Daria Maria Buhus - Erasmus Student, Romania

REFORMING THE INTERNATIONAL MONETARY FUND - principle of

sovereign equality vs. power asymmetries among the IMF membres

I. Introduction

The International Monetary Fund guidelines have always been a source of misunderstandings
and disagreements between the less developed countries and The Great Powers. This conflictual
gap comes from the existing power hierarchy concerning not only the economic scale but also
the political one. Member states such as Barbados, Dominica or Kiribati are not integrated in the
concept of “Great Power” unlike member states such as The United States of America, Japan or
Germany, this status being granted to the states according to multiple power criterias. According
to Waltz, “States are placed in the top rank because they excel in one way or another. Their rank
depends on how they score on all of the following items: size of population and territory,
resource endowment, economic capability, military strength, political stability and competence.”1
It is being said that the general legal framework of the IMF is the one which generates such
intriguing discussions due to the major benefits this institution offers to its main contributors, for
example the weighted voting system or the quota determination regime which I will analyze later
in this paper. For now I want to focus on the core of this divergence which is, in my opinion, the
following: how does the principle of sovereign equality recognized in international law reconcile
with the visible and well known power asymmetries among the IMF members. What essential
measures could be taken in order for this supposed equality to actually happen?

To respond to the questions below we should start with the analysis of the meaning of the term
<<sovereign equality>>. To do so, we need to look at this concept with an open mind and to
admit the fact that a perfect equality among all States would be utopic and not realistic at all.

Kelson’s thesis on the principle of sovereign equality is one of the most recognized scientific
works which argues that this concept should be separated into two distinct components:
“sovereignty and equality, two generally recognized characteristics of the States as subjects of

1
Waltz K. N.- Theory of international politics - 1979, p.131

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Daria Maria Buhus - Erasmus Student, Romania

international law”2. Furthermore he claims that “The sovereignty of the States, as subjects of
international law, is the legal authority of the States under the authority of international law. If
sovereignty means “supreme” authority, the sovereignty of the States as subjects of international
law cannot mean an absolutely, but only a relatively supreme authority; the State’s legal
authority is “supreme” insofar as it is not subjected to the legal authority of any other State. The
State is “sovereign” since it is subjected only to international law, not to the national law of any
other State. The State’s sovereignty under international law is the State’s legal independence
from other States”3. Concerning the second component he believes that the term of <<equality>>
could be deceitful at first glance and could be confused with the misinterpretation that all States
have the same duties and the same rights. However “according to general international law all
the States have the same capacity of being charged with duties and of acquiring rights; equality
does not mean equality of duties and rights, but rather equality of capacity for duties and rights.
Equality is the principle that under the same conditions States have the same duties and the same
rights.”4

Having Kelsen’s conception in mind, I could certainly sustain that the legal framework of the
IMF is 100% compatible with the principle of sovereign equality because all the member States
have the vocation to own rights and duties even though not in the same measure. However I must
observe that in the IMF, sovereign equality can only be conceived of as equality of states under
international law and not equality in terms of actual influence in the organisations that States
join. “States are overwhelmingly unequal, not only in resources and influence, but in the voting
power and other rights conferred on them by international instruments. The recitation of the
pious and holy principle hardly makes any difference. As Samuel Grafton, a syndicated
columnist of the war period, said: "Even after you give the squirrel a certificate which say she is

2
​Hans Kelsen - The principle of sovereign equality of states as a basis for international organization - The Yale Law
Journal Volume 53 Number 2 - March, 1994 - p. 207
3
​Hans Kelsen - The principle of sovereign equality of states as a basis for international organization - The Yale Law
Journal Volume 53 Number 2 - March, 1994 - p. 208
4
​Hans Kelsen - The principle of sovereign equality of states as a basis for international organization - The Yale Law
Journal Volume 53 Number 2 - March, 1994 - p. 209

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Daria Maria Buhus - Erasmus Student, Romania

quite as big as any elephant, he is still going to be smaller, and all the squirrels will know it and
all the elephants will know it.””5 6

In order to support my previous claims I will refer to the following aspects:

