Sunday 16 September 2012

IMF Quotas

How member countries’ quotas are determined

When a country joins the IMF, it is assigned an initial quota in the same range as the quotas of existing members that are broadly comparable in economic size and characteristics. The IMF uses a quota formula to guide the assessment of a member’s relative position.
The current quota formula is a weighted average of:
  • GDP (weight of 50 percent), 
  • openness (30 percent), 
  • economic variability (15 percent), and 
  • international reserves (5 percent). 

For this purpose, GDP is measured as a blend of GDP based on market exchange rates (weight of 60 percent) and on PPP exchange rates (40 percent). 
Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit of account. The largest member of the IMF is the United States, with a current quota of SDR 42.1 billion (about $64 billion), and the smallest member is Tuvalu, with a current quota of SDR 1.8 million (about $2.7 million).
India's quota share in the IMF  would increase to 2.75% from 2.44% once the quota review comes into effect. For this purpose the government  will have to make an additional payment of $11 billion towards increasing its voting share in the International Monetary Fund  (IMF). In the 2012-13 Budget , the government has proposed to earmark Rs 56,000 crore in case IMF calls for the payment when the quota reforms comes into effect.2



Quotas play several key roles in the IMF

A member's quota delineates basic aspects of its financial and organizational relationship with the IMF, including:
Subscriptions (quota share). A member's quota subscription determines the maximum amount of financial resources the member is obliged to provide to the IMF. 
Voting power (voting share). The quota largely determines a member's voting power in IMF decisions. Each IMF member’s votes are comprised of basic votes plus one additional vote for each SDR 100,000 of quota. 
Access to financing. The amount of financing a member can obtain from the IMF (its access limit) is based on its quota. For example, under Stand-By and Extended Arrangements, a member can borrow up to 200 percent of its quota annually and 600 percent cumulatively. However, access may be higher in exceptional circumstances.

How quota reviews work

The IMF's Board of Governors conducts general quota reviews at regular intervals (usually every five years). Any changes in quotas must be approved by an 85 percent majority of the total voting power, and a member’s quota cannot be changed without its consent. There are two main issues addressed in a general quota review: the size of an overall increase and the distribution of the increase among the members. The last review was in 2010.

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