The revision of the quota formula of the IMF may become the key theme of the G20 financial meeting

The revision of the quota formula of the IMF may become the key theme of the G20 financial meeting

SHANGHAI, February 25. In Shanghai will host a meeting of Deputy heads of Finance ministries and Central banks as well as financial Sherpas of the countries entering in “Group of twenty”. This meeting traditionally precedes the main events of the financial “twenty”.

One of the key topics that heads of financial agencies from leading countries of the world to be discussed on 26-27 February, will be the building of a more equitable system of global Finance. We are talking, primarily, about a possible revision of the formula of calculation of quotas of the countries-shareholders in the capital of the International monetary Fund (IMF), said a source in the Russian delegation.

The decision to reform the quota and to increase the authorized capital of the IMF was taken in 2010 at the summit “group of twenty” in Seoul, but the entry of new rules into force the long-delayed because of the position of Congress. Only in December last year, the Congress ratified the so-called 14th General review of quotas the IMF, involving quota redistribution in favor of countries in transition and developing economies. Under the new rules, China national quota reached 6.4%, Russia and India – 2,7%, Brazil’s to 2.3%, South Africa 0.6 per cent. This gives a total of 14.7 per cent against 11.5 per cent earlier.

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However, after this redistribution of quotas in Shanghai can be discussed the next step – revision of the formula for their calculation, which will lead to a further increase in the role of developing economies in the IMF decisions.

“Over the fate of the new formula, most likely, and will be the main discussion. This is what was discussed in 2011-2012: it is necessary to revise the quota formula, because, as you know, the current formula does not suit many of the countries-shareholders of the IMF. The second point is the next replenishment of the Fund’s capital,” said a source in the Russian delegation.

The calculation formula

The current quota formula in the IMF consists of four components: GDP, openness, variability (variability or variability) of the economy and the country’s international reserves. Their weight 50%, 30%, 15% and 5% respectively.

“It’s about that two indicators – openness and variability – are questionable in their validity from a number of shareholders, in the first place, countries with emerging markets (emerging markets – ed.)”, – said the Agency interlocutor.

A few years ago has been heated debate about how fair this formula of calculation of quotas. There were three principal positions. The first was the fact that the formula reflects all the necessary components and needs no changes.

The second, which, in particular, promoted India and Brazil, is that should be left in the formula only two components – GDP and reserves, and depending on them and to determine the number of voters in the country.

“The index of variability is quite subjective and gives a definite advantage to countries with large capital movements and openness favorable to small European countries, but definitely against Brazil and India”, – explained the position of the source.

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For example, the openness allows small European economies that are large international financial centers to gain significant weight due to the large volume of trade, including within the European Union itself.

Finally, the third position is that “it is possible to discuss the reform of the formula, but it is not necessary to follow the path of withdrawal of the two indicators, that is, there may be a question of adjustment of its calculation”.

The interlocutor of the Agency explained that these discussions were postponed due to the fact that the 14th General review of quotas, approved in 2010, came into force only on 26 January 2016. Now during the Chinese presidency, when we will talk about the next scheduled 15th review of quotas, should be expected to resume discussions on the calculation formula.

“Maybe we will offer new solutions to how you can adjust, to revise this formula,” – said the Agency interlocutor.

The IMF increases its capital

The 14th General review of quotas include not only the redistribution of votes and share of the countries-shareholders of the IMF, but also the significant increase of the Charter capital of this organization is to 477 billion SDRs (Special Drawing Rights) – international payment instruments, as defined by the IMF, SDR 238,5 billion previously.

“Only in February, is the so-called 14th replenishment of the capital Fund, including the CBR makes the necessary part of their international reserves on account of our increased quota,” – said the Agency interlocutor.

In this case we are not talking about the actual transfer of funds, but only about reserving appropriate amounts by national Central banks. Russia’s quota was equal to about 8.2 billion dollars. Because the reforms involve doubling the capital of the organization, this sum must also double. Actually it will rise even more, since the share of the Russian share in the IMF increased.

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After payment the country will be able to use a new package of votes in the Fund. In percentage terms it is slightly less than the quota money due to the fact that a small proportion of voters are initially distributed equally among all member countries.

“The Fund appears constant resource base, it has at its disposal, which he can use to provide funding to countries that need it,” said the source.

Accordingly, countries this year were to start about the 15th replenishment of the capital of the IMF, however, due to delays with the previous revision, the new replenishment of the Fund will clearly be postponed.

According to a source, specific proposals and decisions on the 15th review of quotas will be prepared only by 2017.

“The Fund needs to review the situation in the world economy, to analyse the demand for its resources, to assess the presence of a base, which is to meet the needs, and on the basis of this analysis is to provide shareholders with a certificate stating whether it has sufficient resources or, conversely, resources need to be supplemented”, – said the Agency interlocutor.

Restart SDR

Another topic that will be included in the agenda of the financial G20, SDR will become and opportunities to increase their role as the international means of payment.

International monetary Fund November 30, 2015 adopted the decision on inclusion from 1 October 2016 of the yuan in the SDR basket. The composition of the SDR basket consisting mainly of U.S. dollar, Euro, pound sterling and the yen, defines the currency structure of loans to countries requiring assistance Fund. The yuan will be in the basket of 10.9%, ranking the third place after the dollar (41,73%) and Euro (30,93%).

Earlier in January, Deputy Finance Minister of Russia Sergey Storchak noted that China during its presidency of the G20 put the issue of ideology restart SDR to make this unit more close to real as any unit of account.

“This project is a little stalled. It need to restart. By the way, this is one of the priorities of Chinese chairmanship in the “Group of twenty”, he said then, adding that this tool does not occupy a worthy place in the system of payments, not to mention its value as a means of savings.

According to the Deputy head of the Ministry of Finance of the Russian Federation, the countries that have for various reasons accumulated SDR should be able to use them.

The tradition continues in the foreground

According to a source in the delegation of the Russian Federation, China does not intend to abandon the traditional agenda of the financial G20: the first paragraph continues the discussion of the situation in the global economy and the challenges stimulate growth. Also will discuss questions of increase of investment as one of the main drivers of global economic growth and improvement of the systems of taxation, including the OECD plan.

Another topic, which for many years was included in the agenda of the financial “twenty”, but purposefully not discussed is the so-called “green financing”.

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“Chinese colleagues have stated that this topic is very important for them, and for the first time in many years she will be in Shanghai devoted a separate session,” – said the Agency interlocutor.

According to him, we can talk about investments in clean industries, as well as greater attention from traditional industries to environmental protection and reducing the risks of contamination.

G20 comprises 19 countries (Argentina, Australia, Brazil, Britain, Germany, India, Indonesia, Italy, Canada, China, Mexico, Republic of Korea, Russia, Saudi Arabia, USA, Turkey, France, South Africa and Sweden) and the European Union. On the countries of “twenty”, where two thirds of the world’s population, accounts for 85% of global GDP and 75% of world trade.

First, the main form of activity was the G20 annual summit conference of Ministers of Finance and heads of Central banks held in different countries “the twenty”. After 2008, when the group held its first meeting at the level of heads of state and government, meeting format has been changed. The main event became annual summits of the leaders. Meeting of Ministers of Finance held several times a year. In addition, meetings of the heads of other ministries.