Since 2008, a series of reforms have strengthened IMF governance in a number of ways. The 2008 and 2010 quota and voice reforms achieved a sizable reduction in misalignments of member country voting power with the evolving global economy while protecting representation of low-income members. Other reforms, mainly in the area of Board practices and procedures, have improved efficiency and raised the Board’s capacity to deliver on its executive, strategic, and oversight roles. The recent introduction of Board self-evaluation, a more open archives policy, modifications to the MD’s accountability framework, and the establishment of the Office of Risk Management are steps toward greater accountability and learning. These changes as well as the underlying efforts by IMF governance bodies to make them happen deserve full recognition.
Notwithstanding these significant advances, this report finds that the balance of the IMF’s governance structure remains weighed in favor of effectiveness and efficiency, while accountability and voice have continued to raise concerns which if unaddressed could affect IMF legitimacy and, ultimately, effectiveness. IMF governance has proved effective in supporting the Fund’s capacity to fulfill its core mandate under extraordinary circumstances and when the institution was most needed by the international community. However, the quota and voice reforms are not considered sufficient by much of the membership, and the alignment of “shares and chairs” remains a work in progress as discussions now proceed with the 15th General Review of Quotas. Many Executive Directors continue to feel that the Board’s capacity for strategic oversight is still constrained, that Management continues to play a dominant role in the decision-making process, and that the modified management accountability framework has limited practical impact. While some steps have been introduced to improve the MD selection process, the selection processes for both MD and DMD positions are still seen by many stakeholders as insufficiently transparent and merit based, as well as too limited by nationality considerations, and hence a source of legitimacy and performance risks. Finally, the role of the IMFC in providing strategic direction has been seen by some members as at times overshadowed by the less representative G20, which has become the lead global forum for economic cooperation since addition of its Leaders’ track in 2008.
These findings suggest continuing challenges for IMF governance. It should be recognized that these challenges cannot be fully addressed merely through internal processes but depend on collective commitment and goodwill across the membership. Meeting them will require addressing multiple and potentially difficult trade-offs that any reform efforts would face. Three in particular merit attention.
First, achieving a stronger and more representative Board would need to be balanced against the need to preserve Management’s latitude to run the institution. Moreover, there is a concern that a reduction in the Board’s involvement in day-to-day surveillance and lending operations to allow greater focus on strategic issues could be counterproductive unless carefully calibrated in pace and scope, given that operational and strategic decisions are in practice highly intertwined. Balancing this trade-off could be complicated by the capacity constraints faced by some Directors with very large constituencies, even after introduction of a new more flexible budgetary process for the Board, and the decline in the average tenure of Board members.
Second, addressing the concerns regarding the selection of IMF Management would require the political commitment of the membership to break long-standing nationality conventions, which may require a broader agreement to reform the selection of Management across IFIs. Nevertheless, the current selection process for the MD does provide in principle for open competition that could be used to achieve a change in outcome if non-European members were to more effectively coalesce behind a preferred candidate. For the selection of DMDs, the current approach has led to selections being in most cases tightly linked to certain nationalities—a more flexible approach would likely depend on agreement on a shift across all senior management positions.
Finally, any refinements to the relationship between the IMF and the G20 would need to balance the trade-off between effectiveness and representation. The right balance would avoid the risk of the less representative G20 overshadowing the IMFC as the primary source of strategic ministerial guidance to the Fund, while still taking advantage of the G20’s capacity to mobilize high-level political support when needed. But striking and sustaining the right balance will be a moving target, as the trade-off will vary between crisis and noncrisis periods and along with the evolving focus of the G20.