The Fund's 24-member Executive Board has approved a doubling of IMF quotas (subscriptions which make up the Fund's resources))with a shift of over 6 per cent in quota shares to dynamic emerging market and developing countries. The shift has been made from “over-represented” to “under-represented” countries, 80 per cent of it from European countries and from oil producers, mainly Saudi Arabia , and remaining from among emerging economies. This ensures effective voice for emerging economies in the deliberations of the Board on which the BRICs (4) will be among the Top Ten.

With enhanced quotas, even if marginal in some cases, China will take the third place after USA and Japan in the 24-member Executive Board, which will become for the first time an all-elected body after the quota reform has been approved by the total membership of the Fund through the Board of Governors and Legislatures latest by October 2012. India will take the 8th place followed by Russia and Brazil, the other four in the top ten being Germany, France, UK and Italy.

Under the quota revisions announced by IMF, 110 countries out of 187 member-countries will see their quota shares increased or maintained. It includes 102 emerging or developing countries. This realignment of quotas is being done while protecting the quota shares and voting power of the poorest members, IMF said in a statement. The enhanced quota shares of China and India as now proposed are 6.394 and 2.751 per cent respectively.

The IMF decisions on November 5, are in line with the Governance Reforms recommended by the G-20 Finance Ministers at their meeting in Korea in October and will now go for endorsement at the Leaders' Summit in Seoul on November 11-12. IMF Managing Director M. Dominique Strauss-Kahn described the outcome as “the most fundamental governance overhaul in the Fund's 65-year history and the biggest ever shift of influence in favor of emerging market and developing countries to recognize their growing role in the global economy”.

The total of quotas, with the completion of the 14th General Review of Quotas (done at five-year intervals) will now get doubled to approximately SDR 476.8 billion (about US$755.7 billion at current exchange rates) and it would result in an increase of more than 6 per cent in the total of shares of emerging market and developing countries. The Fund is essentially a quota-based institution and the voting power of each country corresponds to its quota holding.

The policy formulations or approvals of credits by the Executive Board over decades have generally been by consensus though each decision has to be backed by 85 per cent of votes, which has necessarily to include USA with its 17 per cent voting power. The case for a redistribution of quotas with greater weights on the basis of a new formula has often been made by emerging economies and other developing countries. IMF Board has agreed that a new formula for calculating quotas should be decided by January 2013, and that the next quota review should be completed by January 2014, two years ahead of schedule.

IMF Chief said that “a fairer allocation of quota shares reflecting better our members' economic importance, together with a more representative Executive Board, will enhance the credibility and effectiveness of the Fund's ongoing efforts towards greater global financial stability” . The old denomination of five “appointed” Directors representing the five biggest shareholders and creating an artificial distinction between them and others is being dispensed with by having an all elected Board from 2013, he said.

Also, he said, it would be reasonable to expect that when the new (15th) quota review will take place in 2014, emerging countries, given their rates of growth these days, would gain some new shares in terms of quota and votes. It has been decided that the present quota formula would be reviewed and simplified so that countries having a higher rate of growth would see their shares more rapidly increase than those of others.

Asked how “responsibly” China would take its new position in the decision-making process of the Fund, the IMF Chief said that along with voice, power and influence came responsibility, “if we want multilateralism and cooperation at the global level to take place. That is why I was so keen to have the 10 major shareholders including China (as the number three this time). And I think that they do care about multilateral institutions”. BRIC (four countries) would now feel as major players, not ones invited to the table, and would be much more constructive than ever before, he said.

Though the IMF Governance reform is two years away, China's role in IMF will assume much more significance in the global economy and how it makes its own domestic economy correspond to the G-20 commitments of a strong, sustainable and balanced growth, with its obligations to help toward reduction of global imbalances. Recently, China has come under pressure not only from USA, which has long been urging Beijing to give greater flexibility to its exchange rate, but also from EU, while China is also viewed as seeking competitive advantage by some developing countries.

China's stubborn resistance to give in to these pressures and stick to its “gradual” adjustment and yet keeping the exchange rate “stable” has led USA to devise new ways of ensuring that current account surpluses are held at a “sustainable level” in relation to GDP by countries, which IMF would assess as part of the Mutual Adjustment Process of G-20. This issue was hotly debated by G-20 Finance Ministers and while rejecting any universal target for current account, they agreed that they should all move toward market-oriented exchange rate and avoid competitive devaluations. IMF would provide “spillover' reports on how a country's policies may impinge on other economies.

Since G-20 Finance Ministers meeting, events have moved faster with dollar depreciating further and Asian and other countries including Brazil trying to shore up their own currencies to remain export-competitive or resorting to restrictions on excessive capital flows.. The G-20 Summit in Seoul will be grappling with this problem which has gained added urgency with widespread concerns over the global implications of the US Federal Reserve's decision to buy 600 billion dollars of US Treasury Bonds.

This 'quantitative easing' by Fed is designed to inject liquidity into the market in the hope it would lower long-term interest rates and boost US economic recovery which is tepid and uneven. But it would also cause dollar to drop further and push more capital flows to emerging markets and this has led to a chorus of protests from Germany, China, Korea, Indonesia and other Asian countries as well as Brazil, all concerned about their own macro-economic stability.(IPA Service)