Remember the IMF has Not Set in Stone the basket rate ~ 2 Interesting Posts (1) Revaluation Process - What has to happen for Revaluation and (2) IMF's SDR Changes ...
(18 November 2009 'Yuan May Enter IMF Kitty (Basket) to Evaluate SDR') Joseph Stiglitz : ‘IMF Rerserve Currency Can Be Phased in within a Year and Dominique Strauss 'Yuan May Enter IMF Kitty (Basket) to Evaluate SDR' ...
IMF: Lessen Dependence on Dollar says Dominique Strauss ... CHINA C. BANK: "The changes are coming" ( they want a basket of currencies)
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Friday January 21 2011
IMF may lower cost of emergency Irish loans
Similar move by EU could take months as row rages on €85bn bailout change
The IMF has indicated for the first time that Ireland could see the interest rate charged on the €22.5bn the organisation is giving the country reduced shortly. (hmmm what is shortly?)
Answering a question from the Irish Independent yesterday, David Hawley, senior communications adviser with the IMF, said changes at the IMF itself could see Ireland's rate falling.
The organisation is reviewing the system of quotas that make up the fund and Ireland is one of the countries likely to see its quota rising, which would lower the interest rate, Mr Hawley explained.
Bailout
The EU is also believed to be examining reducing the rate on its portion of the €85bn bailout package given to Ireland in December, but this could take several months and is meeting internal opposition in the EU.
Pressed on how much the rate -- currently at 3.1pc -- might drop by, Mr Hawley was reluctant to comment.
"It would work out as a fall, but let me stress, I cannot assign a value to that at the moment,'' he said.
The amount of financing a member can obtain and the terms for loans are based on its quota in the IMF.
The organisation is currently engaged in a major review of this system and Ireland is set to be a beneficiary. Mr Hawley said the rate was currently at 3.1pc and was based on special drawing rights (SDRs), a form of internal currency used by the IMF.
A spokesman declined yesterday to say how much Ireland's rate could fall by, simply saying there would be no further comments beyond what Mr Hawley said.
Other countries could also benefit from the review of the quota system at the IMF, but Mr Hawley said Ireland was the only country he was aware at present that could benefit. Ireland is the only western European country receiving assistance, apart from Iceland.
Funds
Various European countries are providing Ireland with up to €45bn of funds, with Ireland itself chipping in €17.5bn for the bailout fund.
The IMF has asked Ireland to hit targets over the next few months or payments could be delayed.
For example Ireland must set up an independent budget council by the end of June.
This body will have powers to intervene if borrowing gets out of hand.
______IMF Quotas
November 5, 2010
Quota subscriptions generate most of the IMF's financial resources. Each member country of the IMF is assigned a quota, based broadly on its relative position in the world economy. A member country's quota determines its maximum financial commitment to the IMF, its voting power, and has a bearing on its access to IMF financing.
Doubling of quotas and major realignment of quota shares
On November 5, 2010, the IMF's Executive Board approved proposals to conclude the 14th General Review of Quotas and recommended that the Board of Governors, the Fund's highest decision-making body, move expeditiously to adopt the proposed measures.
Once implemented, the reform package will result in an unprecedented 100 percent increase in total quotas and a major realignment of quota shares to better reflect the changing relative weights of the IMF's member countries in the global economy.
Specifically, the 14th General Review of Quotas will:
_double quotas from approximately SDR 238.4 billion to approximately SDR 476.8 billion, (about US$755.7 billion at current exchange rates).
_shift more than 6 percent of quota shares from over-represented to under-represented member countries.
_shift more than 6 percent of quota shares to dynamic emerging market and developing countries (EMDCs).
_significantly realign quota shares. China will become the 3rd largest member country in the IMF, and there will be four EMDCs (Brazil, China, India, and Russia) among the 10 largest shareholders in the Fund, and preserve the quota and voting share of the poorest member countries. This group of countries is defined as those eligible for the low-income Poverty Reduction and Growth Trust (PRGT) and whose per capita income fell below US$1,135 in 2008 (the threshold set by the International Development Association) or twice that amount for small countries.
A comprehensive review of the current quota formula, which formed the basis to work from during the 14th General Review, will be completed by January 2013. Completion of the 15th General Review of Quotas will be brought forward by about two years to January 2014. Any realignment is expected to result in increases in the quota shares of dynamic economies in line with their relative positions in the world economy.
The IMFC in its October 2009 Communiqué called on the Executive Board to complete the 14th General Review of Quotas by January 2011.
The IMFC noted that quota reform is crucial for increasing the legitimacy and effectiveness of the Fund, and stressed that the IMF is and should remain a quota-based institution.
The shifts to under-represented countries and to dynamic EMDCs that are achieved would exceed those targeted by the IMFC and called for by G-20 leaders. The reforms build on the 2008 reform, which requires acceptance of the amendment on Voice and Participation by 113 member countries representing at least 85 percent of total voting power. As of early November 2010, 95 members representing 82.6 percent of total voting power had accepted. (that's 2.4% short?)
