Transcript

Transcript of an IMF Book Forum
Do Developing Countries Have a Say at the IMF?
Thursday, February 5, 2004
Washington, D.C.

Participants:

Ariel Buira, Director of the G-24 Secretariat
Carol Welch, Director of International Programs, Friends of the Earth
Thomas Dawson (Moderator), Director of External Relations, IMF

(Photo credits: Denio Zara, IMF.)

DAWSON: I'm Tom Dawson, Director of External Relations at the IMF. Today's Book Forum features a new book of essays called "Challenges to the World Bank and the IMF: Developing Country Perspectives." Dani Rodrik has written that the book provides "a gripping reminder of the long road we need to travel before the governance of the world economy becomes truly hospitable to the aspirations of the developing world." Our featured speaker, Ariel Buira, edited the book and also wrote some of the essays in it. Mr. Buira is currently the Director of the G-24 Secretariat. However, he has, as we all do, a past.

(Laughter.)

This includes an involvement with the amendment of the Articles of the IMF before, during, and after the collapse of Bretton Woods. He was also at one point an Executive Director on the IMF Board representing Mexico and the constituency that includes Spain, Venezuela, and certain Central American countries. He also was a Director of the Bank of Mexico and more recently a senior advisor and coordinator working with the Mexican Government on the Monterrey Summit. So, in short, he knows what he is talking about.

Tom Dawson, Ariel Buira, Carol Welch (left to right)

Our second speaker is Carol Welch, Director of International Programs at Friends of the Earth. Carol has -- my notes say -- long been a worthy opponent of the Fund. Well, given her age, not for that long, but certainly worthy nonetheless. And like Ariel, she has a lot of ideas about how the Fund's governance could be improved.

We're pleased that both of them agreed to be with us today. The format is that Ariel will start and go over what his book's about, focusing in particular on Fund governance, and then Carol will make some commentary directed both to that and whatever else she wishes to talk about. After that since, to quote an American politician, I paid for the microphone, I may choose to make a few comments. I will keep them short to leave time for questions from the audience.

The book is available for sale outside, thanks to our friends from the World Bank book store. Even though the book is critical of the Bank, the bookstore, of course, may have their own profit motive in making it available.

(Laughter.)

If you want a somewhat different perspective, for free, I note here a pamphlet, "Governance of the IMF," written by Leo van Houtven on IMF decision-making, institutional oversight, transparency, and accountability. Leo was a former colleague of Ariel's from the IMF's Executive Board. Ariel's book, I will say, did not alienate every member of the Fund. There are quite a few members of the Fund who I think support it strongly. The beauty of Leo's book is he did alienate every member of the Fund --

(Laughter.)

Because he was here for so long, Leo managed to use his rich historical background of the Fund to write a pamphlet that is in its own way even more provocative than Ariel's book. With that let me turn it over to Ariel.

BUIRA: Thank you very much, Tom. I'm very grateful for this opportunity, and I'm very grateful to be invited to present the book at the Fund. When I wrote some of the things that are in the book, I thought that they wouldn't let me in the building anymore.

(Laughter.)

So I think it speaks very well of you and of the Fund that you have this degree of tolerance.

Ariel Buira

The issue that I'm going to address today is, of course, the governance of the Fund. This is an important subject because the Fund may well be the most important international institution for most developing countries. With resources of some $300 billion, it's a very influential institution because it can back its advice with money, which is more than most can do.

Now, since 1987, the Fund has paid increasing attention to issues of governance. It promotes transparency and accountability to ensure domestic ownership and to promote the good use of public resources. The first question that comes to mind is whether the Fund meets its own standards of governance, of transparency and accountability? In the Monterrey Consensus, in March 2002, and since then in the various communiqués of the IMFC and the Development Committee, we have seen renewed commitment to increase the voice and participation of the developing countries in decision-making. This is felt to be good for the workings of the institutions and for ownership and for international dialogue.

Now, the question is: how does one attain this improvement? The world has changed a lot since the Bretton Woods institutions were set up. Let me bring to your attention a couple of facts that might surprise you. The GDP of the developing countries measured in purchasing power parity is marginally larger than that of the G-7. And the international reserves of the developing countries, taken as a group, are substantially larger than the international reserves of industrial countries.

