The manner in which member countries interact with the IMF, and in which the Executive Board, the Managing Director, and the staff work together in conducting the IMF’s business are key elements in its governance, but they are not always understood or seen to be transparent. In one view, the major industrial countries, led by the United States, impose their will on the rest of the membership because they are the majority stockholders of the IMF. Another view is that the prestige of the Managing Director or the monolithic strength of the staff overshadows the Executive Board. A further view is that the practice of consensus decision making in the Board (see Section IV) drowns the voices of the developing countries and of those advocating change and reform. The activities of civil society groups have also highlighted the importance of transparency for the IMF, which should explain itself better to the general public (see Section VII).
The leadership of the United States and of the other major industrial countries in the international monetary system is recognized by all. However, the Group of Seven is not a single unified force: the United States, Western Europe, and Japan frequently differ on major issues of policy and management; their record of mutual surveillance is not impressive and each has different regional links. Effective governance of the IMF requires that the benefits and burdens of membership should be equitably distributed among the participants. The diversity of interests among the IMF’s worldwide membership has encouraged consensus decision making as a major feature of IMF governance. The development of IMF policies is a slow process of thorough and deliberate consideration by the Executive Board, the management, and the staff of all the angles of an issue in order to come to a view that all, or at least a great majority, of the members can support. The developing countries have always attached great importance to consensus building because it assures the thorough consideration of all points of view and avoids premature closure through up or down voting.
At its insistence, the United States, through the size of its quota share, obtained veto power over some key decisions in the management of the IMF, such as admission of new members, increases in quotas, allocations of Special Drawing Rights (SDRs), and amendments of the Articles of Agreement. However, these veto powers can also be exercised by groups of other members who, together, hold the requisite voting power. In that regard, the Western European countries insisted on a veto power over the key decisions relating to the SDR and, earlier on, over the major lending decisions of the IMF that would involve the activation of the General Arrangements to Borrow (GAB).5 In 1994, the developing countries blocked a proposal by the major industrial countries for an allocation of SDRs that they regarded as unsatisfactory.
The developing countries as a group also have effectively used their veto power over important financial decisions of the IMF, which require a special majority of 70 percent of the total voting power. The most recent use of that power was in the fall of 2000 when the developing countries defeated proposals by the Group of Seven to raise the rate of charge on the use of IMF resources.
Voting majorities in the IMF are among the important checks and balances in IMF decision making (Appendix I). In the Second Amendment of the Articles, which spelled out the IMF’s task to exercise firm surveillance over the exchange rate policies of members, the number of provisions subject to special majorities more than doubled to over fifty. This increase was due in large part to the novelty of certain provisions and to the increased provision of enabling powers, while the higher special majority was raised to 85 percent in order to maintain the veto power of the United States.
The authority and wide-ranging tasks of the IMF can affect the welfare of citizens in many countries and it is, therefore, important that major decisions should command very wide support. However, special majorities are a double-edged sword: while the developing countries decried the 85 percent majority required to allocate SDRs, they welcomed the opportunity it gave them to oppose an amendment of the Articles that would give the IMF jurisdiction to pursue freedom of capital movements. Thus, the 85 percent majority that is required for an amendment of the Articles is both a protection of the system and a hindrance against change.
The Managing Director brings to his position his own vision on how to carry forward the IMF’s mandate for the management of the international monetary system. While he does not have voting power in the Board, except in the unlikely event of a tie, the Managing Director’s authority and prestige can be very considerable. Pierre-Paul Schweitzer, as Managing Director (1963-73), successfully resisted the pressure of the Group of 10 industrial countries to place decision making on the deliberate creation of international reserve assets outside the IMF. In 1971, he took the position that a general currency realignment among the industrial countries should include a devaluation of the U.S. dollar in terms of gold. Following the breakdown of the par value system in the early 1970s, he convinced members that the IMF was the right locus for the negotiation of reform of the system.
In the early 1980s, the then Managing Director Jacques de Larosière (1978-86), brought the international banks around to endorse his approach of concerted lending, including rescheduling of a country’s debt, on a case-by-case basis, as a prior condition for the extension of IMF credit. Upon his arrival in the IMF, Michel Camdessus (1987-2000) hammered out the new financing window, the ESAF, for low-cost, longer-term funding of structural adjustment programs for the poorer countries. During the Mexican and Asian crises of the 1990s, when the IMF found itself, de facto, in a position of lender of last resort, Mr. Camdessus staked his authority on large-scale financing packages for Mexico, Korea, Thailand, and Indonesia in order to stem the slide of their currencies and the collapse of their banking and corporate sectors.
