The Political Economy of IMF Voting Power and Quotas

Abstract

We explore the governance structure of the International Monetary Fund, wherein voting power is explicitly tied to the size of member countries' financial contributions, known as quotas. By virtue of their large quotas, rich countries have the preponderance of voting power while developing countries are left to complain about a democratic deficit that leaves them with little influence over the IMF's policies and programs. We develop a model that recognizes the bifurcation of members into industrial-country creditors and developing-country borrowers and treats the IMF as an international government that provides collective insurance against balance-of-payments shocks. We show that when the rate at which the IMF taxes an economy (via quotas) to fund this co-insurance scheme has an impact on voting power, there is an incentive for rich countries to support subsidizing the risks of poor countries, even when the poor have substantial political power. To test the model, we estimate the covariates of actual IMF quotas (and quota shares) over time, giving attention to the role of cross-country inequality and the political ideology of domestic governments. As our model implies a conditional relationship between inequality and conservatism, we include an interaction term. We find that the impact of inequality is positive, as expected, and that this effect is smaller for conservative governments.

Keywords: Political Economy, International Monetary Fund, IMF, Redistribution

JEL Classification: F3, F33, F34, F36