Public Information Notice No. 09/98

Public Information Notice: IMF Executive Board Discusses Governance Reform

August 4, 2009

Background

In its April 2009 meeting, the International Monetary and Financial Committee (IMFC) called on the Executive Board to report on governance reforms, building on the many contributions to this area in recent years. The Executive Board met to have an initial discussion on governance on July 21, 2009. The discussion was based on a staff paper that summarized the main issues and reform options from several reports, including from the Eminent Person’s Group headed by Trevor Manuel, the IEO, and civil society.

Executive Board Assessment

Directors welcomed the opportunity to have an initial discussion of governance reform. Although the Fund’s role in the current crisis has shown that its decision-making structures can deliver innovative and rapid responses that the membership expects, more can and should be done to enhance the institution’s legitimacy and effectiveness beyond the time frame of current events. In working toward an upcoming report to the IMFC on governance reform, Directors considered five core issues: fair quota share; high-level engagement; effective decision-making and representation at the Executive Board; open selection of Fund management (and, more broadly, enhanced staff diversity); and an updating of the Fund’s mandate.

Quotas. Directors considered that quota shares are a core governance issue that calls for early attention, and most Directors acknowledged dissatisfaction with the present distribution of quotas. As a first step, it was emphasized that members that have not yet done so should swiftly complete the domestic legal processes to allow the April 2008 quota and voice reform to come into effect. With work on the next quota negotiation, to be completed by January 2011, proceeding on a parallel track, many Directors stressed that the effectiveness of several—but not all—governance reforms hinged on a satisfactory realignment of quota shares. That said, work on broader governance reforms beyond quotas should be set in motion quickly and phased in appropriately.

Engagement. High-level engagement by ministers and governors, of the kind evident in the current crisis, is essential to discharge the responsibilities of the institution. Directors agreed that their upcoming report to the IMFC should outline concrete steps to achieve this end—for example, by moving from formalistic IMFC meeting formats to more fluid and interactive ones, adopting a more inclusive leadership model like the G-20’s troika system, improving the communiqué drafting process, and incorporating mechanisms for accountability. A few Directors favored the transformation of the IMFC into a Council with formal decision-making powers. A number were open to further consideration of such a step, and—in the view of several of these Directors—particularly if the 2011 quota reform were to dispel current concerns on voting shares. However, many other Directors considered that such a move would weaken member voice, consensus-based decision making, and the system of checks and balances vis-à-vis staff and management, and emphasized that the activation of the Council, as set out in the Articles of Agreement, had very limited support among Executive Directors.

Executive Board. Directors agreed with the Managing Director’s view that a strong Board is vital to this institution. To this end, Directors stressed the importance of strengthening the role of the Board, with greater attention to strategic issues, facilitated by modernizing work practices. Among other things, this might include better use of Board committees, and lapse of time procedures and similar recommendations of the Executive Board Working Group report on governance reform, as well as consideration of alternative procedures for the Board’s conduct of surveillance. Directors strongly disagreed, however, with proposals to redraw lines of responsibility—for example, devolving to management the function of surveillance, where strong peer review is critical. On the size of the Board, a few Directors considered that a reduction from 24 to 20 chairs could enhance Board effectiveness, but a number thought that any efficiency gains would be small relative to reduced member representation. A number of Directors saw merit in moving to a system of all elected Executive Directors, thereby removing the provision in the Articles for the largest five quota holders to appoint Executive Directors. A few Directors supported consolidating European representation at the Board, which would increase relative emerging market and developing country representation; many, however, stressed that the case is far from clear cut. Most Directors emphasized that the principle of voluntary constituency formation should remain in place.

Voting rules. Directors stressed that the practice of deciding by consensus whenever possible has served the Fund well. A number of Directors either supported, or were open to considering, a lowering of the 85 percent threshold for special majorities to 70 or 75 percent; a number of others did not, in particular as this was seen as weakening the voice of minority groupings. Many Directors were interested in giving further consideration to use of double majority voting; a number of others, however, did not see merit in double-majority voting, fearing notably that such a move risked gridlock.

Management and staff. There was consensus that the selection of the Managing Director, as well as of the Deputy Managing Directors, should be open and transparent, and without regard to nationality. Although concrete progress must await the next selection, political commitment to this objective can be made clear even now. Directors also agreed that efforts to strengthen staff diversity in all its dimensions—nationality, gender, education, and experience—should be enhanced. Some Directors also supported a larger role for the Executive Board in the appointment of the Fund’s General Counsel and Secretary, and a few suggested other department heads as well.

Mandate. While acknowledging the challenge of reaching consensus on so large an issue, many Directors favored more work on updating of the Fund’s mandate, which has a bearing on governance insofar as it frames and shapes the issues and approaches put to the membership in the exercise of their voice and vote. The surveillance mandate, in particular, could be broadened to cover explicitly the full range of macroeconomic and financial sector policies that bear on global stability. Some Directors noted that financial sector issues are already increasingly covered in Fund surveillance. A number of Directors also saw a case for looking into the Fund’s role in surveillance over capital flows, although a number of other Directors opposed any extension of Fund jurisdiction in this area. More broadly, Directors agreed with the Managing Director that the membership needs to reflect further on the post-crisis global architecture and the associated role of the Fund.

Next steps. Executive Directors looked forward to discussing a concise draft report to the IMFC, based on this broad guidance, that will put forward specific proposals for immediate action and identify areas for further work.