Reform of Quota and Voting Shares in the International Monetary Fund: “Nothing” Is Temporarily Preferable to an Inadequate “Something”

Introduction and Summary

A prosperous, stable world economy is in the self interest of every nation—large or small, rich or poor. The International Monetary Fund (IMF) is a worldwide intergovernmental institution that can facilitate that prosperity and stability. Because every nation has a stake, each should participate in the IMF’s governance and operations. The value to each nation of an effective IMF increases as the world economy and financial system become more integrated

Effective international institutions typically cannot operate with one-nation-one-vote governance (as is used, for example, in the General Assembly of the United Nations). It is a strength of the IMF that its existing governance structure accords weighted votes to individual nations. A large nation has, other things equal, a larger stake and greater responsibilities in the IMF than a small nation. Hence the large nation has, appropriately, a larger vote share.

As the world economy and financial system evolve, however, the weighted votes must adapt to reflect changes in the relative importance of nations. At the September 2006 annual meetings of the IMF and World Bank, governments took a small “first-round” step in tackling this thorny question. Quotas, and hence voting shares, were adjusted upwards by small, ad hoc amounts for four countries (China, Korea, Mexico, and Turkey). Governments also promised, much more ambitiously, that—no later than the annual meetings in September 2008—they would agree on a simpler and more transparent formula for rebalancing the quotas and voting rights for all member nations. That formula was to be a foundation for a comprehensive “second round” of adjustments in quotas and vote shares.

Progress toward a satisfactory agreement has been meager. At the October 2007 annual meetings, negotiations about a rebalancing formula appeared close to stalling out.