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G20 proposes revision of quota formula

Publication Date : 09-11-2012

 

Members of the G20 have agreed to propose revisions to the formulation of the quota subscription of the International Monetary Fund (IMF) so that emerging countries' contributions to the global economy can be better represented.

Indonesia's Finance Ministry said in a press release on Wednesday that G20 members had agreed during a ministerial level meeting in Mexico City, to maintain GDP as the main indicator in determining quota subscriptions but its weighting might be revised and several other indicators might also be removed.

"G20 members agree that gross domestic product [GDP] is the most relevant and the most representative indicator in formulating the new quota subscription formulation. This formula benefits emerging-market countries, including Indonesia," the ministry said.

"However, ministers of G20 countries still have not reached a deal over the ratio of GDP in the quota subscription formulation and are still discussing whether ‘openness’ and 'variability' indicators still need to be included as well. These last two indicators, concerning import-export payment transparency data and fund volatility, are supported by European countries and Japan," the ministry added.

The current quota formula is a weighted average of GDP, openness, economic variability and international reserves. Under the current formula, GDP is weighted at 50 per cent, openness 30 per cent, variability 15 per cent and international reserves 5 per cent.

GDP is measured as a blend of GDP based on market exchange rates and on purchasing power parity (PPP) exchange rates. The formula also includes a compression factor that reduces the dispersion in calculated quota shares across members.

Quotas are denominated in Special Drawing Rights (SDR), the IMF's unit of account. The largest member of the IMF is the United States, with a current quota of US$64 billion and the smallest member is Tuvalu, with a current quota of $2.7 million.

A member's quota subscription sets the maximum amount of financial resource obligation. A member must fully pay its subscription when joining the IMF and up to 25 per cent of this payment must be paid in widely accepted currencies, such as US dollars, euros, yen or pound sterling. The rest may be paid in the member's own currency.

The quota will also affect an IMF member's voting power whenever the IMF wants to make any decision. Each vote consists of basic votes plus one additional vote for every SDR 100,000 of quota.

IMF members that have a larger quota can also benefit by having better access to financing from the IMF. For example, a member can borrow up to 200 per cent of its quota annually under standby and extended arrangements. The Finance Ministry also said in the release that G20 members had managed to garner $461 billion to strengthen the IMF's financial capability. As many as $286 billion of the fund would be directly loaned to the IMF.

 

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