Finally, the staff is the third partner in the governance of the IMF. The staff conducts the surveillance missions with members and the discussions on the use of IMF resources. The staff produces the documents on the basis of which the Board deliberates and is an active participant in Board discussions. New policy proposals originating with members or Executive Directors are channeled by the Managing Director for further elaboration to the staff, which has the institutional memory to anchor new proposals in the precedents, policies, and legal framework of the institution.
The following paragraphs provide further commentary on the tasks of the Executive Board, the Managing Director, and the staff. The next section discusses decision making in the Board, where Executive Directors, management, and staff work together to conduct the business of the IMF.
The Executive Board
The mandate of the IMF and the good governance of the international monetary system require a strong Executive Board. The Executive Board has a central role in policy formulation and in decision making in the institution. The Board exercises all the powers for conducting the IMF’s business except those that the Articles of Agreement have reserved for the Board of Governors, which is the supreme organ of the IMF. Decision making by consensus has, from the outset, been a central feature of the Board’s work.6
The nature of the body that would conduct the operations of the IMF and exercise all the powers that the Board of Governors had not specifically reserved for itself was a subject of considerable debate during the negotiations at Bretton Woods. Some participants, like the United States, held the view that the Executive Board should function in continuous session while others, including the United Kingdom, had a preference for a body composed of top national officers with political responsibilities, who would function in their capitals and meet at headquarters as needed for the business of the IMF. Underlying this debate were distinct philosophies regarding the need for continuous oversight by a body of experts versus less continuous but high-level political oversight from capitals.
The question of political oversight by national capitals of the business of the IMF has resurfaced time and again. The establishment of the Interim Committee of the Board of Governors on the International Monetary System (Interim Committee) in 1974 was a major decision of governance. Over a period of a quarter century, the Interim Committee collaborated closely with the Board. Building on that experience, the decision in 2000 to transform the Interim Committee into the International Monetary and Financial Committee (IMFC) and to establish a group of IMFC Deputies was made in the expectation that it should raise the effectiveness of the political oversight of the IMF in the era of global capital markets and of closer interaction between the economic policies and performance of members.
Executive Board meetings are chaired by the Managing Director and, in his absence, by a Deputy Managing Director. The Board is “in continuous session,” that is, it meets as often as the business at hand requires. Total Board meeting time averages more than 12 hours a week and over 600 hours per year, which demonstrates the intense oversight exercised by the Board on the activities of the IMF. Nearly one-third of Board meeting time is devoted to policy issues, about 60 percent to surveillance, and the remainder to administrative and budgetary matters. In its decisions on policy issues, the Board makes extensive use of review clauses, particularly when it is breaking new ground and wishes to look again at the working of a policy in light of experience. In the area of surveillance, the Board holds periodic discussions on the world economic outlook and the outlook for international capital markets; it discusses Article IV consultation reports with individual countries, of which there are between 120 and 130 scheduled each year. All requests for the use of IMF resources and their reviews also require Board approval. The periodicity of reviews depends on the requirements of conditionality and on the envisaged path of progress toward restoring the borrower’s external viability. During the crisis years of the 1990s, the Board often scheduled monthly reviews of the use of IMF financial resources and of developments in the affected countries. Executive Directors also meet frequently in informal Board sessions to discuss more freely sensitive issues such as developments in foreign exchange markets or recent developments in countries that are using, or may need to have recourse to, IMF resources.
The industrial countries have the necessary manpower in their capitals to follow IMF affairs closely, and their Executive Directors are often selected from the senior civil servants. However, some industrial countries tend to retain decision-making power in their capitals, thereby running the risk of reducing the authority and effectiveness of their Executive Directors. For their part, the developing countries and emerging market economies have become acutely aware of the importance of having strong representatives in the Board to defend their interests and to assist capitals in discussions of IMF financial assistance and the policy conditions attached thereto.
Each of the five members with the largest quotas is entitled to appoint an Executive Director. The remaining members elect other Directors. An appointed Director serves at the pleasure of the appointing member, while an elected Director serves for a two-year term. Each Director appoints an Alternate Director who has full powers when the former is not present. In a number of constituencies, the Executive Director is selected by the country with the largest voting power in the group while, in others, there are rotation arrangements. In the early years of the IMF, several alternates were of the same nationality as the Director. That is no longer the case in multi-country constituencies, which reflects both the growth of the total membership and the intense interest of members in IMF affairs.
A two-year election term for an Executive Director is probably too short to master the complexities of IMF policies and decision making. However, the prescription of a longer term of election would require an amendment of the Articles of Agreement. As a practical matter, in a number of constituencies, Executive Directors are reelected to serve more than two years; in others, a future Director first comes on board as an Alternate Director or an Advisor, or may serve first as an Executive Director in the Bank. Some Executive Directors serve simultaneously in the World Bank.
