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The IMF Quota Formula: Linchpin of Fund Reform

Author

Listed:
  • Richard N. Cooper

    (Harvard University)

  • Edwin M. Truman

    (Peterson Institute for International Economics)

Abstract
The current allocation of decision making in the International Monetary Fund (IMF), determined largely by the distribution of members' quotas, has failed to keep up with the changing world economy. The situation undermines the Fund's relevance and legitimacy in promoting global growth and economic and financial stability. A new simplified and transparent formula to guide the distribution of Fund quotas is key to IMF reform. The authors offer four recommendations to advance IMF quota reform: (1) The IMF executive board should complete its work on the new IMF quota formula by the 2007 annual meeting--rather than spring 2008--to ensure that the other necessary elements of a reform package can be completed by spring 2008 and ratified by the IMF governors at their annual meeting in fall 2008. (2) The new quota formula should follow the recommendations of the quota formula review group (QFRG), deleting an "openness" measure from the formula. The openness variable has no economic or financial justification, and the traditional measures are biased. (3) The traditional industrial countries should agree to a target of limiting their quota shares to 60 percent of their GDP shares to facilitate the further redistribution of quota shares toward the nonindustrial countries. (4) A reasonable benchmark would be an increase in the size of the Fund (total quotas) by at least 50 percent to implement the redistribution of quota and voting shares under the new quota formula.

Suggested Citation

  • Richard N. Cooper & Edwin M. Truman, 2007. "The IMF Quota Formula: Linchpin of Fund Reform," Policy Briefs PB07-1, Peterson Institute for International Economics.
    • Handle: RePEc:iie:pbrief:pb07-1
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    File URL: https://www.piie.com/publications/policy-briefs/imf-quota-formula-linchpin-fund-reform
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    Cited by:

    1. Masahiro Kawai & Peter A. Petri, 2014. "Asia'S Role In The Global Economic Architecture," Contemporary Economic Policy, Western Economic Association International, vol. 32(1), pages 230-245, January.
    2. Edwin M. Truman, 2013. "The Congress Should Support IMF Governance Reform to Help Stabilize the World Economy," Policy Briefs PB13-7, Peterson Institute for International Economics.
    3. Lücke, Matthias, 2009. "IMF reform in the aftermath of the global financial crisis: Let the IMF speak truth to power," Open Access Publications from Kiel Institute for the World Economy 32949, Kiel Institute for the World Economy (IfW Kiel).
    4. Peter Lloyd, 2012. "The role of developing countries in global economic governance," Working Papers 11712, Asia-Pacific Research and Training Network on Trade (ARTNeT), an initiative of UNESCAP and IDRC, Canada..
    5. Peter Lloyd, 2012. "The role of developing countries in global economic governance," ARTNeT Working Papers 117, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
    6. Suominen Kati, 2010. "Insuring Against Instability: United States and the Future of the International Monetary Fund," Global Economy Journal, De Gruyter, vol. 10(3), pages 1-23, October.
    7. Masahiro Kawai & Peter A. Petri, 2010. "Asia’s Role in the Global Economic Architecture," Governance Working Papers 22728, East Asian Bureau of Economic Research.
    8. Michał Jurek, 2009. "Propozycje modyfikacji mechanizmu wyznaczania kwot krajów członkowskich Międzynarodowego Funduszu Walutowego," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 89-113.
    9. Masahiro Kawai & Peter A. Petri, 2010. "Asia’s Role in the Global Financial Architecture," Working Papers id:2958, eSocialSciences.
    10. Mr. Arvind Virmani, 2011. "Global Economic Governance: IMF Quota Reform," IMF Working Papers 2011/208, International Monetary Fund.

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