IMF Quota Formula

The IMF has been facing criticism in recent years. Its legitimacy has been undermined as some members, despite their economic performance, are still underrepresented in IMF's decision making and its activities leave mixed evidence about their success. Being a crucial condition for institution's existence, legitimacy of the Fund's governance needs to be restored. This thesis tries to find such specification of formula, which would make allocation of votes more credible and fair. Based on the assumption that perception of the Fund's legitimacy would improve if developing countries were better represented and allocation of votes could not be subject to manipulation, a new procedure of vote allocation is designed. New formulas include population as one of the variables as a solution of the emerging powers' insufficient involvement. Using principal components analysis allows automatic assignment of weights, which results in more objective mechanism of votes allocation. As there is a significant discrepancy between voting weights and actual voting power measured by Banzhaf index, also formulas incorporating power indices are investigated. Based on quantitative and qualitative criteria, these four different mechanisms are assessed. Thesis concludes that any of these formulas would be an improvement in comparison..