A former insider advocates overhauling the IMF’s Executive Board to make it more effective and representative
FOLLOWING a string of financial crises in emerging markets since 1994, the Group of Seven (G-7) major industrial countries decided at a 1999 summit in Köln to strengthen their direct involvement in managing the international monetary system. They would do so partly through the institution that oversees it, the International Monetary Fund (IMF), but also through two new bodies—the Financial Stability Forum (FSF), which had been formed earlier in 1999 to promote international cooperation in financial supervision and surveillance, and the Group of Twenty (G-20), which was established following the summit to promote dialogue between major industrial and emerging market countries. The G-7—Canada, France, Germany, Italy, Japan, United Kingdom, and United States—apparently viewed neither the IMF’s Executive Board nor the International Monetary and Financial Committee (IMFC), its principal advisory body at the political level, as being fully adequate to the task of leading the needed reforms. The G-7 leaders wanted more focus on strengthening crisis prevention and resolution in an environment increasingly defined by open capital markets. Their reform agenda included improving the soundness of financial systems worldwide, reducing the vulnerability of member countries’ economies to adverse developments, fighting money laundering and the financing of terrorism, and bringing more order to external debt restructuring.
Since 1999, much progress has been made, largely through the work of the IMF, in correcting the systemic weaknesses that had become apparent. But the G-7’s intense involvement in the IMF’s activities has not relaxed. Its frequent contacts with IMF management on both policy and operational issues lack transparency and are perceived by many as interference with the mandate of the Managing Director and the authority of the Executive Board. As a result, the Board’s authority has weakened, and the G-7 is increasingly seen as a self-appointed directoire of the international monetary system.
The G-7 countries are aware that their actions—including the creation of the G-20 and the FSF—and the introduction (which they inspired) of meetings of IMFC Deputies to prepare for IMFC meetings gnaw at the Executive Board’s authority. They also realize, however, that the IMF Board has the unique legitimacy of being the decision-making organ of the central organization for global monetary cooperation. Meanwhile, pressure is building from emerging market countries—especially in Asia—and from developing countries more generally, for a greater say in IMF decision making. What follow are some thoughts on reforms from the perspective of someone who served the Board as the IMF’s Secretary for nearly 20 years. But first, a look at how the Executive Board operates.