Here is a subject that could put anyone to sleep but is probably the best thing to come from the otherwise poor G-20 summit last week. The voting shares of the IMF were reweighted to reflect Asia’s expanding size in the global economy. Here is good write-up; for Asian self-congratulation, try this. This puts it in context for Korea.
The quota represents the percentage of control that a state has over IMF decisions. Big decisions are made by the IMF’s Board of Governors, the national representatives who collectively control the institution. On the Board, each country receives a weighted vote whose size (quota) is roughly in line with its national percentage of global GDP, crossed against the importance of exports to national GDP (its ‘openness,’ in IMF-speak). (The voting formula is ridiculously arcane for non-experts. There are endless proposals to reform it. Here it is in the words of the IMF itself.) In short, the bigger your quota, the more sway you have in IMF decisions (about loans, the creation of Special Drawing Rights, IMF responsibilities for the global economy, etc.). The biggest quotas, inevitably, belong to the US, Japan, and the Europeans. However, given Asia’s expansion of the last few decades, pressure is rising to re-weight the votes to Asia’s favor. In practice, that means giving China a bigger voice at the expense of the Europeans, who are resisting quite selfishly it must be said, for all their talk about cooperative global governance and multilateralism. US and Japanese shares will be scarcely affected. Korea’s share will reweighted a little bit as well (1.4% to 1.8%).
For Korea and other emergent economies’ share to get even bigger, they would need explosive growth like China’s, as well as a major demographic expansion. Neither will happen realistically. Globally speaking, Korea is just too small to have a much bigger quota, although a 0.4% jump is 30% quota expansion, which is actually pretty good. The really big quota fight is between China and the EU, with India coming down the pike as well. In short, global economic institutions are adjusting, albeit painfully, to the rise of Asia. The increasing equality of wealth between Asia, Europe, and North America means that the voting weights of each of those regions are slowly equilibrating.
States are sensitive about quota size, because it is a zero-sum game. If Korea gains .04%, that means some other state loses 0.4%. Hence the Fund can never be made large enough to make all feel confortable. Instead, control of the Fund will always be relative – if I have 0.0001 percent, then you do not have it. While global GDP expansion is positive sum, Board control of the IMF (and World Bank) Board is not. And inevitably, the size of a national quota is interpreted as a general sign of global clout and importance. One can see that in the Europeans’ strenuous efforts to delay and obfuscate the re-weighting, for they will lose in that process. It is like the veto rights of the permanent 5 members of the UN Security Council. That is widely considered as a signal of their great prestige, and even though the French and British empires are long gone, it is unrealistic to think that they will give up their P-5 status.
So Korea’s quota increase is good for Korea, in a small way, and it is just, insofar as Korea has grown more rapidly than the EU in the last few decades. But it is not really that important, because 1. Korea’s relations with the IMF are quite chilly anyway, and 2. Korea is simply too small economically and demographically at the global level. More interesting would be Korea’s ‘quota’ in the emerging Chiang Mai Initiative, which is like a local Asian version of the IMF.
Generally, we should be pleased that the IMF was able to evolve like this. The more it looks like the actual world economy, the more it can meaningfully intervene. Contrast that with the UN Security Council, frozen in time (1945), with three veto-wielding ‘great powers’ (Russia, France, and Britain) that are no ‘greater’ than a lot of other countries now. Unable to adapt – again, primarily because of European selfishness (France and Britain will not a agree to consolidate their veto into one for the EU) – the Security Council is sliding into irrelevance. If the IMF – the supposed global tyrant – can adapt, how about the UN?
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Dear Dr Kelly – trying to get in touch with you to discuss latest shelling on our programme on BBC Wordl Service Radio – would appreciate if you could contact me (I have also sent you an email).
Thank you in advance
For readers interested, I did speak on the BBC yesterday on this issue. Here is the link:. Please go to ‘chapter 1.’ My comments begin at minute 10.10 and conclude at minute 17.45. For my fuller comments, please go here.
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