the members.
The correlation is between a binary variable indicating the approval of a Fund arrangement and the difference between shares in openness and GDP. For country “i” in year “t”, the binary variable takes the value of 1 if an IMF arrangement was approved in a particular year and 0 otherwise.
See “Understanding Financial Interconnectedness” (10/4/2010, page 4). See also “Integrating Stability Assessments Under the Financial Sector Assessment Program into Article IV Surveillance: Background Material” (08/27/2010) and Errico, Luca and Allesandro Massara (2011): Assessing Systemic Trade Interconnectedness - An Empirical Approach, IMF WP 214.
Appendix II provides more information on the evolution of the variability measure, including some alternative definitions, as well as analysis of variability as an indicator of potential balance of payments need.
See Appendix 1 of Quota and Voice Reform - Stocktaking and Further Considerations (07/11/07); Appendix 2 of Quota and Voice—Key Elements of a Potential Package of Reforms (2/26/08); and Quotas—Updated Calculations and Variables (08/28/09).
Questions about the variability measure pre-date the 2008 reform. For example, in the 8th General Review, J.J. Polak argued for eliminating variability from the quota formula, remarking that all different versions of variability suggested by staff did not work and arguing that “the best starting point for our further work would be to operate on a formula that would leave variability out”. (Statement by Mr. Polak on the Statistical Examination of, and Variability in, Quota Formulas —Eighth General Review of Quotas Committee of the Whole on the Review of Quotas Meeting 81/3, October 16, 1981, (10/21/81).
The explanatory variables have been traditionally identified in the literature as determinants of potential use of Fund resources (see Appendix II for details).
See Quota Formula Review—Data Update and Issues (8/17/11, page 15 and Annex I).
In this context, the forthcoming BPM6 will impact the underlying data for variability and openness. The change in the treatment of goods for processing will mainly affect data for those countries that have substantial receipts for goods that they process for a fee (both imports and exports of goods could fall significantly). Given the sensitivity of variability to data revisions, it may lead to unexpected and potentially large changes in members’ CQS. See Box A2 of Quota Formula Review—Data Update and Issues, Supp. 1, 8/17/2011.
See A New Quota Formula— Additional Considerations (3/14/07).
See Assessing Reserve Adequacy (2/15/11) and =Public Information Notice No. 11/47 (4/7//11).
During its 2010 reform, the World Bank explicitly took into account members’ IDA contributions in realigning members’ shareholdings. Three measures were considered—economic weight (the GDP-blend variable from the IMF’s quota formula), financial contributions (IDA contributions) and development contributions (client contributions to the WBG mission). Seventy-five percent of the realignment relied on economic weight, twenty percent on financial contributions, and the rest on development contributions. The bulk of the realignment benefitted members with above-average past contributions, and some protection was provided for countries with substantially increased pledges to the upcoming IDA round. (see World Bank Group Voice Reform: DC2010-0006/1, 4/25/10).
See Fourteenth General Review of Quotas—Realigning Quota Shares—Initial Considerations (3/5/10) which discussed this issue and provided information on members’ contributions.
These include the quota increases agreed for certain industrial countries in the 1959 and the Fourth General Reviews aimed at improving the Fund’s liquidity, ad hoc quota increases for Italy in 1964 and Saudi Arabia in 1981; the selective increases for major oil-exporting countries in the Sixth Review; the ad hoc increase for Japan in the Ninth Review, and the additional increases for Korea, Luxembourg, Singapore, Malaysia, and Thailand in the Eleventh Review. See A New Quota Formula—Additional Considerations (3/14/07).
In the 14th review discussions, staff prepared several quota allocation simulations showing the implications of protection mechanisms proposed by several Directors for taking into account financial contributions (e.g., PRGT, externally financed technical assistance, and the NAB). However, these did not garner sufficient support to be incorporated into the final quota calculations. See Fourteenth General Review of Quotas—Realigning Quota Shares: Further Considerations—Simulation Requests (8/30/10).