Japan may lose its status as the IMF’s second-largest shareholder for the first time in 30 years

According to the agency Kyodo Japan is likely to lose its status as the IMF’s second-largest shareholder at the end of the year, citing International Monetary Fund officials and documents. The country maintained this position for 30 years.

The board of the International Monetary Fund has been discussing for several years the need to change the formula by which countries’ quotas in the fund for receiving financial assistance are calculated. These quotas, in turn, determine the number of voting shares a country has in the fund.

Currently, the largest shareholders of the IMF are the United States of America with a quota of 17.43%, Japan (6.47%) and China (6.4%). Moreover, the majority of votes belong to the developed economies of the world.

Representatives of developing economies have been trying for many years to achieve a revision of the quota formula, which now depends primarily on the size of GDP (at purchasing power parity), as well as on a number of additional criteria. Among them are the degree of market openness and the size of reserves.

The formula was last revised in 2010, and was finally approved by the organization’s members only in 2016. The IMF board should submit proposals for a new method for calculating quotas by mid-December of this year. The decisive period, experts say, will be October, when a broad agreement on the issue is expected to be adopted during the IMF’s annual meeting in Marrakesh.

According to Kyodo experts, if the current formula is maintained, Japan will drop to third place in terms of the number of voting shares due to the weakening of the yen against the dollar and weak economic growth.

The United States will remain the largest shareholder, but its share will be reduced to 14.8%, and China will not only move into second place, but will almost equal the United States, receiving 14.4% of the votes. However, according to some IMF officials cited by the agency, even if the current formula is maintained, Japan may end up in fourth place, also missing Germany.

Based on the nominal volume of GDP, Japan will also be in third place, behind the United States and China. However, there is also an option in which Japan could fall even lower. As experts note, this will happen if the leadership of the International Monetary Fund accepts as a formula for calculating quotas one that is based on the trading activity of member states. In this case, Japan will no longer remain in the top three, but in the top five of the fund’s leading shareholders. The top five itself will look like this: USA, China, Germany, Great Britain, Japan.

Kirill Sarkhanyants