Now, I'm going to talk about some very basic, very simple ideas. The first one is on the structure of power and the role of basic votes. Initially, there was a discussion at Bretton Woods whether every state should have the same vote because of the legal principle of equality of states or, a completely different principle, whether power should be determined by contributions.

Well, there was a compromise, and the compromise was that every state should be given a number of 250 basic votes, and that then you would have a vote for every $100,000 you contributed. Later, it was every 100,000 SDRs. But over time, basic votes have become irrelevant. Why is this? Well, because quotas have increased 37-fold, and basic votes of the original members, of the 44 or so original members, fell from 11.3 percent to one-half of 1 percent of voting power. So decisions are based essentially on quotas.

Now, because the membership increased from 44 to 184 or so, the total basic votes today account for 2.1 percent of total votes, but this is still a very small proportion--it simply confirms the erosion of basic votes in relation to quotas. And with quotas being the sole determinant, essentially, of voting power, the voice of developing countries has been much reduced, because basic votes were a significant proportion of the votes of small countries at the outset.

Now, on top of this, you have a number of issues that require qualified majorities of 70 or 85 percent. At the Bretton Woods Conference, qualified majorities were to be required in two cases. But by the time of the first amendment, these were required on 18 subjects. By the time of the second amendment, these were required on 53 subjects.

Now, when you require 85 percent of the vote for some decisions, you are giving the U.S. the power of a veto or you are giving a veto to the European Union. When you require 70 percent of the vote, you give a veto to the G-5, which has 39.6 percent of the vote. The votes of G-7 Directors, combined with the votes cast by the Belgians, Dutch, and Swiss, exceed 60 percent.

So the fact is that all important decisions regarding the size of the Fund, sale of gold, access to Fund resources, issue of SDRs, rates of charge, remuneration of creditor positions, exchange rate arrangements, and so on all require qualified majorities. And then the question arises: Well, if you already have weighted voting, why do you need qualified majorities on top?

Let me turn now to the quota formulas. Let me say that the quotas are very important because they determine access to Fund resources; they determine contributions to the Fund; and they determine voting power.

Now, when one says quota formulas, it sounds rather scientific, as though there is an objective way of determining your relative share of the Fund. Well, there is no such thing. The formula was originally designed to meet a political objective. Raymond Mikesell, who worked it out, has written that he was told the U.S. President and the Secretary of State had agreed on the following principles: the U.S. should have the largest quota, with about a third of the total; the British Empire would come in second with about half of the U.S.; the Soviet Union should be given a quota somewhat smaller than Britain; and China, smaller than the Soviet Union. Would he please go and work out the formula that gives you this?

So he worked out a very ad hoc formula, and when you look at it, the formula is almost funny. You take 2 percent of national income (later it became GDP), 5 percent of gold and dollar reserves, 10 percent of average imports, 10 percent not of exports but of the maximum variation in exports; and then the last three percentages were to be increased by the ratio of average exports to national income. Well, you could have added your date of birth or something.

(Laughter.)

The Bretton Woods formula is still in use, with variations in weights given to these variables. It's combined with four other formulas that use the same variables and give them somewhat different weights. There have been some changes. Instead of gross national income, now you use GDP, but very small adjustments.

Now, you have five formulas, and then which one is applied, a certain amount of discretion is exercised. And this doesn't--the process isn't entirely transparent, and quotas are clearly not representative of the size of the economies.

For example, Canada and China have exactly the same quota. The Chinese quota was increased after the incorporation of Hong Kong to be exactly the same size as Canada's to the last decimal point. But if you look at the share of GDP, whether you measure it in purchasing power parity or whether you measure it at current exchange rates, you can see that China is a much, much bigger economy than Canada.

Now compare Netherlands, Belgium, and Switzerland, whose quotas all bigger than Brazil's and Mexico's. But Brazil and Mexico are much bigger than Netherlands, Belgium, and Switzerland any way you wish to measure it. Another amazing example: Belgium has a 74-percent bigger quota than Mexico's, but Mexico's foreign trade alone is bigger than Belgium's GDP.

Then you look at Korea and Denmark. Well, you might think that Korea is a more important economy, larger, trading nation, and so forth. But, no, the formula tells you that Denmark has the bigger quota--marginally, but still. So the result of this is a under representation of the developing countries.

