Study Material | Test Series
Drishti IAS
call1800-121-6260 / 011-47532596
Drishti The Vision Foundation
(A unit of VDK Eduventures Pvt. Ltd.)
mains Test Series 2018
DRISHTI INDEPENDENCE DAY OFFER FOR DLP PROGRAMME

Offer Details

Get 1 Year FREE Magazine (Current Affairs Today) Subscription
(*On a Minimum order value of Rs. 15,000 and above)

Get 6 Months FREE Magazine (Current Affairs Today) Subscription
(*On an order value between Rs. 10, 000 and Rs. 14,999)

Get 3 Months FREE Magazine (Current Affairs Today) Subscription
(*On an order value between Rs.5,000 and Rs. 9,999)

Offer period 11th - 18th August, 2018

Q. A call for reform in IMF's quota system: Discuss the issues related to IMF’s quota system and need of reforms in that.
May 01, 2017 Related to : GS Paper-3

Ans :

Introduction-

Recently the Finance Minister of India while speaking in plenary session of the Development Committee of the World Bank and the International Monetary Fund (IMF) has called for urgent reforms in World Bank and IMF, particularly of quota system of voting rights. The minister has opened that delay in quota reforms will erode IMF’s credibility. 

Quota System-

  • Quota subscriptions are central to the IMF’s financial resources. Each member country of the IMF is assigned a quota, based broadly on its relative position in the world economy and its financial commitment to the IMF.
  • The current quota formula is a weighted average of GDP (50% weightage), openness (30%), economic variability (15%), and international reserves (5%). 
  • For this purpose, GDP is measured through a blend of GDP—based on market exchange rates (weight of 60%) and on PPP exchange rates (40%).
  • Quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit of account. The largest member of the IMF is the United States, and the smallest member is Tuvalu.
  • Currently India with 2.6% voting rights stands at eight rank in the quota system.

Analysis-

  • Quotas determine the size of contingency funds at the disposal of the IMF to lend to countries in need of help, as well as the power of individual countries to influence lending decisions and tap into the funds themselves. 
  • The current quota system is controversial one, which sheds light on the problems facing the Bretton Woods institution (IMF and World Bank in today’s global economy.   
  • 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.
  • India has been pressing for IMF quota reforms as it would give more say to developing nations in the activities of the multi-lateral organisation. It has warned that delay in quota reforms will erode the credibility of IMF.
  • The recent attempt to revise the size and composition of the quota system, was to be completed by October 2017, but the deadline has now been extended to 2019. The delay will erode the confidence of developing nations. 
  • Last year the developing countries have been allotted an additional 6% of quotas. But with the rise of competing global institutions ready to meet the capital needs of the developing world, the quotas for developing countries like India must be enhanced.
  • Today, 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, albeit in an unsatisfactory and politically biased way.   
  • In the current environment of competition, the IMF will have to do more than just superficially tinker with its asymmetric power structure and outdated quota system. Else, it could be slowly but steadily pushed into irrelevance.

Conclusion-

The quota system of is most controversial due to its asymmetric power structure. Today the world is looking towards developing countries due to their fast growing economy, but their say in IMF is minimal. Hence considering the current economic scenario there is an urgent need to make comprehensive reforms in the current quota system.


Helpline Number : 87501 87501
To Subscribe Newsletter and Get Updates.