The increased emphasis on transparency and accountability led the Board, in 2000, to establish an Independent Evaluation Office (IEO), which should reinforce the credibility of the IMF’s work outside the institution. The IEO Director consults with and informs the Board but is not obligated to report to management and is operationally independent. Publication of the IEO findings will enhance the accountability of the whole process.7
The Managing Director
The Managing Director is both Chairman of the Board and chief executive officer of the institution. The position of the Managing Director is one of the most influential official functions today in the world of international finance. Through his visits to member countries and contacts with ministers, central bank governors, and high officials of members and international bodies, the Managing Director operates continuously at the political level while he is at the same time Chairman of the Executive Board and head of the staff. With the ever-growing pressures of Board and staff work, the number of Deputy Managing Directors was raised in 1994 from one to three, which also provided an occasion to enhance the regional diversity of the team. The Managing Director-Deputy Managing Director team is complemented by a few Counsellors selected from the top staff.
In contrast with the consensual manner of appointment of earlier Managing Directors, the selection of the successor to Jacques de Larosière was complicated by two candidacies: Michel Camdessus, Governor of the Banque de France, and Onno Ruding, Minister of Finance of the Netherlands and Chairman of the Interim Committee. After time-consuming consultations, Mr. Ruding withdrew and Mr. Camdessus was selected with the unanimous support of the Board.
The selection of the successor to Mr. Camdessus was even more timeconsuming and brought into focus the absence of procedural guidelines. The failure of the German authorities to ascertain the broad acceptability among the membership of the candidate whom they first proposed complicated the process. Many IMF members also voiced the view that there was no rationale for maintaining the unwritten rule that the Managing Director should be a Western European and that the President of the World Bank should be a U.S. national. The candidacies of Stanley Fischer of the United States (who was then First Deputy Managing Director of the IMF), on the initiative of a number of developing countries, and of Eisaku Sakakibara of Japan for the position underscored that view.
After agreement had been reached on a new German candidate, Horst Köhler, Executive Board working groups were established in both the IMF and the World Bank to put forward procedural guidelines for the selection of their chief executives. The joint report of the working groups recommended that, as a first step in the process, the Executive Directors would decide on the required qualifications of candidates and establish an advisory group. This would include eminent persons from academia, international affairs, banking, and finance, supported by executive search expertise, to review and assess potential candidates who should enjoy their government’s support. The Executive Directors would consider the advisory group’s assessments, establish an initial short list and, following consultations with their capitals, a final short list of candidates on the basis of which the definitive choice would be made. The working groups also recommended that there should be no age limit for the two chief executives and that, normally, they should not be expected to serve more than two five-year terms. In the case of the IMF, the adoption of the latter recommendations would require changes in the By-Laws.
The Staff
The IMF staff is a tightly structured, hierarchic, and homogeneous meritocracy. Most of the professional staff are economists. Functional and area departments and their divisions dominate the organization chart. The divisions and their “desks” are the central points from which the IMF exercises its surveillance and financing functions. The major steps in the organizational ladder are economist, division chief, and department head. The staff’s responsibilities focus on bilateral and multilateral surveillance, conducting periodic Article IV consultations with members, discussions with members on the use of IMF resources, the preparation of IMF policy papers, systemic and operational research, and technical assistance activities. The further broadening of the core tasks of the IMF in the 1990s in areas such as the soundness of financial institutions, standards and codes of good policy practices, structural reform, the integration of poor developing countries in the global economy, the pursuit of transparency, and outreach to civil society groups has required increases in personnel from a number of different disciplines, which tends to weaken the homogenous character of the staff. At the end of December 2001, the IMF staff totaled about 2,650, with an additional 330 contractual staff.
All papers, briefing documents containing the instructions or objectives of missions in the field, Article IV consultation reports, requests for use of IMF resources and their reviews, policy and operational papers, and the like pass through an interdepartmental clearance process before they are submitted to management for final approval and circulation to the Executive Board. The Policy Development and Review department (PDR) has a central role in the clearance process in order to secure conformity with standards and policies and to ensure evenhanded treatment in the exercise of IMF surveillance and in the application of IMF policies on the use of its resources.
The view is sometimes expressed that the IMF’s system of oversight of staff work and internal clearance of papers stifles dissent and that papers have been homogenized before they reach management or the Board. While it is important to iron out differences during the drafting of reports, it would be difficult to stifle dissent in an institution like the IMF where staff members eagerly argue for their views and welcome a battle to win their case. If the matter is important, they will ensure that management becomes aware of the issues. Moreover, Board members have their offices under the same roof as the staff and contacts between the staff and Board members’ offices are an intrinsic part of the work atmosphere. Thus, Executive Directors are often aware of differences of views within the staff. Of course, delicate issues may arise in cases when the need for disclosure of information to Executive Directors appears difficult to reconcile with the requirements of confidentiality of a member country.