Asian central banks have slammed the IMF for not doing more to increase developing countries’ ownership quotas at the fund, a failure they say could pose grave challenges if the world faces a financial crisis.
When a country joins the IMF, it is assigned an initial quota in the same range as those of existing members of broadly comparable economic size and characteristics. The quota, which is reviewed every five years, is key to determining a country’s financial commitment to the IMF, its voting power as well as the extent of its access to financing from the fund.
But governments in Asia have a bone to pick with the IMF, saying the current ownership structure does not reflect the growing strengths of some of the countries in the region.
Nandalal Weerasinghe, senior deputy governor of the Central Bank of Sri Lanka, told GlobalMarkets developing countries were trying to encourage the IMF to “have more resources built into the fund so if there are global vulnerabilities and member countries need IMF assistance, the IMF should be prepared with more resources in its wallet to help address all the financial vulnerabilities. It is here that the IMF has so far failed to approach the situation of quota reviews.”
Weerasinghe added that emerging market countries are willing to contribute more to the IMF, but the US and the European Union countries are unwilling to take the money, as their shareholding will then come under pressure.
“There is no willingness to accept the reality that global economic power is now not skewed to advanced countries, but more to China, India et cetera,” he added. “And they should be able to share more ownership in these multilateral organisations.”
Quotas are the IMF’s main source of financing. But it also has in place the new arrangements to borrow where a number of member countries and institutions stand ready to lend additional resources to the fund as a second line of defence. Its third line of defence are bilateral borrowing agreements.
Dody Budi Waluyo, deputy governor of Bank Indonesia, told GlobalMarkets that the debate around the representation of developing countries at the IMF was an “unfinished issue”. “It is better for the fund to relook at the systems of voting power,” he added. “This is part of the process to improve governance.”
Very few of the IMF’s quota reviews have ended with an increase. Only one review, the 14th completed in 2010 that became effective in 2016, ended with a 100% increase after about 13 years of no rise in quotas. The 15th review saw no progress.
“We regret that the 15th review did not lead to an increase of quotas,” said Kristalina Georgieva, the IMF’s managing director. “However, we are encouraged by the commitment to maintain the fund’s financial resources at $1tr.“We are even more encouraged by the fact that there is broad consensus within the membership that we will step into the 16th review with a commitment that quotas will be a more reliable financing foundation for the fund.”