The most striking example is perhaps Asia. I've taken a group of small European countries and the larger Asian countries, and you can look at the GDP in terms of share of the world. In purchasing power parity, the Europeans are just under 3 percent; Asia is 21.5 percent; but the European quotas are bigger. The same applies to the other regions, but Asia is a more striking case.

The imbalances are not just between the developed and the developing world. There are very large imbalances within the developed world. Look at the share of the European Union. Again, I think that probably the only reasonable way to measure it is purchasing power parity because the euro/dollar rates have oscillated by 50 percent or more in a short period. With this the European Union, with a GDP somewhat smaller than that of the U.S., has virtually 30 percent of the total vote versus the 17.2 of the U.S. The developing countries as a whole have 30 percent; if you add the transition economies, it comes to 38 percent.

Now, the European Union's over-representation is not unrelated to the formula. The formula, as you'll recall, gives a certain importance to exports and imports. And being very many small, very open economies, exports and imports of many European countries are very high as a proportion of GDP, while, say, the U.S. foreign trade is very small because it's a continental economy. So this is a bias against large economies, whether they be India, China, or Brazil.

Now, the result of this is that the Executive Board has eight, sometimes nine European Executive Directors, and on top of this, a European central bank observer that participates in discussions of the members countries of the Union, the prospective member countries of the Union, issues of financial stability, world economic outlook and so on. So you may have ten European voices at any one time.

I mentioned that the European quotas benefit from the inclusion of openness in the quota formula. But if you note today that there is a common currency, at least among 12 of the European Union members, you should adjust the calculated quotas to eliminate intra-euro zone trade. Why? Well, it's very simple. Trade in euros between Germany and Belgium is not different in nature from trade between New York and California. That is, it cannot give rise to a balance-of-payments problem. You may have all kinds of other problems--unemployment or inflation--but not a balance-of-payments problem because it's in the same currency. So if exclude this intra-euro zone trade, European Union quotas would fall by 40 percent.

So it seems to me that there is a good case for increasing the representation of developing countries. This would require revising the quota formulas to make them more representative of the size of the economies. I think I would use purchasing power parity in measuring GDP to avoid the distortions that arise from exchange rate fluctuations, but also to avoid the bias against developing countries that is introduced when you measure GDP and the exchange rates.

What is this bias? Well, in developing countries, you often have significant differences between the prices and wages prevailing in the tradable sector and those in the subsistence sector or the non-tradable sector. But because their sectors are much more integrated this doesn't happen in industrial economies. Now, when you measure GDP in current exchange markets, you find that this glass of mineral water that in Guatemala is 25 cents is $2 in Washington, and you would conclude that the GDP of Washington is eight times bigger. But it's just the same glass or bottle of mineral water.

Tom Dawson, Ariel Buira, Carol Welch (left to right)

Okay. Well, the next question I want to ask here is whether the Fund resources are adequate. You'll recall that the IMF purposes include to give confidence to members by making resources available to them to correct maladjustments in the balance of payments without resorting to measures destructive of national or international prosperity--that is, without recession.

Now, to finance an adjustment without recession, you need a lot of money. But what's happened to the Fund resources? Well, they started in 1944 at 58 percent of world trade. They declined to 4 percent of world trade by the year 2000, and they are estimated to be around 3 percent of world trade in 2004, with the World Economic Outlook figures. So the Fund has become very, very small. This is, of course, at a time when international capital movements have become very much larger than GDPs, and coping with those needs very large amounts of support.

Now, why has there been such a decline in the size of the Fund? I suggest that because no industrial country has resorted to the IMF in the last 25 years, the larger shareholders have stopped being stakeholders. They no longer come to the Fund to borrow; they are not longer subject to conditionality; they are no longer affected directly by Fund policies. And they have become reluctant to contribute.

Now, you know the adjustment is, to a great extent, a function of financing available. Take the case of the U.S. today. With apparently unlimited financing, you can sustain large imbalances. If you have no financing at all, your adjustment will be very sharp, very abrupt, and politically very painful.

