1. The resolution concluding the Twelfth General Review of Quotas in January 2003 indicated that the Executive Board intended, during the period of the Thirteenth General Review, "to monitor closely and assess the adequacy of Fund resources, to consider measures to achieve a distribution of quotas that reflects developments in the world economy, and to consider measures to strengthen the governance of the Fund." This status report provides an update on developments in these areas also in response to a request from the International Monetary and Financial Committee.¹ It indicates that Fund liquidity is satisfactory at present; and that quota-related issues will continue to be considered by the Executive Board, also in the context of its regular assessments of the adequacy of Fund resources. The Executive Board is pursuing voice and representation issues on two different tracks—quota-related topics and administrative and capacity-building initiatives.

2. The Executive Board recognizes the importance of the Fund having adequate resources to fulfill its critical responsibilities and accordingly conducts semi-annual reviews of Fund liquidity. At the time of the last review, the Fund's one-year forward commitment capacity (FCC) amounted to SDR 63 billion as of end-July 2003.² Most Directors concluded that the Fund's liquidity position is adequate and that the Fund would likely be able to meet the near-term projected needs of its members, even under somewhat unfavorable circumstances. This assessment was based on the assumption of a pick up in global economic activity in the second half of 2003 and an expectation that the near-term demand for Fund resources would be relatively small. Further, should the need arise, the New Arrangements to Borrow/General Arrangements to Borrow (SDR 34 billion) also remain available. However, given the importance of the Fund having adequate resources to fulfill its responsibilities and that difficulties in the world economy are hard to predict, continued close monitoring of the Fund's liquidity position will be important.

3. In a discussion on July 31, 2003, the Executive Board considered quota distribution issues including measures to achieve a distribution of quotas that reflects developments in the world economy.³ In the meeting, Directors took stock of areas of emerging consensus for new quota formulas and considered certain issues involved in revising and updating the quota formulas. The preliminary results of calculations, using variables that could be included in a new quota formula, were available to the Board. Directors also exchanged views on possible approaches to accomplish broad changes in quotas and voting power, based on lessons from past quota reviews.

4. In considering how best to achieve changes in quota shares that reflect developments in the world economy, Directors observed that significant adjustments in quota shares have tended to take place in the context of general quota increases. Most Directors, therefore, saw considerable merit in a package of measures that would involve—in the context of the next general quota increase:

· a general quota increase with a relatively large selective element allocated by means of a new quota formula;

· ad hoc quota increases aimed at addressing the clearest cases of out-of-lineness; and

· an increase in basic votes specifically aimed at correcting the erosion of the voting power of the smallest members.

In the view of these Directors, such a package may represent the best opportunity to assemble the broad consensus needed for adoption. It was noted, however, that an increase in basic votes would require an amendment of the Articles of Agreement.

5. While most Directors recognized that, in view of the Fund's satisfactory liquidity position, there is no need for a quota increase at present, many Directors underscored the need for continued strong efforts to build a consensus among the membership on the elements of such a package. Many Directors also encouraged continued exploration of the scope for more limited ways of changing quotas, in particular by ad-hoc quota adjustments that would address cases of serious out-of-lineness. Most Directors indicated their willingness to consider an increase in basic votes outside the context of a general quota increase, although it was acknowledged that the required majority does not exist at this stage. Directors called for future work on quota-related topics to include updating the data used to calculate variables and alternative quota formulas, further work on measuring capital flows and financial openness, and the availability of capital account data.

6. Strengthening Fund governance requires a deliberate and sustained effort by the membership as a whole to enhance collaboration and consensus in the formulation and implementation of policies by its governing bodies. While administrative and technical capacities may not be the only, or main, determinants of the voice and representation of developing countries in the decision-making process, such factors can be unnecessarily constraining. Executive Directors have, therefore, continued their examination of measures designed to enhance the capacity of Executive Directors from developing and transition countries to participate effectively in decision making in the Fund and thereby better serve member countries.⁴ The first step in this area was taken last April, when the Executive Board agreed that Executive Directors with 20 or more member countries-including the Executive Directors from sub-Saharan Africa-may add three persons to the staff in their offices who contribute to the Executive Directors' analysis of Fund policy and operational issues in preparation for discussions in the Executive Board and with Fund management and staff.

7. Since then, the Executive Directors have advanced their work on proposals in several other areas aimed at enhancing capacity in Executive Directors' offices-in particular, those of developing and transition countries. First, efforts to attract high-quality persons in the offices of Executive Directors will be furthered by the agreement to make available informal voluntary guidelines on the qualifications and duties of persons in those positions. Second, the Executive Directors have agreed that further training for new members of Executive Directors' staff could be provided on a regular basis. In that connection, the IMF Institute is developing a new course focusing on financial programming issues. Third, Executive Directors have examined ways in which new technology could facilitate their close and effective communication with their authorities in capitals. To that end, Executive Directors have asked the staff to increase the number of document series that are available on the Executive Directors' Extranet, a secure vehicle for making electronic versions of Board documents available quickly to authorities in capitals. Executive Directors have also agreed to explore recently available video teleconferencing technology as an additional useful tool for facilitating close contact with their authorities in member countries.

Executive Directors welcomed the opportunity to discuss further a number of issues related to the distribution of quotas of Fund members. Building on progress achieved during earlier discussions, the views expressed by the Board today will provide the basis for a status report to the IMFC, in accordance with the resolution of the Board of Governors of January 2003, which concluded the Twelfth General Review of Quotas without an increase in quotas. The resolution noted the Executive Board's intention to monitor closely and assess the adequacy of its resources, to consider measures to achieve a distribution of quotas that reflects developments in the world economy, and to consider measures to strengthen the governance of the Fund.

Directors recognized the importance of the Fund having adequate resources to fulfill its critical responsibilities. In this regard, the most recent review of the Fund's liquidity position in April 2003 concluded that the Fund's current and prospective position is adequate. They urged the staff to continue to monitor and assess the adequacy of Fund resources through periodic liquidity reviews.