China may have to wait to become second most powerful at IMF

What’s in a quota? Try power, or at least know that’s how it works at the International Monetary Fund (IMF).

Voting power and financial contributions at the institution are based on a system that assigns a “quota” to each of the IMF’s 189 member countries. And each quota is meant to reflect a country’s relative position within the global economy.

The United States has long held the number one spot at the IMF, while Japan has ranked number two.

China – the world’s second-largest economy as measured by nominal GDP (gross domestic product that calculates all the goods and services a country produces at current market prices) – is the IMF’s third most influential member. 

The IMF was set to raise funding quotas in a way that would more accurately reflect China’s position in the global economy and therefore have it replace Japan as the second most influential voice in the body. But those plans have been postponed, a Japanese official with knowledge of the matter told Reuters news agency.

The plan will be shelved due to stiff resistance from the US, the official said on Tuesday, speaking on condition of anonymity as he was not authorised to talk to the media.

Washington, which as the largest shareholder in the global lender wields an effective right of veto, has previously expressed opposition to increasing the IMF’s overall funding and shareholder quotas – a move that would also reshuffle voting rights.

The Group of 20 (G20) major economies pledged in June, at their financial leaders’ meeting in Japan, to conclude the 15th general review of quotas no later than the IMF annual meetings that are scheduled to take place next week.

The G20 urged the IMF to expedite its work on resources and governance reform as a matter of the highest priority.

The fund, hoping to boost its ability to respond to financial crises, has set a goal to decide by this autumn whether to increase funding, as well as how much to raise quotas and the proportion of each member’s contribution.

The IMF last resolved to increase funding quotas in 2010, a decision that was implemented in 2016. China first overtook Japan as the world’s second-largest economy in the latter months of 2010.

Japan has held the second position in terms of funding quotes, and therefore voting rights, since 1992. However, its proportion of funding has slipped to 6.46 percent from 6.56 percent. China’s contribution has jumped to 6.39 percent from four percent, boosting it from sixth to third place.