Well, when you have very little money, the trade-off is you will have higher conditionality. And the limited amount of resources tends to make for sharply contractionary programs. Moreover, the addition -- on top of the traditional conditionality -- of structural conditionality, governance conditionality and so forth has meant the proliferation of conditionality and resulted in a high rate of program failure.

Does the Fund meet its own standards of governance? Well, you see, given the concentration of power in a very few hands, in a small group of countries, some decisions, many important decisions are really taken outside the Fund. You know, you just call your mates for lunch, and you discuss and you say, "well, we're not going to go along with that," or "we're going to support this and we're going to push it." So many members are really excluded. Then there is the formality of the Board discussion, but the decision has already been taken.

There is no transparency and lack of full participation in decisions like the appointment of the Managing Director or the appointment of the senior staff. If you look at the front page of IFS -- International Financial Statistics -- you see somewhere between 75 to 80-something percent of senior staff are all people from a small group of industrial countries.

Now, accountability. Well, is the Fund really accountable? In principle, it's accountable to the Board. But who is accountable for the underfinancing of programs? Who's accountable for the Fund not having enough resources to have programs that allow you to adjust without a severe recession? Who at the Fund is accountable if the design of a program is mistaken or misconceived? Is anybody accountable for that? In principle, again, every one is accountable to the Board. The Directors of the developing countries can challenge, they can question, and so forth. But as a Director you have a limited vote. And to the extent that you represent a petitioner government, you now that might have to come here next week or next month and ask for support for some of the people you represent, or ask for some flexibility in the way that the performance -- or the slight deviation in performance - in a program is judged. So you don't really want to antagonize the staff or the management. You have to play it very carefully.

Now, legitimacy. Well, legitimacy I think requires checks and balances. We have this in all democratic countries. It requires that all members participate fully in the decision-making and that the interests of most members, which are in this case the developing countries and transition economies, be given full consideration.

What I conclude from this is that, in the face of the major transformations of the world economy, the Fund needs a more representative decision-making process. It needs this also to increase its resources and its legitimacy, because, of course, when you limit the quotas of the larger developing countries, you limit their contributions. So placing decisions in the hands of a few undermines transparency, accountability, and legitimacy.

Does all this matter? Would it make any difference if you had a more representative decision-making process? Well, I suggest that it would. I think it would help you in the global adjustment process. You know that a number of people are going to meet in Boca Raton this weekend, but the major surplus countries won't be there. You know, you have the Europeans and the U.S. But some of the major players are not there. If they had seats at the table you would have, I think, a fuller utilization of global resources, which means, of course, higher rates of growth and employment. You would reduce the costs of financial crisis. You would facilitate the pursuit of countercyclical policies, and you would certainly be more disposed and better able to respond to commodity shocks, which affect a large number of low-income countries and so forth.

But all this takes me deep into the subjects covered in other chapters of the book, so let me stop here. Thank you.

DAWSON: Thank you very much, Ariel. I think it's clear this is a very serious work. I would note that Ariel's excellent PowerPoint presentation that you just saw will be posted on our website. Don't rush out now, it's not there yet --

(Laughter.)

It will be posted in due course as part of the transcript of this book forum.

See Mr. Buira's Powerpoint presentation (193 kb PDF file)

Let me now turn to Carol.

WELCH: Well, it's a real pleasure to be amongst such distinguished company. I do have to say to Mr. Buira that if they allow me in the building, then I don't think you have to worry about being allowed back in the building after publishing your book. And you can probably be even more radical and still get back in the building.

Carol Welch

I don't know if people were expecting fireworks today, but I would say the NGO community -- speaking at least for the Friends of the Earth and the colleagues that we work with -- agree with much of what Mr. Buira wrote and his analysis of the problem. Some of the governance issues that are high on our list of concerns include things like the single U.S. veto; overrepresentation of European seats; the lack of representation of emerging markets; the large constituencies, especially for Sub-Saharan Africa -- it's just absurd that there are only two Board members from that region, each representing about 20 countries; and also the issue of a lack of capacity, especially in those offices that have to represent so many countries and so many active programs.

In terms of other governance concerns, defining governance broadly speaking to include transparency and accountability, I think the Fund has made quite a bit of progress on the transparency of its own operations. Certainly in the past five years, there's just been a dramatic change in, for example, the numbers of loan program documents that are available. And I think that there is momentum in the institution to make information increasingly available. We were quite pleased, for example, with the PDR staff paper on transparency, which proposed that loan documents be made public upon Board circulation and not after Board approval. That's something that we would see as a very positive change. We're disappointed that it didn't get through the Board, but we are gratified that the staff itself proposed it.

