IMF Reforms

  • IMF reforms comes into effect.  India’s voting rights increase to 2.6 per cent from the current 2.3 per cent, and China’s, to six per cent from 3.8, as per the new division. Russia and Brazil are the other two countries that gain from the reforms.
  • The most recent attempt to revise the size and composition of the system, was to be completed by October 2017, but the deadline has now been extended to 2019
Impact of these reforms:
More than six per cent of the quota shares will shift to emerging and developing countries from the U.S. and European countries. The combined quotas — or the capital countries contribute — doubles to about $659 billion from about $329 billion.
Reforms were delayed due to non-approval of US congress as USA’s voting rights are marginally decreased in these reforms.
Benefit of IMF Reforms
Emerging market countries will now have more influence and access to capital at the International Monetary Fund.
A country’s quota at the IMF determines its :-
  • Voting power
  • Amount of financial resources it must provide to the IMF
  • Access to IMF 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.
The larger a country’s quota, the more say that country has in the governance of the international financial institution.
  • This latest reform will boost the quotas for all 188 members, doubling the overall quota resources for the IMF. 
  • The reform gives emerging economies such as Brazil and China larger quota shares at the institution.
  • About 6 percent of quota shares will shift to emerging market countries. As a result, quota shares of traditionally strong economies such as the United States, Saudi Arabia and European countries will be diminished.
  • The quota shares of the poorest member countries will largely remain the same.
  • Executive Directors will now be appointed by ELECTIONS unlike earlier.
Why reform was necessary?
  • To increase its legitimacy in the wake of competition by NDB. With its ‘core resources ‘ increased, it will now be able to better respond to the ongoing financial crisis.
  • The IMF could turn irrelevant unless it reforms to keep up with rival global institutions
IMF decision is taken by 85% vote. With US alone has voting share of 18% it has veto power over its decision.
US following ultra-soft monetary policy which is not good for the world economy but still IMF is not doing anything (Its prime function of IMF whereas on minor issue it gives advisory opinion to the developing country.)

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