IMF quota reforms: Fund panel regrets US block

A key committee of the International Monetary Fund (IMF) has expressed concern over the delay in implementation of quota reforms in the multilateral institution, blocked by America's legislature.

These reforms, agreed to by member-countries' governments in 2010, would see rebalancing of quota shares and voting powers in favour of emerging market (EM) economies, including India.

The Fund's International Monetary and Financial Committee (IMFC) pointed to slow and uneven global economic recovery and urged members on reforms to lift it. The body advises the Fund's board of governors.

The communique, released on the occasion of the World Bank-IMF annual meeting in Washington, said: "We are deeply disappointed with the continued delay in progressing the IMF quota and governance reforms agreed to in 2010."

The proposed reforms require America to agree to adjust its share and raise its contribution to the IMF. The US national legislature, the Congress, is yet to approve. Currently, the US has 16.75 per cent of all votes and 17.69 per cent of the total of quotas. Since important IMF decisions need 85 per cent approval, this cannot happen without a US nod.

The communique said, "We reaffirm the importance of the IMF as a quota-based institution. Implementation of the 2010 reforms remains our highest priority and we strongly urge the United States to ratify these reforms at the earliest opportunity."

If the 2010 reforms are not ratified by year-end, IMFC called upon IMF to build on its existing work and stand ready with options for next steps. "We will schedule a discussion of these options," it said.

Quotas, based on Special Drawing Rights, the IMF's unit of account, determine a member's voting power in the multilateral body's decisions. The current quota formula is a weighted average of an economy's gross domestic product (weight of 50 per cent ), openness (30 per cent), economic variability (15 per cent) and international reserves (five per cent).

After the reforms are effected, advanced economies would see their combined quota dropping to 57.6 per cent from the current 60.5 per cent and their voting share to 55.2 per cent from 59.5 per cent. Developing and EM economies will see their quotas rising to 42.4 per cent from 39.5 per cent and voting share to 45.8 per cent from 40.5 per cent.

India's voting share will increase from the current 2.44 per cent to 2.75 per cent. This would make it the eighth largest quota holder at the IMF, up from the present 11th position.

The committee pointed to weak and uneven economic recovery and urged member-countries not to tighten budgets drastically. It said a revival in economic activity was underway in some advanced economies, notably in the US and Britain. However, recovery was modest in Japan and tentative in the euro area.

On the other hand, growth remains firm and should increase moderately across many EM economies, and should remain generally buoyant in low-income developing countries.

The Fund earlier this week cut its 2014 global growth forecast to 3.3 per cent from the earlier 3.4 per cent. However, it raised projections for India's economic growth to 5.6 per cent for 2014-15 from the earlier 5.4 per cent and retained it at 6.4 per cent for 2015-16.

IMFC wanted economies to implement reforms to both create jobs and lift growth. The panel urged EM and low income developing economies to rebuild fiscal buffers where needed, including through revenue mobilisation.

It wanted central banks to be careful when communicating changes in policy, to avoid financial market shocks. It did not name any central banks but the warning was implicitly targeted at the US Federal Reserve. The US central bank is to end its quantitative easing policy this month.

For EM economies, IMFC advised them to go for sound macro economic policies and allow exchange rates to respond to changing fundamentals and to facilitate external adjustment.