But there is always room for improvement, particularly on the transparency of the how the Board itself functions, which was something that Mr. Buira has highlighted as well. NGOs around the world have been looking quite a bit at transparency of the Bank and IMF Boards. Some things that we've called for include that Executive Director Board statements be made public and that there should be minutes of the Board meetings. Of course, they would be redacted for sensitive information. We'd like to see transparency with regards to voting; so not this, you know, having lunch with your colleagues and finding out where they stand, but actually having recorded votes.

In terms of what NGOs are doing on the so-called voice and representation issue, I do think it's a somewhat fair critique to make that NGOs, especially Northern-based NGOs, haven't done lots of work on this. We're talking about it a lot, but we haven't actively campaigned as much on voice and representation as we have on broader transparency and accountability issues.

But I do think that we're doing more. For example, Friends of the Earth and the Bretton Woods Project in London mobilized an international sign-on letter that called for transparency around the selection process of the IMF Managing Director. And we did see some results coming out of that in terms of how the next World Bank President and IMF Managing Director would be appointed.

I'd also note that last year U.S. NGOs sent a letter to the U.S. Treasury Department after press reports that a World Bank internal paper on governance reform was basically being stonewalled by Treasury. NGOs sent a letter to Treasury endorsing some of the recommendations that were in that paper. It included recommendations -- I think some of these would be transferable to the Fund as well -- that there would be no more than ten countries per constituency, that no single country would have veto power, and that there would be a fair allocation of power between creditors and borrowers.

The response that we got was interesting. Every first Tuesday of the month, NGOs who monitor the World Bank and other MDBs have something that's called "Tuesday Group," where we meet together and also have U.S. Government officials present to talk about developments in the MDBs. And we actually had the Deputy Assistant Secretary of the Treasury come over to Tuesday Group to respond to the letter. That something that's very rare - the Deputy Assistant Secretary doesn't usually come to our Tuesday Group meetings.

But, basically, he came to lecture us on why we were wrong, and according to him we were wrong on a couple of grounds. One is that the Bank and the IMF are creditor institutions; they're not donor institutions. So if you take power away from the creditors or those who pay in, you're basically undermining the functioning of the institutions. Second, he said those of you who care about transparency and accountability with regard to environmental and social issues should actually argue for more power in the hands of the rich countries--the U.S. and Europe. It's the U.S. that most defends increased transparency and accountability and most defends safeguard policies and PSIA (poverty and social impact analysis), for example.

And I would say that that for some NGOs is a real concern, that in actively campaigning for greater voice of developing countries, we could be undermining other goals of NGOs such as more environmental stewardship and greater equity for underrepresented segments of society. I don't necessarily agree that these goals are what the U.S. Treasury is always arguing for or that these are the U.S. Treasury's greatest priorities. But I would throw it out as a challenge to developing country governments that this is a hurdle we need to get over. If we want to make progress on governance reform and if NGOs are to more actively campaign on governance reform, I think we need to have a pact: NGOs advocate more for governance reform in return for greater attention on the part of developing country governments to environmental and social issues.

I would say we largely agree with many of the issues that were highlighted in Mr. Buira's paper, but I did want to throw out some devil's advocate questions. One is: If one of the solutions to deal with the lack of voice for developing countries is the quota issue and the need for a quota increase, I guess the jaded side of me says that this would be an incredibly difficult issue to make progress on in terms of getting the United States to agree to a quota increase. Maybe I just need to say two words, "Meltzer Commission", to indicate exactly why it is that I think the U.S. Government would probably be quite loath to agree to a quota increase and to have to go back to Congress to advocate for another quota increase.

On a more substantive side, I also perhaps some skepticism about the extent to which a quota increase would deal with some of these representation issues. I wonder if we would ever get enough of a quota increase that it would make a difference for countries' borrowing capacities. So, for example, Senegal, would have to quadruple it's quota if it were able to borrow its 25-percent hard currency tranche in the IMF and be able to have a program with minimal conditionality. Is it likely that we would be able to get a quadrupling of quotas? I'm fairly skeptical.

