The Web edition of the IMF Survey is updated several times a week, and contains a wealth of articles about topical policy and economic issues in the news. Access the latest IMF research, read interviews, and listen to podcasts given by top IMF economists on important issues in the global economy.


The Web edition of the IMF Survey is updated several times a week, and contains a wealth of articles about topical policy and economic issues in the news. Access the latest IMF research, read interviews, and listen to podcasts given by top IMF economists on important issues in the global economy.

In March 2002, the industrial countries committed themselves—under the Monterrey Consensus—to increasing the voice and participation of the developing countries in the World Bank and the IMF. But, according to Ariel Buira (Director of the Group of 24 Secretariat and former IMF Executive Board Director) and his coauthors of the recently published book—Challenges to the World Bank and the IMF: Developing Country Perspectives—industrial countries are not keeping their promise. At a February 5 IMF Book Forum, moderated by Thomas Dawson (Director of the IMF’s External Relations Department), Buira, joined by Carol Welch (Director of the International Program at Friends of the Earth), took a closer look at these issues.

Developing countries account for a growing share of the world’s output and trade, and newly industrializing countries have become major economic players, but they have yet to see their growing economic clout reflected in their representation in the IMF, Ariel Buira said. He and his coauthors argue that the governance of the IMF does not meet the standards of transparency, accountability, and legitimacy that it prescribes to member countries. This is troubling, he noted, because “with resources of over $300 billion, the IMF may well be the most important international institution, at least for most developing countries.”

Given the IMF’s great influence, two questions on the quality of its own governance arise: how to attain adequate voice and representation for all members in the institution’s decision-making process and whether the IMF meets the standards of transparency and accountability needed to ensure the legitimacy of its decisions, the ownership by member countries of the programs it supports, and the proper use of the public resources at its disposal.

Shifting the balance of power

How is voting power at the IMF determined? At the 1944 Bretton Woods Conference that created the IMF, participants weighed two approaches—one that linked votes solely to members’ contributions, or quotas, and another that was based solely on the legal principle of the equality of states. A compromise was worked out whereby member countries were given one vote for every $100,000 of quota plus 250 basic votes.

Over time, however, basic votes have become irrelevant, Buira noted. With the nearly 37-fold increase in quotas over the past 60 years, the share of basic votes in the total number of votes has declined from 11.3 percent to 2.1 percent, as the IMF’s membership has quadrupled from 45 to 184 countries. This has substantially shifted the balance of power in favor of large-quota countries. The Group of Seven industrial countries currently have a combined total vote of 47.7 percent, and, together with the votes of the Swiss Director, they account for 50.3 percent. If the votes cast by the Dutch and Belgian Directors are added, the combined vote of these countries exceeds 60 percent. Imbalances also exist within the developed world. The European Union (EU), with a combined GDP somewhat smaller than the United States, holds virtually 30 percent of the total vote, versus the United States’s 17 percent.

On top of this, Buira added, the IMF’s Articles of Agreement stipulate that some decisions require a qualified majority of the votes cast, further concentrating power in the larger countries, which have a higher proportion of the total votes. At the Bretton Woods Conference, it was initially proposed that qualified majorities be required in only two cases (one being quota adjustments), but the subsequently accepted Articles of Agreement required qualified majorities—either 70 or 85 percent—for decisions in nine areas.

With the First Amendment to the Articles of Agreement, the number of these decisions rose to 18, and, with the Second Amendment, the number rose to 53. An 85 percent qualified majority gives the United States (with its 17 percent vote) veto power; a 70 percent qualified majority gives the European Union veto power. Buira noted that since voting itself is weighted, qualified majorities should not be necessary. But the countries that have favored such majorities have not been prepared to do away with them, he said.

The greatest concerns for nongovernmental organizations (NGOs) regarding governance issues, Carol Welch said, are the single U.S. veto, the overrepresenta-tion of European seats, and the lack of representation of emerging markets and the larger constituencies—particularly sub-Saharan African countries that have many active programs. “NGOs are calling for a change in the voting structure,” she said, “so that there would be no more than 10 countries per constituency, that no single country could have veto power, and that there would be a fairer allocation of power between creditors and borrowers.” In her view, the establishment of other short-term lending institutions, such as an Asian Monetary Fund that would be more representative of Asian countries, would be enough of a threat to the IMF’s legitimacy that it would create internal incentives within the IMF to change governance.

Dawson noted that “in discussions like this, we tend to overlook the fact that on most issues, the IMF Board does deal by consensus when differences break out, and they are quite often not along North-South lines” Dawson doubted that an Asian Monetary Fund—if it were indeed to come into effect as an operating institution—would behave, at least in its internal operations, very differently than from the IMF. “These are financial institutions, and the creditors in each institution will want to make sure that their own resources are safeguarded,” he said.

Quotas: in dire need of review?

