The present IMF voting structure is skewed in favour of developed countries. The European Union with about one fifth the world’s GDP has about one third of the votes at the IMF. Top management appointments are guarded as the preserve of Europe (the MD) and the US (the first DMD). Critical staff appointments made by the top management tend therefore to reinforce the developed country bias. Developing country members consequently have little say in formulating the very policies that affect them most. This is the chief reason for their demand for an increased share in governance of the IMF.

In April 2006, the Board of Governors of the IMF recognised the need to safeguard the IMF’s effectiveness and credibility as a cooperative institution and enhance its governance to provide fair voice and representation for all members. They accepted the need for fundamental reforms and called for concrete proposals at the Annual Board of Governors meetings in September in Singapore. With India’s growing stakes in the global economy, it is imperative that India’s interests are effectively safeguarded in this debate.

As a result of decisions taken at the Bretton Woods Conference in 1944, developed countries, as a group, obtained disproportionate voting power. Developing and emerging economies were left underrepresented and disproportionately weakened in this regard. Further, the argument that Purchasing Power Parity (PPP) based competitions would result in perverse allocations is groundless since many excluded countries provide useful resources to the Fund.

The present quota formula has many glaring limitations, especially the variable GDP itself. For international comparisons GDP calculated on PPP basis is a better determinant of the size of a national economy rather than measuring at current exchange rates. A country’s GDP on PPP basis fully reflects its stake in the global economy. GDP-PPP is already used extensively by the EU and the UN; the IMF itself uses PPP for the World Economic Outlook comparisons. The quota formulas need to be reworked. GDP-PPP should be the sole parameter.

... contd.