The other devil's advocate question is whether you would ever get enough of a quota increase so that in a financial crisis -- where countries that are now borrowing, say, 400 percent of their quotas -- it would make a difference in terms of reducing the austerity and the adjustment that's required of the borrowers? Is it possible that instead something like the sovereign debt restructuring mechanism or some kind of mandated private sector hit would, in fact, be more productive in terms of giving countries some space to have to adjust less, for example? And if that kind of sovereign debt restructuring mechanism would be as effective as the quota increase, I ask why it is then that some of the large emerging markets, from what we heard, opposed the SDR mechanism at the Board?

The other issue that wasn't raised but which I think is kind of interesting and maybe raises implications is the self-financing of the Poverty Reduction and Growth Facility starting next year. Suppose that in 2005, if the PRGF is financed purely from reflows and it's developing countries' repayments that then finance new PRGF loan arrangements. Do the developing countries have more legitimacy and more right to say that, in fact, it's their reflows that are financing new programs and they should be the ones who have much more say when it comes to how PRGF loan operations are approved at the Board. So I'd throw that out as perhaps an additional question on the governance side.

Some concluding remarks, and, again, this is sort of where my cynicism comes in -- those in power don't give up power, and it's hard to imagine why the United States would willingly give up its single veto. One solution might be for the the European Union to unify its vote and have a single vote that is also a veto and is more of a counterbalance of U.S. power. For those of us who aren't big fans of the current U.S. administration--and I would put myself in that camp--perhaps that is an acceptable short-term solution. But in the long term, is having two vetoes across the Atlantic really going to be the solution in terms of giving votes to developing countries and emerging markets?

It seems to me that to create the sort of dramatic change that would really overhaul IMF governance, you basically need a dramatic event in the global economy or some kind of dramatic political alignment. In the scariest scenario, the event would potentially be something like a global economic meltdown. A less scary scenario, but nevertheless one that would be considered quite threatening in this building, would be the establishment of other sort of short-term lending institutions, like an Asian Monetary Fund. If there were an Asian Monetary Fund that were more representative, for example, of Asian countries, would that be enough of threat to the IMF's legitimacy that it would create some internal incentives in the IMF to change governance?

The more sanguine scenario of creating the political pressure to have change with regard to governance and developing country representation would be the kind of pact I mentioned earlier. That is, there can be a cooperation agreement between global civil society and developing country governments where NGOs agree that governance reform and increasing the voice and vote of developing countries is a priority, but their governments agree that so is protecting the interests of the poorest sectors of society, defending human rights, core labor standards, and environmental quality.

So, with that, I will look forward to questions.

DAWSON: Thank you, Carol. I agree completely with what Carol said at the outset that we didn't expect fireworks, and indeed this is not intended to be a debate. It's intended in the spirit of transparency to raise a number of issues that don't always get discussed. Nonetheless, being a representative of the institution, there are just a few points I thought I might respond to.

Carol noted quite openly, and I think she's made an important comment, that many of the groups with which she has been associated haven't in the past spent too much attention to the mechanics of the institution in terms of voting and so on. It's important that they do devote this attention because, as Ariel said, the Fund is in many ways the most important international financial institution. If you're sitting in the United States, that is not something that is always apparent.

I think Ariel's paper and his comments certainly come out of a lot of practical experience in the Board in representing Mexico, and I think he has good insights on the behavior of the institution. Nonetheless, I would note it is not inconceivable to see situations in which a veto can be amassed by developing countries, emerging markets countries as well. The consequence of Ariel's recommendations, were they to somehow materialize, would actually be the development of a number of possible veto blocs, assuming you kept the 85 % threshold. I think that might represent more progress than Carol is inclined to believe.

The debates on how to change the quotas will go on for a long time. In the end, there will be an element of political judgment. There will be compromise. We could perhaps ask Mr. Polak sitting here whether it is true, in fact, that Mikesell was sent away to organize a quota formula to justify the preordained results.

BUIRA: This was taken from Mikesell's confessions.