In addition to being the main determinants of voting power in the IMF, quotas also regulate members’ access to IMF resources and capital contributions to the IMF. The original quota formula had the political objective of reflecting the relative quota shares that the U. S. president and secretary of state had agreed to give the big four wartime allies, said Buira. The United States was to have the largest quota, around $2.9 billion; the United Kingdom, including colonies, an amount about one-half the U.S. quota; the Soviet Union, a quota slightly less than that of the United Kingdom; and China, somewhat less. The original formula to determine each country’s quota share was based on 2 percent of national income, 5 percent of gold and dollar holdings, 10 percent of average imports, and 10 percent of maximum variation in exports, with these last three percentages to be increased by the ratio of average exports to national income.

With variations in the weight given to these variables, and some changes in the definition of the main variables, the IMF continues to use the original formula to determine quota shares. An element of discretion is used in selecting the formulas to be applied in each case for determining members’ quotas, and other considerations also come into play.

Buira saw the determination of quotas as lacking transparency with results that were increasingly unrepresentative of the relative importance of member countries’ economies, with some Asian countries, in particular, now being underrepresented. Canada and China, for example, have the same quota, even though China’s economy is much larger than Canada’s, whether compared in purchasing power parity terms or at current exchange rates. Strong vested interests, he added, make changes to the quota formula difficult. In any case, Welch was skeptical that any likely quota increase would make a significant difference in developing countries’ borrowing capacities. Senegal’s quota, for example, “would have to quadruple,” she observed, for it to borrow the amount of financing it really needed from the IMF with minimal conditionality. She doubted that a quadrupling of quotas could be attained.

Inadequate IMF resources

One of the IMF’s purposes is to make resources available to members so that they can correct maladjustments in their balance of payments without resorting to measures destructive of national or international prosperity. “To finance an adjustment without a recession, you need a lot of money,” Buira said, and “if you have very little money, your adjustment will be very sharp and very painful”

The IMF’s quotas as a percentage of world imports have declined from 58 percent in 1944 to around 3 percent in 2004, largely because the industrial coun-tries—which have not resorted to IMF financing in the last 25 years—have become reluctant to contribute more. Buira had real doubts about whether the IMF’s resources were adequate for it to fulfill its mission, and he noted that its limited resources aggravate the contractionary nature of most of the adjustment programs it supports, and result in more stringent conditionality.

Consequently, the programs experience a high rate of failure. In the IMF’s defense, Dawson pointed to a recent study by the IMF’s Independent Evaluation Office that indicates that IMF-supported adjustment programs include more variety than a simple one-size-fits-all contractionary approach. In response to concerns about “creeping conditionality,” he noted that “we as an institution are being asked to do much, much more” in the economic, social, and political areas.

Transparency and accountability

Welch acknowledged that the IMF has made quite a bit of progress in improving the transparency of its own operations—for example, increasing the number of loan program documents that are available to the public. But there is always, she said, room for improvement. Both she and Buira called for greater transparency in IMF Executive Board operations, with Welch asking, in particular, that loan documents be made public upon their circulation to the Board (not after Board approval) and that Executive Directors’ statements to the Board and minutes of Board meet-ings—albeit redacted for sensitive information—also be released to the public.

Buira was also troubled by the lack of transparency in appointments of the Managing Director and senior staff, 75-80 percent of whom are from a small number of industrial countries. But his greatest concern is that geopolitical and strategic considerations often come into play in determining whether a country is meeting loan conditions, which have now been extended into such areas as governance and institutional reform that no longer have easily quantifiable fiscal and monetary targets.

Dawson pointed out that a great deal of progress has been made in increasing the transparency of Board activities. For example, he said, “the United States, the United Kingdom, France, Germany, and a number of other countries publish annual reports for their civil societies and parliaments on their representation in the institution—this is something that is to be encouraged.” In Dawson’s view, the IMF is both reactive and proactive, and, he said, “the IMF’s increased transparency itself is increasing accountability; it is allowing our actions to come under more immediate and well-informed criticism and puts pressure on us.”

What to do?

If the voice and representation of developing countries and transition economies are to improve, Buira said, the IMF’s Executive Board will need to be restructured. He suggested this could be accomplished by reducing the representation of European countries and increasing developing country representation. If EU quotas are adjusted for intra-EU trade, for example, their quota share would decline by 40 percent.

He also recommended a revision of quota formulas to better reflect the relative sizes of members’ economies, the use of a purchasing power parity-based measure of GDP to avoid distortions from exchange rate fluctuations and remove the bias against developing countries, and a restoration of the original role of basic votes. The objective of governance reform, he stressed, is not for developing countries to dominate the IMF but to ensure a better balance in the representation and decision-making process and thus to enhance the democratic legitimacy of the institution.

Copies of Challenges to the World Bank and the IMF: Developing Country Perspectives, by Ariel Buira (editor), Aziz Ali Mohammed, Bernhard Gunter, James Levinsohn, Gerald Epstein, Ilene Grabel, K.S. Jomo, Javier Guzman, Rodolfo Padilla, Barry Herman, Martin Khor, and Ravi Kanbur, are available for $24.95 each from the World Bank. For ordering details, please see