II. Quota distribution among members

First of all, the IMF is a quota-based institution. This means that, when a State joins the IMF, it
is distributed to it an initial quota in the same range as the quotas of existing members which
detain similar economic characteristics. The quota system plays multiple roles in the context of
this institution for example in resource contributions, voting power, access to financing and
Special Drawing Rights allocations. In a nutshell, the quota distribution among members is the
one which reflects in which measure the member States are involved in the economic and
political game of the IMF. The quota is calculated according to the following formula which is
said to be very difficult to understand even for the majority of the most skilled policy makers:

8
(0.50 * ​GDP7 ​+ 0.30 * ​Openness ​+ 0.15 * ​Variability +
​ 0.05 * ​Reserves)​ compression
​ factor

This method of calculating the formula is thought to be such a controversial and obscure one
because of the multiple variables it contains and for the fact that it seems to be politically biased
for the wealthier countries. These quotas are far from reflecting the economic importance of the
member States in the global economy. “Countries are allotted with certain calculated quotas and
cannot unilaterally decide to integrate more money into the Fund in order to be able to count on a
larger access to financing in case of need.”9 On the other hand The IMF's Board of Governors

5
​R. P. Anand - Sovereign Equality of States in International Law - p. 95
6
​See quoted by William.R.Fox, "The Super Powers:Then and Now", International Journal, Canadian Institute Of
International Affairs, Vol.35, No.3, Summer 1980 ,p.418.
7
​Gross Domestic Product is the total monetary or market value of all the finished goods and services produced
within a country's borders in a specific time period. - https://www.investopedia.com/terms/g/gdp.asp
8
https://www.imf.org/en/About/Factsheets/Sheets/2016/07/14/12/21/IMF-Quotas
9
Hector R. Torres - Reforming the International Monetary Fund - Journal of International Economic Law, 1-18 - p.5

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Daria Maria Buhus - Erasmus Student, Romania

conducts general quota reviews at regular intervals - once every five years - which allows it to
supervise the financial transactions of each State and to create a balance when needed..

Nowadays, it is no secret that The United States of America is the only country which imposes
not only its economic, but also its political view on the global scale. This statement is sustained
by the quota U.S. owns compared to the other member States. We talk about a 17.45% quota
which represents a huge percent concerning the fact that the IMF is composed of 189 States and
that the second place is occupied by Japan with a percent less than a half of the U.S. one - 6.48%.
10
What it is more intriguing is the fact that “the combined quotas of the 110 countries in the
lower-middle and low income categories total almost 18 percent, only a fraction of a percentage
point more than the U.S. quota.”11

Considering all of the above it is understandable why developing countries feel so unfairly
treated compared to the developed countries. The most powerful example could be the
discrepancy concerning the access to financing. The quotas “give the wealthier members the
right to contribute more capital to the Fund. This grants them, ironically, more capacity to
borrow from the Fund. As a consequence, advanced economies (i.e. those with no need to
borrow from the Fund) have more access to its resources and virtually run the institution. On the
other hand, developing countries, i.e. potential borrowers, have little influence and relatively low
and expensive access to the Fund’s resources. Not surprisingly, they feel sidelined from its
decision-making process.”12

III. The decision-making process - formal power vs. real power

A tension between formal power and real power has existed in every decision-making process
since forever. But what do these two forms of power actually mean? “Whereas formal power

10
​https://www.imf.org/external/np/sec/memdir/members.aspx#total - Last Updated - April 08, 2020
11
David Rapkin, Jonathan R. Strand - Reforming the IMF’s weighted voting system - p. 21
12
Hector R. Torres - Reforming the International Monetary Fund - Journal of International Economic Law, 1-18 -
p.3

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Daria Maria Buhus - Erasmus Student, Romania

normally reflects, in some way or another, the egalitarian paradigm, real power reflects the fact
that actual equality is only an idealization but hardly ever a reality in itself.”13

Nowadays, the voting weight of each country is distributed according to a fixed component of
250 basic votes which are the same for each country, and a variable component which depends
on the State’s quota. This voting system gives prominence to “the real power” that we discussed
earlier. When the IMF was created, this system was meant to be a compromise between the equal
representation of member States and voting power based on contributions in the manner of a
joint stock company.

