Reform at last

Subject to approval by 85 % of votes by IMF governors, the reforms will increase voting shares for 135 of the 185 member countries. Eight of the ten largest increases are for emerging-market countries, reflecting their growing significance in the world economy. The change amounts to an aggregate shift of 5.4 percentage points to underrepresented countries.

IMF Managing Director Dominique Strauss-Kahn said after the IMF and World Bank spring meetings on April 12 that he sees no impediments to approval, expected by April 28. The Fund has been working on the reforms for over two years. The Executive Board also endorsed selling gold and other measures to solidify the Fund’s long term financing by cutting dependence on income from lending.

The IMF will alter the formula for calculating IMF quotas, the amount of money each member country is required to pay to the Fund, which also determines voting power on IMF decisions. Moreover, the amount of financing a country may obtain is based on its quota. The formula will in future be based on a combination of gross domestic product at market rates and GDP at purchasing-power parity rates. This decision is significant because the GDP of poorer and emerging countries is generally higher when calculated at PPP rates.

Due to this change, several developed countries would have had quota increases as well, but a number of them agreed to forego the hikes to support the spirit of the agreement. Those include Germany, Ireland, Italy, Japan, Luxembourg and the USA.

In addition, the IMF will triple basic votes, which are the votes distributed equally to each member country. And it will add two alternate Executive Directors to those already representing the two African constituencies on the Executive Board.

As well, the IMF will review quotas and voting shares and recommend new alignments every five years in order to increase the voting shares of underrepresented members. By doing so, the IMF will put in place a mechanism which continuously reviews whether the quotas reflect the changing weight of members in the global economy.

At the same time, the IMF will replace its current income model, which is considered unsustainable, with one that it says could generate an additional $ 300 million in income in the next few years. It also plans to cut spending by $ 100 million over the next three years. It will sell 403.3 metric tons of its gold holdings to create an endowment to support the IMF. The Executive Director who represents the USA must obtain approval from the US Congress for this sale.

In addition, the IMF will aim for a higher average expected return on investments by expanding its investment authority and adapting its strategy as needed, while putting safeguards in place against conflicts of interests. And it will resume compensating its own budget for the cost of below-market-rate lending to low-income countries. The expansion of investment authority will require legislative approval in a number of member countries. Governors have to vote on the financing changes by May 5.

Ellen Thalman