IMF Quota & Voice Reform – Act II

Haven't blogged for a while now, partly because I have been lazy, and partly because nothing strikes me as being worth blogging about.

Was checking out the IMF website today when I read that there is gonna be a part II to the Quota & Voice reform. This was something I worked on for 2 years so it's close to my heart. I naturally started poring through the tables to see what this all means for Singapore.

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Last week, Dominique Strauss-Kahn, Managing Director of the IMF, proudly declared that a “historic agreement on the most fundamental governance overhaul in the Fund’s 65-year history” has been reached.  He was referring to the second installment of the Quota & Voice reform, which had been set in motion following the 2006 Annual Meetings in Singapore. According to the Fund’s press release, as part of the reforms, existing quotas will be doubled[1] to approximately SDR 476.8 billion (about US$756 billion) alongside a major realignment of quota shares among members. It will result in a shift of more than 6 percent of quota shares to dynamic emerging market and developing countries and more than 6 percent from over-represented to under-represented countries.  The total shift in voting share to emerging market and developing countries as a whole will be 5.3 percent, when combined with the 2008 quota and voice reform (i.e. Act I).  At the same time, the quota shares and voting power of the poorest members will be protected (this is achieved through the agreement in Act I whereby the basic votes will form 5.502 percent of total votes).  Significantly, all BRICs countries will be among the top-10 countries following the reform.    The reform will also result in a more representative Executive Board.  Currently, the Executive Board is comprised of 24 Chairs, of which 9 are held by Europe.  This will be reduced to 7 in favor of emerging countries.  Notwithstanding the US’ threats, the Board size will be kept unchanged at 24, with a review every eight years.  Another change is the elimination of appointed Chairs; all 24 Chairs, including those five with the largest quotas who are currently “appointed”, will now need to be elected.  Not that it will make much of a difference, though, since these Chairs already helm single-seat constituencies (it’s akin to a walkover for the PAP in Singapore’s context).

So what does Act II mean for SEAVG?   Well, that depends on whose lens the reform is viewed through.  On the whole, Act II works in SEAVG’s favor.  Under the proposed reform, the aggregate voting share of SEAVG increases by 0.409 percentage points, from 3.928 percent (post-2nd round) to 4.337 percent, further solidifying SEAVG’s clout in the Fund.  11 of its 13 members will see an increase in voting share, the only two exceptions being Brunei and Fiji.  Singapore is, once again, the biggest winner, and will see its voting share increase by another 0.213 percentage points, from 0.588 percent currently to 0.801 percent.  So what’s bad about the reform?  Precisely that Singapore will see the biggest increase (yet again), and worse, will leapfrog both Malaysia and Thailand into second spot in SEAVG.  Nothing ruffles the feathers of our northern neighbors more that that.   Act I was largely palatable because rankings within SEAVG were unchanged.  Act II is going to be a bitter pill to swallow.

With the reform, Singapore will see its ranking with IMF rise from 48 (pre-Singapore) to 34 (post-2nd round) to 25.  If the calculated shares get implemented, this would likely rise a couple of notches further.  Not bad for a tiny island- state bereft of resources (although with the 46th largest economy in the world according to the Fund).  Given the IMF’s rising prominence on the international scene and active contribution to many of the financial reforms ongoing, it will be important for Singapore to better harness its influence in the Fund to position itself in its best interests.  With Singapore taking over the leadership of SEAVG for the first time ever beginning 2011, the timing can hardly be better.

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[1] Once the increase in quotas becomes effective, there will be a corresponding rollback in the New Arrangements to Borrow (NAB),