The egalitarian paradigm mentioned above was somehow sustained by the original system of the
Fund where the quota was not a point of interest. Unfortunately, as time went on, the basic
element gradually disappeared and the quota-based votes gained popularity amongst the IMF.
Thus, the developing countries are somehow drained of power. “In 1944, basic votes represented
11.3% of the aggregate voting power. Now they only represent 2.1%.”14

Needless to emphasise the fact that the U.S. is once more the State with the most generous vote
numbers - 831,408 - which represent 16.51% from the total number of votes - 5,034,311.15
Beside the ordinary decisions which are made by simple majority of the votes cast, a number of
important decisions require a supermajority of 85%. Correlating the two previous statements we
can deduce the fact that the U.S. is the single member which possesses a true veto. However, the
EU countries or the developing ones, acting as a bloc, possess a veto too but we should agree on
the fact that an extra work is required in order to make a considerable number of States to
coordinate and to vote in the same way. In terms of Coleman’s terminology, “while the

13
Hector R. Torres - Reforming the International Monetary Fund - Journal of International Economic Law, 1-18 -
p.4
14
​Hector R. Torres - Reforming the International Monetary Fund - Journal of International Economic Law, 1-18 -
p.4
15
https://www.imf.org/external/np/sec/memdir/members.aspx#U - Last Updated - April 08, 2020

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Daria Maria Buhus - Erasmus Student, Romania

supermajority rule gives the U.S.A. complete power to prevent action, it also limitates power to
initiate action.”16

IV. Reform proposals

Having all of the above in mind, the question which is being raised is if this problem of
developing countries dragged any attention, and if so, how has it been addressed? What has been
done or what should be done in order to achieve a meaningful, equitable and effective
participation of the developing countries in the IMF?

First of all we should agree on the fact that there is a distinction among different types of reforms
and that some proposals could be more facile to be implemented than others. For example,
proposals which require the amendment of the Fund’s Articles of Agreement such as increasing
the number of basic votes would be not so feasible to pass because it would be subjected to the
U.S. veto. Unfortunately, some of the following proposals are purely theoretical because “the
efforts of the United States to block even discussion of almost all the reforms discussed below –
let alone consent to quota/vote redistributions that would strip its veto power – severely restrict,
for the time being at least, the reform process, precisely because the 85 percent majority required
for changes in quotas provides the U.S. with a formal veto on eighteen important categories of
decision.”17

IV.1. Leadership selection

Since its inception, by informal convention, the Managing Director of the IMF has been an
European citizen, while the head of the World Bank has been a U.S one. Although most of the
Fund’s Managing Directors have been competent and responsible, a more transparent and open
procedure should be considered in order for equally effective leaders to candidate on merit
criteria regardless their nationality. Kahler’s reform proposal could be an efficient starting point.

16
Coleman, 1971
17
David Rapkin, Jonathan R. Strand - Reforming the IMF’s weighted voting system - p. 24

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Daria Maria Buhus - Erasmus Student, Romania

He suggests “a process of restrained competition where (1) minimum qualifications are agreed
upon, (2) search committees establish a qualified long-list of possible candidates, and (3)
national governments narrow down the long-list to a veto-proof nomination short-list.”18 Thus,
the selection process could be democratized, but we should not underestimate the opposition of
the U.S. - European monopoly to this kind of reform which could restrain their privileges. On the
good side, no amendment of the Articles of Agreement should be made in order to achieve a new
leadership selection system.

IV.2. Changes to basic votes

In time, various reform proposals concerning the increasing of the number of the basic votes
have been addressed because of the fact that the 250 basic votes remained unaltered while new
members were admitted to IMF or quotas have been substantially modified. Unfortunately, such
an increase to a suitable target would only be temporarily effective until overall quotas will be
increased once more. As an alternative, the following possibilities have been discussed: restoring
the original share of 11.26 percent when the IMF was formed, and the Kelkar proposal which
sets basic votes at 12.5 percent of the total. In this way, the influence of the basic votes will
remain constant, as a fixed percentage, even if there is a reallocation of the total votes. As a
consequence, the developing countries would not lower their voice as much when different
changes occur. However, the implementation of this reform proposal requires an amendment
majority which even the IMF admits that, at this stage, it does not exist.

IV.3. Special majorities and ending the U.S. veto

The fact that The Articles of Agreement has been amended to increase the supermajority from 80
percent to 85 percent when the U.S. wanted to reduce its contribution is very intriguing. As a
result of numerous and chaotic adjustments “any strictly logical basis for determining which

​Niti Bhasin, Surbhi Gupta - Reforms in International Monetary Fund (IMF): Challenges and the Road Ahead -
18

Management and Economics Research Journal, Vol. 4, S1, 19–29, 2018 - p. 27

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Daria Maria Buhus - Erasmus Student, Romania

decisions should require a special majority”19 has disappeared. From a developing country
perspective, as Buira claims, “because voting itself is weighted – a situation that favors
developed countries – there should be no need for special majorities”.20 Thus, suggestions
regarding the rationalization of the current special majority provisions should be considered.

