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IMF Reforms

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April 26, 2017

Why in news?

Indian Finance Minister called for reforms in IMF quota system.

Why quotas are important?

  • Quotas determine the size of contingency funds at the disposal of the IMF to lend to countries in need of help.
  • It also decides the power of individual countries to influence lending decisions and tap into the funds themselves.
  • Though developing countries hold less than half the overall quota at the moment, with their rapidly increasing economic heft they have demanded a greater share — with limited success.

Why is the quota system a matter of concern?

  • The 15th General Review of Quotas (GRQ), the most recent attempt to revise the size and composition of the system, was to be completed by October 2017, but now extended to 2019.
  • The delay was not unexpected, given the poor precedent set by the long delay in adoption in 2016 of the previous GRQ (originally approved in 2010).
  • That had doubled the overall size of the quotas to $659 billion (from $329 billion) while allotting an additional 6% of quotas to the developing world.

Why IMF’s relevance is being questioned?

  • This delay is raising the question of relevance of the Bretton woods institutions among the developing countries.
  • Also at stake is the potency of the IMF in keeping up with the changed fundamental needs of developing economies.
  • The developing world is looking beyond the short-term crisis management tools that the IMF, as the sole international lender of last resort, has traditionally offered them for decades now.
  • China, for instance, with its steadily rising influence on the global economy, has grown to be the focal point for economies seeking alternative sources of capital to fund their long-term growth needs.
  • India announced that it is seeking $2 billion from the New Development Bank, set up by the BRICS countries in 2015 with a more equitable power structure, to fund infrastructure projects.
  • The Asian Infrastructure Investment Bank, launched in 2014, could be an even bigger threat to the IMF’s influence given its larger membership, lending capacity and international reach.
  • In this environment of competition, the IMF will have to do more than just superficially tinker with its asymmetric power structure and out-dated quota system.

 

Source: The Hindu

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