How member countries' quotas are determined
When a country joins the IMF, it is assigned an initial quota in the same range as the quotas of existing members that are broadly comparable in economic size and characteristics. The IMF uses a quota formula to guide the assessment of a member's relative position.
The current quota formula is a weighted average of GDP (weight of 50 percent), openness (30 percent), economic variability (15 percent), and international reserves (5 percent). For this purpose, GDP is measured as a blend of GDP based on market exchange rates (weight of 60 percent) and on PPP exchange rates (40 percent). The formula also includes a “compression factor” that reduces the dispersion in calculated quota shares across members.
Quotas are denominated in Special Drawing Rights (SDRs), the IMF's unit of account. The largest member of the IMF is the United States, with a current quota of SDR 37.1 billion (about $56 billion), and the smallest member is Tuvalu, with a current quota of SDR 1.8 million (about $2.7 million).
Quotas play several key roles in the IMF
A member's quota delineates basic aspects of its financial and organizational relationship with the IMF, including:
Subscriptions (quota share). A member's quota subscription determines the maximum amount of financial resources the member is obliged to provide to the IMF. A member must pay its subscription in full upon joining the Fund: up to 25 percent must be paid in SDRs or widely accepted currencies (such as the U.S. dollar, the euro, the yen, or the pound sterling), while the rest is paid in the member's own currency.
Voting power (voting share). The quota largely determines a member's voting power in IMF decisions. Each IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of quota. Accordingly, the United States currently has 371,743 votes (16.74 percent of the total), and Tuvalu currently has 268 votes (0.01 percent). The number of basic votes will change once the April 2008 reforms become effective.
Access to financing. The amount of financing a member can obtain from the IMF (its access limit) is based on its quota. For example, under Stand-By and Extended Arrangements, a member can borrow up to 200 percent of its quota annually and 600 percent cumulatively. However, access may be higher in exceptional circumstances.
How quota reviews work
The IMF's Board of Governors conducts general quota reviews at regular intervals (usually every five years). Any changes in quotas must be approved by an 85 percent majority of the total voting power, and a member's quota cannot be changed without its consent. There are two main issues addressed in a general quota review: the size of an overall increase and the distribution of the increase among the members.
First, a general quota review allows the IMF to assess the adequacy of quotas both in terms of members' balance of payments financing needs and in terms of its own ability to help meet those needs. Second, a general review allows for increases in members' quotas to reflect changes in their relative positions in the world economy.
How member countries' quotas are determined
When a country joins the IMF, it is assigned an initial quota in the same range as the quotas of existing members that are broadly comparable in economic size and characteristics. The IMF uses a quota formula to guide the assessment of a member's relative position.
The current quota formula is a weighted average of GDP (weight of 50 percent), openness (30 percent), economic variability (15 percent), and international reserves (5 percent). For this purpose, GDP is measured as a blend of GDP based on market exchange rates (weight of 60 percent) and on PPP exchange rates (40 percent). The formula also includes a “compression factor” that reduces the dispersion in calculated quota shares across members.
Quotas are denominated in Special Drawing Rights (SDRs), the IMF's unit of account. The largest member of the IMF is the United States, with a current quota of SDR 37.1 billion (about $56 billion), and the smallest member is Tuvalu, with a current quota of SDR 1.8 million (about $2.7 million).
Quotas play several key roles in the IMF
A member's quota delineates basic aspects of its financial and organizational relationship with the IMF, including:
Subscriptions (quota share). A member's quota subscription determines the maximum amount of financial resources the member is obliged to provide to the IMF. A member must pay its subscription in full upon joining the Fund: up to 25 percent must be paid in SDRs or widely accepted currencies (such as the U.S. dollar, the euro, the yen, or the pound sterling), while the rest is paid in the member's own currency.
Voting power (voting share). The quota largely determines a member's voting power in IMF decisions. Each IMF member has 250 basic votes plus one additional vote for each SDR 100,000 of quota. Accordingly, the United States currently has 371,743 votes (16.74 percent of the total), and Tuvalu currently has 268 votes (0.01 percent). The number of basic votes will change once the April 2008 reforms become effective.
Access to financing. The amount of financing a member can obtain from the IMF (its access limit) is based on its quota. For example, under Stand-By and Extended Arrangements, a member can borrow up to 200 percent of its quota annually and 600 percent cumulatively. However, access may be higher in exceptional circumstances.
How quota reviews work
The IMF's Board of Governors conducts general quota reviews at regular intervals (usually every five years). Any changes in quotas must be approved by an 85 percent majority of the total voting power, and a member's quota cannot be changed without its consent. There are two main issues addressed in a general quota review: the size of an overall increase and the distribution of the increase among the members.
First, a general quota review allows the IMF to assess the adequacy of quotas both in terms of members' balance of payments financing needs and in terms of its own ability to help meet those needs. Second, a general review allows for increases in members' quotas to reflect changes in their relative positions in the world economy.
The Fourteenth General Review, would, once fully effective, result in a 100 percent quota increase. Ad hoc increases outside general reviews do not occur often. An example was the increase in quotas approved under the 2008 Reform.
