POLICY BRIEF 07-1

The IMF Quota Formula: Linchpin of Fund Reform

by Richard N. Cooper, Harvard University
and Edwin M. Truman, Peterson Institute for International Economics

February 2007

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.

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RELATED LINKS

Policy Brief 14-9: IMF Reform Is Waiting on the United States March 2014

Policy Brief 13-7: The Congress Should Support IMF Governance Reform to Help Stabilize the World Economy March 2013

Book: A Strategy for IMF Reform February 2006

Working Paper 11-5: Integrating Reform of Financial Regulation with Reform of the International Monetary System February 2011

Policy Brief 10-29: Strengthening IMF Surveillance: A Comprehensive Proposal December 2010

Working Paper 10-14: Reform of the Global Financial Architecture October 2010

Testimony: The Role of the International Monetary Fund and Federal Reserve in the Stabilization of Europe May 20, 2010

Op-ed: How the Fund Can Help Save the World Economy March 5, 2009

Article: Economists Seek IMF Reform January 26, 2009

Op-ed: The IMF Should Heed This Resignation July 25, 2012



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