The discussion above concerning the special majorities leads with no hesitation to the idea of the
dominant U.S. governance of the IMF. Moreover, Evans and Finnemore emphasize the fact that
the U.S. has gained control over this institution: “The U.S. Treasury has become notorious for
transmitting its preferences directly to Fund management and staff, rather than simply having
The U.S. Executive Directors air them in Executive Board meetings. Combined with heavy
lobbying efforts vis-à-vis individual member governments, this gives U.S. opinions sway even
beyond the U.S.’s disproportionate share of voting rights.”21 Also, it has been observed that the
G7 countries, especially the U.S., somehow release themselves from the surveillance the
developing countries are subjected to. For example, the U.S. imbalance and budget deficits are
completely ignored because softer standards are applied to the world's largest debtor.

Unfortunately, The U.S. could only voluntarily lose its veto because it has the power to block
any amendment that could have the effect of decreasing its voting share. An alternative could be
the natural fall of the share of votes below the 15 percent. “In principle, it might be possible to
admit by majority vote enough new members with large enough quotas to drive the U.S. voting
share below 15 percent, but that would take an increase in IMF quotas of more than 14 percent.
There are not enough nonmember countries in the world to generate such an increase where each
new memeber’s quota is constrained by the size of the quotas of comparable countries on the
basis of the five quota formulas scaled to the current size of the IMF.”22

19
​Lister, F. (1984), Decision-Making Strategies for International Organizations: The IMF Mode - p. 95
20
​Buira, A. (2003b), ‘The Governance of the International Monetary Fund’, in I. Kaul, P. Conceiaco, K. Le
Goulven, and R.U. Mendoza (eds.), Providing Global Public Goods: Managing Globalization (New York: Oxford
University Press). - p. 231
21
​Evans, P. and M. Finnemore (2001), ‘Organizational Reform and the Expansion of the South’s Voice at the Fund’
- p. 14
22
​Edwin Truman - Reform of the IMF for the 21st Century - p.230

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Daria Maria Buhus - Erasmus Student, Romania

IV.4. Double Majority Voting System

The last but not least reform initiative is the O’Neill and Peleg “Count and Account” voting
method which establishes a double majority voting scheme composed from a majority of the
weighted votes and a majority of members ( one-country, one-vote rule practiced in the UN
General Assembly) in order to pass. “In so far as developing countries far outnumber their
developed country counterparts, adding the majority of the unweighted vote requirement would
shift voting weights and we expect, also voting power, from the latter to the former.”23 In this
way, a balance between developed countries and developing ones could happen because interests
and preferences of both types of countries should be taken into consideration. This “count and
account” method could be explained by the way bicameral legislatures work, for example the
U.S. House of Representatives and U.S. Senate. Brauninger argues that the most important
condition which should be respected in order for such a bicameral system to be efficient is that
“societal actors are divided by one major conflict, but have several common interests”24, a
condition which seems to be met by the tumultuous developed countries - developing countries
relationship. “Not only does the method recognize straightforwardly both the principle of the
sovereign equality of states (by requiring a majority of members) and the power hierarchy among
them (by requiring a majority of weighted votes), it also manages, unlike the IMF’s combination
of basic and weighted votes, to reconcile these two considerations without compromising the
logic or integrity of either.”25

IV.5. Partnership with other institutions and agencies

Beside the previous reform proposals related to the governance model of the IMF, another type
of reform such a win-win partnership between IMF and other institutions or agencies should be

23
​Jonathan R. Strand1and David P. Rapkin - 10 - Voting Power Implications of a Double Majority Voting
Procedure in the IMF's Executive Board - p. 237
24
​Bräuninger, T, 2003, When Simple Voting Doesn’t Work: Multicameral Systems for theRepresentation and
Aggregation of Interests in International Organizations,BritishJournal of Political Science, 33, pp. 681–703.
25
​Jonathan R. Strand1and David P. Rapkin - 10 - Voting Power Implications of a Double Majority Voting
Procedure in the IMF's Executive Board - p. 238

