Magazine article Multinational Monitor , Vol. 19, No. 1-2
A quota increase for the IMF means that the IMF has more resources to extend its loans and their harmful conditions to more countries.
While there has been widespread condemnation of the International Monetary Fund (IMF) and World Bank among sustainable development proponents for more than two decades, in the United States only Friends of the Earth has maintained a consistent focus on the IMF. Multinational Monitor turned to Friends of the Earth for assistance in describing the 'nuts-and-bolts of the IMF and reviewing the experience of the poor countries of the world with the Fund.
Multinational Monitor: What is the IMF? What does it do?
Friends of the Earth: The International Monetary Fund (IMF), along with the World Bank, was created in 1944. While the World Bank was supposed to spearhead post-war reconstruction, the IMF was created as the "guardian" of the global economy, overseeing countries' economic policies and ensuring that countries' exchange rates were staying within their set values. (At that time, the world was following the gold standard.)
When the gold standard was suspended in 1971, the IMF lost one of its core missions. Since then, the IMF has increasingly focused on providing financial assistance to troubled economies. The oil price shocks and the ensuing debt crises of the 1980s allowed the IMF to get in the business of development. It still continues its unsuccessful development loans to the poorest countries. Most recently, the IMF has been deeply involved in trying to bail out the Asian economies.
MM: Why is the Clinton Administration asking for more money for the IMF?
FOE: The International Monetary Fund (IMF) is asking governments from around the world to make sizable additions to the IMF's resources. The United States is being asked to contribute about $18 billion for this IMF capital expansion.
About $14.5 billion of the total is for a quota increase.
Congress is also being asked to provide a $3.5 billion line of credit to the IMF. Known as the New ArrangeMents to Borrow (NAB), this would double the approximately $25 billion the IMF already has in emergency lines of credit established with the world's richest countries. A major impetus behind this doubling was the 1995 bailout of Mexico. The United States already has a $6 billion line of credit established with the IMF.
MM: What is a quota within the context of the IMF?
FOE: The quota is a member's subscription in the IMF, or what a country must pay to "belong" to the IMF. A member must pay its subscription, or quota, in full to the IMF; up to 25 percent must be paid in reserve assets as specified by the Fund (SDRs, the Fund's currency, or usable currencies like dollars, deutsche mark, pounds, yen etc.). IMF quotas currently total SDR 144.9 billion.
MM: Why are quotas important to the IMF and to member countries?
FOE: Quotas are the IMF's main source of liquidity and are the central resource that enables the IMF to carry out its mandate (balance of payments support and exchange rate stabilization).
For countries, quotas are important because they determine a member's voting power in the IMF, which is based on one vote for each SDR 100,000 of its quota plus the 250 basic votes each member has. The US has the largest quota, SDR 26.5 billion, which is about an 18 percent share in the total quotas. The G-7 countries with individual votes in the IMF (as opposed to blocs of countries voting as one) are the United States, Germany, Japan, France and Great Britain, and they have a combined quota share of 38 percent. Russia, China and Saudi Arabia also have individual votes.
The quota also helps the IMF calculate SDR allocations. SDRs and the quota determine, in all but exceptional circumstances, a member's maximum borrowing access to the IMF's financial resources. A member that proves it has a balance of payments need may withdraw up to the full amount of its reserve tranche, the 25 percent of its subscription that the country paid in reserve assets. …