Quota System of International Monetary Fund (IMF)

Quota System of International Monetary Fund (IMF)

Quota System of International Monetary Fund (IMF)

Membership in the IMF is available to any country that is willing to agree to its rules and regulations. As of August 2003, 184 countries were members. To join, a country must pay a deposit called a quota, partly in gold and partly in the country’s own currency. The quota’s size primarily reflects the global importance of the country’s economy, although political considerations may also have some effect. The size of a quota is important for several reasons.

  1. A country’s quota determines its voting power within the IMF. Currently, The United States controls 17 percent of the votes in the IMF. Germany and Japan each control the rest largest blocks (6 percent), followed by France (5 percent), the United Kingdom (5 percent) and Saudi Arabia (3 percent).
  2. A Country’s quota serves as part of its official reserve. Country can withdraw this official reserve when it will be needed.
  3. The quota determines the country’s borrowing power from the IMF. Each IMF Member has a conditioned right to borrow up to 25 percent of its quota from the IMF. IMF policy allows additional borrowings contingent on the member country’s agreeing to IMF imposed restrictions called IMF conditionality- on its economic policies. For example, in return for an IMF Loan of 21 billion during the Asian currency crisis, South Korea agreed to undertake major economic reforms, including permitting foreign banks to take over this Korean counterpart, closing insolvent merchant to the insolvent Merchant banks, reducing government favor toward the larger trade and lowering tariffs on many goods. The IMF consented to lend Indonesia 10 billion after that country pledged to scrap state. Monopolies controlling on certain foodstuffs, reform its banking industry, and cut trade barriers directed against imported goods. As noted in the opening case, the IMF also pressured Indonesia’s government to liquidate its holding in various companies, which led to the Sole of PT Astne International to a Singapore consortium. Local politicians and interest groups often bitterly protest the IMF’s Conditionality, requirements, arguing that foreigners working through the IMF arc taking advantage of the country’s short term problems to extract changes favorable to the foreigners. At times, the situation can turn uglier, for example, in 1998, Indonesia was wracked by rioting after prices and unemployment soared. As a result of the authority measures demanded by the IMF and president Suharsto was forced to resign his office.

So IMF quota- the sum of the total assessment to each country which becomes a pool of money that IMF can draw, on to lend to other countries. It Forms the basis for the voting power of each country- the higher its individual quota, the higher votes of that particular country.