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The IMF in 2050

How should voting powers at the IMF be allocated to reflect the world today — and in the future?

September 17, 2003

How should voting powers at the IMF be allocated to reflect the world today — and in the future?

The 2000 IMF report did not even begin to address how the IMF’s methods for distributing quotas relate directly to the question of its legitimacy in today's global political economy.

But the current quotas reflect the world of the 1950s. To promote meaningful global governance, IMF quotas need to reflect the power structure of the future — rather than the past.

Not so long ago, the IMF was an obscure agency charged with what most people would have considered a technical mission involving credit and exchange rates. But, as the importance of this mission has become fully apparent, the IMF has started to come under increasing political scrutiny.

While the organization and its staff have demonstrated an impressive level of professional dedication, nothing can substitute for a transparent decision-making structure that is accountable to democratic institutions and principles.

Balanced Representation?

GDP Shares and IMF Voting Rights
(percent of world totals)

Data Sources: IMF; The Globalist
Concept and copyright © 2003 by The Globalist

And there, it is an unfortunate truth that the IMF — due to rules that reflect the wishes of its richest members — falls short. This is especially the case in how power is allocated among its members.

Today’s voting structure is a complex combination of history, political power and other rather complicated formulas.

Ultimately, that means that explanations of why the United States has 17.2% of the votes, rather than 15% or 22%, quickly become too complex to understand.

And that undermines the IMF's legitimacy. Arguments about legitimacy and accountability are among the most powerful in the arsenal of the institution’s critics.

As things currently stand, developed countries have 63% of the voting power at the IMF — even though they represent just 16% of the world’s population. And even their 57% of world GDP is significantly less than their voting power. Developing countries, meanwhile, with 78% of the world’s population, control just 30% of the IMF’s votes. (The remainder falls to transition economies like Russia and Poland). But which individual countries are really over and underrepresented?

Population balanced?

Population Shares and IMF Voting Rights
(percent of world totals)

Data Sources: IMF; The Globalist
Concept and copyright © 2003 by The Globalist

Let us start by comparing the share of each country in world GDP with its share of the votes at the IMF. By this measure, the most underrepresented countries are China (whose share of IMF votes is 9 percentage points lower than its share of world GDP), the United States and India.

The most over-represented countries by this measure are Saudi Arabia, the United Kingdom and France. (See table.) In developed countries, however, power these days is pointedly not distributed by income.

It is true that, a long time ago, only men who owned a minimum amount of property could vote in elections or hold office in the United States and Western Europe. But those days are long gone — and not viewed with nostalgia, either.

Today, the most common rule is known — in the United States and elsewhere — as "one person, one vote." By this principle, not only is each person allowed a vote — and only one vote — but representative districts must have approximately equal population shares.

That way, every person really does count equally. Any other system, it is believed, would be undemocratic.

If each person is to have an equal say in the functions of the IMF, each country would receive votes according to its population. By that measure, China — with 21% of the world’s population — is under-represented by 18 percentage points, followed closely by India (15 percentage points).

Under the population criteria, it is the United States that is most over-represented. Its share of the IMF’s votes is 12 percentage points greater than its 5% share of the population of IMF member countries. Germany and Japan are the next two most over-represented countries by population. (See table.)

A key conceptual difference between using population and GDP measures to determine votes is simply this: GDP measures give the greatest weight to the countries that are economic powerhouses today.

But a large and growing population creates growing consumer spending, and hence higher production and income. Population is therefore a good indicator of which countries will become more important in the future.

Among the countries with large populations are China, India, Indonesia and Brazil — all clearly future economic powers.

In order to balance past and future, we propose a straightforward measure: Averaging the population and GDP measures. For example, the United States accounts for 22% of the world’s GDP, and 5% of the world’s population. It should therefore receive 13% of the total votes at the IMF.

Under this measure, the most powerful countries will be a mix of developed countries (the United States and Japan) — and the most populous developing countries, such as China and India. (See table.)

Most Powerful Nations

Proposed IMF Voting Rights
(average of population and GDP shares)

Data Sources: IMF; The Globalist
Concept and copyright © 2003 by The Globalist

But not only would the large developing countries gain at the expense of the developed countries, especially those in Europe. The large developing countries would gain at the expense of the smaller ones.

Regionally, Asian countries (because of their large populations) would gain power at the expense of European countries. An interesting sidelight is that Middle East oil exporters — especially Saudi Arabia — would be among the big losers.

Now, in fact, the IMF’s mission means that the largest financial contributors — essentially the lending counties — need to have confidence that they will have a major say in the organization's operations. Otherwise, they might simply stop making their resources available. That is why quotas (the contributions of the member countries) and voting rights have always been tied together.

Smaller, wealthy countries will always need to be given a larger say in the organization than their population and GDP alone would suggest. Moreover, a purely population-based system risks moving in the direction of the partial dysfunctionality — and downright irrelevance — sometimes exhibited in the UN’s General Assembly.

That would be a sad development for an institution that has made a real contribution to global stability. Thus, our formula retains GDP as a key element in determining quotas.

There are, in fact, precedents in the financial world for regulators that are not democratic in the sense of providing equal votes — but that operate with great legitimacy.

Take the Federal Reserve System of the United States, where the individual banks represent varying populations, and the New York Bank has several unique powers that reflect New York's special position in the U.S. financial community. Nobody questions the Fed's legitimacy because of the New York Fed's special position.

It is time that the concerns of transparency, democracy and the needs of creditors be better reflected in IMF voting shares. Our proposal for the IMF's voting shares reflects the world of today and tomorrow — and not the world of yesterday.