Tom Dawson (left), and Ariel Buira

DAWSON: It's interesting. I had a personal experience of an aspect of that. When the then Soviet Union was coming to join the Fund in the early 1990s, I had the opportunity to be at the U.S. Treasury when the Russian negotiator showed up and announced that the Soviet Union wished to reclaim the share that had been promised to them in 1944, which was something like a 14-percent share of the institution. That was not taken too well by my Treasury authorities at the time.

One issue that both Carol and Ariel mentioned is the bias toward contractionary adjustment side of the part of the Fund. But take a look at the recent study by our Independent Evaluation Office on the fiscal adjustment in Fund programs. It shows a somewhat more varied experience than a simple one-size-fits-all contractionary Fund approach.

A few more brief comments. I think in a discussion like this we overlook the fact that on most issues the Fund Board does still deal by consensus. When differences break out, they are not always along North-South lines. And I think that is an important thing to keep in mind.

In terms of transparency of Board activities and actions, I think a great deal of progress has been made. Individual governments have the ability to report on what their own positions are in the institutions. The United States, the United Kingdom, France, Germany, and a number of others publish annual reports, oriented heavily toward their civil societies and parliaments, on their representation in the institution. And I think this is something that is to be encouraged.

I think that our increased transparency is itself increasing our accountability in a fashion. It is allowing our actions to come under more immediate and, I think, often well-informed criticism and, to say it bluntly, to put pressure on us. We are increasingly involved, both on a proactive but also on a reactive basis, in dealing with parliamentarians in countries. For a number of years, the Fund has dealt with developed country parliaments who are interested in, as it were, how the taxpayers' money is being spent. But increasingly we are spending time working with developing country parliaments as well, and I think this has been a big step forward.

The issue is, as I indicated, likely to come up in the context of the next general quota increase, but that is not a reason for this debate to just come back when we have occasional papers or books that are prepared. It is, I think, an important issue. A number of our member countries, regions, are raising it very strongly. The issue of African representation in the Board is one such issue that's under more or less continuous examination. The role of Asia in the Fund is also under continuing examination, and, in fact, some progress has been made, as it were. We've had the adjustments in the Chinese quotas. We've had other adjustments as well. So I think that's important.

I think Carol is perhaps a little optimistic if she thinks that the Asian Monetary Fund, if it were to come into effect as an operating institution, would behave, at least in its internal operations, much differently than the Fund does. These are financial institutions, and the creditors in each institution will want to make sure that their own resources are safeguarded. You might have a situation in an Asian Monetary Fund where some of the major reserve holders in Asia might be, in fact, in a position where they would be exercising the sorts of influence that is exercised in the Fund under the present weighted voting situation.

So I think I would just as soon wrap it up at that. Maybe Ariel and Carol would like to respond to any of these comments, and then hopefully take questions.

BUIRA: Well, I would maybe respond to one or two things. On the issue of transparency, I think one has to distinguish between publishing documents and Board decisions and the actual taking of decisions. You see, conditionality is no longer limited to easily quantified fiscal and monetary targets. It has extended widely to structural conditions, and it covers areas such as governance and institutional reform. You have also had a sharp, very sharp increase in the number of conditions, prior actions, benchmarks, and so on and so forth. Now, what happens when you have 100 targets is that it's impossible for any government to keep them all in mind. It's impossible to remember them. And it's virtually impossible to meet them all. So what happens is that you meet maybe half of them or two-thirds of them.

This is where the issue of transparency comes in, because then a country is in partial compliance, and it's up to the staff and up to the management to decide at their discretion whether this is good enough or not, whether the performance is sufficient to recommend a waiver to the Board, to enable the country to disburse, or not. Or maybe to say this program is completely off track, suspend it.

So there is a new element of discretion that's been introduced that wasn't there at the outset. And this is almost inevitable when you bring in structural conditions and things like institutional and governance reform and so forth. You could very easily see whether you've met the ceiling on credit expansion. But you can't easily measure things like what progress have you made towards a reform of a law. Well, you've made lobbies, you've made some studies, you've convinced some, but the law is not approved yet. Does this count or not? And when you have met half, 50 percent, or 75 percent of the conditions, are you in compliance or not?

There is no transparency as to how this is decided. Maybe the management consults with a few industrial country Directors, and if it does, another element will come into play, which is the geopolitical and the strategic considerations of whether this country should be or should not be supported given the circumstances. Okay? So I'm not entirely satisfied that there is such a big improvement in transparency.

