The search for Columbus’ egg - finding a new formula to determine quotas at the IMF

The International Monetary Fund (IMF) is undergoing profound changes, not only in its policies, but also in its internal governance. These changes reflect the structural developments in the global economy, and in particular the growing role of emerging economies that demand a greater say at the Fund. In addition, the Fund has recognised that it needs to strengthen the voice of developing economies in order to increase ownership of IMF programmes and policy recommendations from this very large country group. At the heart of IMF governance lies the distribution of its quota: quotas are the percent share at the IMF that are attributed to the various members. Quotas play a central role in the Fund, because they determine not only member countries’ financial contributions, but also their rights to draw on IMF financial support and their voting rights within the institution. Therefore, quotas are essentially a matter of representation, visibility, and influence of countries at the IMF. Quotas are being calculated as a function of various economic variables and also include a certain degree of judgement. This paper provides a systematic analysis of the way IMF quota have been calculated in the past and of the current challenges of reform. It shows the importance for individual variables for specific country groups and the sensitivity of changes in the formula of overall distribution. The paper provides an extensive and comprehensive overview of various technical issues involved in choosing an appropriate quota formula. It analyses the current quota system and its functioning, and shows which countries and groups are most under and over-represented. It also puts forward an analysis of the various avenues of quota-reform that are currently under discussion.

Regional Financing Arrangements and the Stability of the International Monetary System

This article examines the potential contribution of regional financing arrangements (RFAs) to the stability of the international monetary and financial system. To gauge the quality of an RFA, we establish a set of optimal financing criteria relevant for providing crisis financing using a first principles approach. We then evaluate the frameworks for the main regional arrangements for emerging markets in existence against these criteria. The results suggest that the design and operation of RFAs determine the extent to which they can help prevent and alleviate crises and thereby contribute to global financial stability

Managing financial crises in emerging market economies - experience with the involvement of private sector creditors

Ensuring the involvement of private sector creditors in the resolution of sovereign debt crises is crucial to ensure an effective management and orderly resolution of those crises. A review of experience gained in past financial crises suggests that crisis management practices have been largely following a case-by-case approach. This has led to some uncertainty about how the official sector addresses different types of crises, which in turn might partially account for the very mixed results achieved so far. From a global welfare perspective, the resolution of international financial crises is too costly and takes too long. Efforts to improve predictability of crisis resolution processes – through guiding debtor, creditor and official sector behaviour – could lower overall costs of such crises and bring about a better distribution of these costs. Past experience with such private sector involvement shows that, in certain cases, existing instruments have successfully contributed to minimising the economic disruptions caused by crises. However, the effective use of these instruments requires predictable and strong commitment of all parties involved. Key variables in that regard are the country’s economic fundamentals and its track record prior to the crisis, underscoring the importance of effective surveillance and crisis prevention. Success also hinges on the country’s resolve to implement necessary domestic adjustment measures. A transparent process providing for early dialogue between a debtor and its creditors also facilitates private sector involvement. Finally, the IMF plays a key role in crisis situations, as accurate and timely diagnosis by the IMF helps identify at an early stage the need for private sector involvement.Sovereign default, bond restructuring, emerging markets, financial crises, moral hazard, international financial architecture.