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IMF reforms: Increased voting rights
A significant decision of increasing voting rights of developing and transiting nations including India, China and Brazil was taken at the annual spring meeting of World Bank and International Monetary Fund on April 25.
AT THE annual spring meeting of World Bank and International Monetary Fund on April 25, a significant decision of increasing voting rights of developing and transiting nations including India, China and Brazil, took place. It raised the India’s voting rights from 2.77 per cent to 2.91 per cent, Chinese share almost got doubled by 2.77 per cent to 4.42 per cent, which makes it the biggest beneficiary of reforms. Now India stand at seventh position in accordance to voting power in WB and IMF, where China is on third position.

This new development is a part of a consistent procedure that started in 2008 for reforming Bretton Woods institutions that are World Bank and IMF. The BRIC (Brazil, India, China, and Russia) nations also demanded, at their recent summit, to complete the reform procedure before 2011, according to the commitment of developed nations in the Pittsburgh Summit of G-20. The increase is also in accordance to the commitment of development committee of IMF October 2009, (Istanbul) to make a significant increase of at least three per cent points in favour of developing and transition countries (D&TC). The new development in voting rights will give 47 per cent share to (D&TC).

What is quota and voting power reform

IMF is a 186 member organisation. Every member country has equal voting rights in the organisation but there are some additional votes that depend on each country’s financial contribution in the institute. This financial contribution called quota, which is the major source of finance and capital of IMF and prescribed only in SDR, the monitory unit of IMF. Quota is determined according to the size of the economy and purchase power parity of the currency of any country. Quota is the basic measure of voting right. Each member country gets 250 initial votes and at every one lakh SDR, it gets one extra vote. USA, Japan and now China are the three top contributors of IMF, rest are France and UK. Obviously, quota is an important tool of participating in the functionaries and decision-making process of the organisation.

The reasons behind reforms

In the recent years, India, China, Brazil, Mexico etc have emerged as the growth engines of world economy. India stands at fourth in context of purchase power parity, where China stands at second position around the world. However, in accordance to their increased economic weightage, their voice and rights in Bretton Woods institutes were not increased. USA alone hold the 17 per cent voting rights and have largest quota in IMF but the BRIC nations, who have the 40 per cent population of world and 15 per cent contribution in world GDP, had only 12 per cent voting rights, before reforms. Out of 186 members of IMF, two-third of them are developing or under developing nations, that don’t possess any significant voice in the decisions or functions of IMF. These nations were demanding for reforms from a long period, but no substantial steps were taken until the global financial crisis knocked on the doorsteps of the developed world.

USA and European nations always dominated both WB and IMF, as the governor or president of both organisations comes either from USA or from Europe. Their official staff also contains mainly the US or European citizens and the headquarters of both the organisations are located in Washington. Therefore, it was an obvious thing for these institutions to work under the impression of USA or EU. The role of IMF and WB as economic and financial policy advisor in developing countries always remained doubtful and many times their aid/loan policy imposed tough conditions on those nations. Many times, it is said that behind the curtain of IMF, the MNCs are trying to control the economies of third world nations and to converting the financial policies according to their interests.

The American economy was the axis of crisis and most European economies collapsed in the wake of crisis. During the global financial crisis of 2008-09, Indian and Chinese economies remained almost safe and successfully sailed out from the blunders of crisis and meltdown and their currencies also remained stable. India showed a positive GDP growth rate of 6.7 per cent in 2008-09, where American economy showed a negative rate of -2.9 per cent. China who is the biggest stakeholder of American debt (2.4 billion dollar), demanded for an alternative currency for US dollar (preferably SDR) to convert its investment into new currency, to secure its investment. The instability of dollar and fear of collapsing the dollar as global currency encouraged the BRIC nations to start the bilateral trade and financial transaction in local currencies. This step further decreased the dependency over US dollar and weakened the American domination over global economy. This is why, emerging economies demanded to fasten the reform process in Bretton Woods institutions in the G-20 summits of Washington and London.

The aim behind IMF reforms is to make these institutes more democratic, real representative of current economic scenario and to make their functions more transparent and bias less. The reforms are intended to give the D&TC more and effective say in WB and IMF, so they don’t feel neglected on the international venues and those institutes could get legitimacy for their policies and functions all over the world. 

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