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Daria Maria Buhus - Erasmus Student, Romania

equally mentioned. Despite being a grandiose institution with tradition in mostly being a reliable
pillar for the countries in need, it is obvious that the IMF does not own all the answers to all the
financial problems that could appear. Thereby, the IMF needs to put its pride aside and start
collaborating more with other institutions or agencies that could assist the IMF staff with clearer
and better guidance regarding the macroeconomic view of a developing country‘s prospects and
policies, such as “full information about the size and likely sectoral allocation of aid flows or an
analysis of the capacity of the country to absorb and effectively utilize aid.”26 The development
of the Poverty Reduction Strategy Paper could be a very eloquent example in this sense because
it gathered “at the same table” the IMF, the World Bank and the active aid agencies originating
from the countries put into discussion. In other words, in order for the IMF to formulate a
comprehensive view upon the macroeconomic policy of the developing countries, it should rely
on the reports, recommendations and statistics concluded by the aid agencies or development
banks. Fortunately, the issue addressed has been the subject of several debates and enormous
efforts are continuously being made in order for the low-income countries to progress.

V. Conclusion

To conclude with, this paper analyses the treatment discrepancies between the developed
countries and the developing ones in the legal context of the IMF. It is more than obvious that
the principle of sovereign equality is impossible to be 100 percent respected, but it should
become an aspiration of international economic law. In this way, the IMF could regain the
legitimacy and the credibility it lost in the past few years because of the seemingly political
biases. Even wealthier countries stopped borrowing from the Fund due to their advanced
economy which allows them to borrow on their own currency and with little exchange risk. “The
last instances where the Fund had to provide financial support to a developed country were in
1977 (to Italy and the UK), and in 1978 (to Spain).”27 The reform initiatives proposed, especially
adopting a double majority system, could balance both of the apparent incompatible principles -

26
Jack Boorman - An Agenda for Reform of the International Monetary Fund - Dialogue on Globalisation - no. 38 -
January 2008, p. 11
27
​Hector R. Torres - Reforming the International Monetary Fund - Journal of International Economic Law, 1-18 -
p.4

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Daria Maria Buhus - Erasmus Student, Romania

principle of sovereign equality and the necessity of empowering capital contributors. We should
not forget the measures undertaken by now, for example one of the most recent IMF reforms ( 15
December 2010 ) “which became effective on January 26, 2016 and delivers an unprecedented
100 percent increase in total quotas and a major realignment of quota shares. This will better
reflect the changing relative weights of the IMF’s member countries in the global economy.”28
Thus, the IMF can legitimately say it has already begun its work, even though there is a long and
difficult way to follow.

28
www.imf.org

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Daria Maria Buhus - Erasmus Student, Romania

VI. Bibliography

● Anand R. P. - Sovereign Equality of States in International Law

● Boorman Jack - An Agenda for Reform of the International Monetary Fund - Dialogue on
Globalisation - no. 38 - January 2008

● Buira, A. (2003b), ‘The Governance of the International Monetary Fund’, in I. Kaul, P.

Conceiaco, K. Le Goulven, and R.U. Mendoza (eds.), Providing Global Public Goods:
Managing Globalization (New York: Oxford University Press)

● Evans, P. and M. Finnemore (2001), ‘Organizational Reform and the Expansion of the
South’s Voice at the Fund’

● Fox William. R., "The Super Powers:Then and Now", International Journal, Canadian
Institute Of International Affairs, Vol.35, No.3, Summer 1980

● Kelsen Hans - The principle of sovereign equality of states as a basis for international
organization - The Yale Law Journal Volume 53 Number 2 - March, 1994

● Lister, F. (1984), Decision-Making Strategies for International Organizations: The IMF

Mode

● Niti Bhasin, Surbhi Gupta - Reforms in International Monetary Fund (IMF): Challenges
and the Road Ahead - Management and Economics Research Journal, Vol. 4, S1, 19–29

● Rapkin David, Strand Jonathan R. - Reforming the IMF’s weighted voting system

● Rapkin David, Strand Jonathan R - 10 - Voting Power Implications of a Double Majority

Voting Procedure in the IMF's Executive Board

● Torres Hector R. - Reforming the International Monetary Fund - Journal of International

Economic Law, 1-18

● Truman Edwin - Reform of the IMF for the 21st Century

● www.imf.org

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