DAWSON: Questions? We start in the front row here. This is Mr. Jacques Polak, in case anyone is unaware.

QUESTIONER: One of the dominant themes of Mr. Buira's speech was that quotas in the Fund are much too small; if they were much bigger, a lot of things would work out much better. And quotas would be bigger, according to the speech, if there weren't all these awkward formulas applied by the Fund, its quota formula, the votes that follow from this, the 85-percent limitation, and so on and so on. So that if one adopted all these changes as recommended here, some of which seem to be very reasonable by themselves, quotas would be very much larger, and the Fund would behave much more the way Ariel would like it to behave. In making this point, he forgets one important provision of the Articles of Agreement: No member's quota can be increased without its consent. So even if you required only a 50-percent majority for a general quota increase, and you reshuffled the votes so that, for example, the developing countries together had a 50-percent majority, you would still be faced with the with the issue of how a decision of the Board of Governors would, in fact, lead to the membership accepting these higher quotas. And I don't see there's any evidence from the way the industrial countries have behaved on quotas, and also have behaved on keeping down the size of the new arrangements to borrow, that they would agree. That simple provision in the Articles, I think, limits the validity or the value of making all these other changes.

BUIRA: Thank you very much. I think that Jacques has made my point for me, because what I said is that the industrial countries have limited the size of the Fund. They don't come to the Fund. They're not very interested in the Fund. So they limit their quotas. And my argument is that because of these limits on the size of the Fund, adjustment has become harsher than it need be or than it would be if the Fund had more resources and could allow a more gradual adjustment. This doesn't mean gradual adjustment is ideal in all cases, but it is desirable in many cases.

I am very aware of the provision that no quota can be increased without the consent of the member country. But the point is entirely political. The point is whether the industrial countries are prepared to allow bigger quotas, and what we have now is they're playing the spoiler game: I will not contribute and I will not let anybody else contribute, because then I would lose my relative position.

DAWSON: More questions?

QUESTIONER: Thanks. I'm Jeronimo Zettelmeyer from the Research Department of the Fund. I'm very sympathetic to a lot of things that Mr. Buira said in his talk, and I also liked Ms. Welch's comments. Two quick questions. The first one, mainly to Mr. Buira, is along the lines of Jacques Polak's comments. Don't you think there is a tension between wanting to make the IMF larger financially and giving developing countries a much bigger quota share? In other words, there is a political issue there, because ultimately the money has to come from the creditor countries, and they are probably going to be less willing to go for that if they have smaller control of the institution.

The second related point is that one big difference between the Fund in 1944 and the Fund today is that in 1944, a much larger share of the membership, possibly every country with the exception of the U.S., was arguably in a position where it was both a creditor country and a potential debtor country. That has changed a lot. So the Fund is much more split along North-South lines. There's a large bloc of countries that would never draw on Fund resources. Does that have consequences for the quota shares, for the argument on the quota shares, and particularly on the issue of basic votes versus the rest?

BUIRA: Yes, thank you very much for your questions. On the first point, is there a tension between larger quota shares and greater vote for the developing countries? This was a point that, as far as I can recall, was initially raised in the Cooper report. And I thought it was nonsense then, and I believe it's nonsense today. The Cooper report said, look, maybe the U.S. economy is bigger than France in purchasing power parity terms, but France has more reserves. OK, so today the developing countries as a group have over $11 trillion in reserves, 50 percent more than the developed countries. Now, you'll recall that only 25 percent of a quota has to be paid in hard currency. So even when the developing countries had much lower reserves than they do today, they would have been quite able to finance a four-fold or a five-fold increase in reserves because the amount they had to pay was relatively small and it continued to be available to them as part of their reserves.

Let me just illustrate with the case of a country like Mexico, whose quota is something like $2.3 billion. Mexico's not, by the way, one of the countries with truly high reserves. You have to pay in hard currency 25 percent of your quota, so you have to pay about $600 million at the most, in hard currency. But the country has $59 billion in reserves. So paying $400 million or four times that is irrelevant. It is not the problem.

There is also perhaps a point that bears clarification. I have never said that the developing countries or the debtor countries should dominate the Fund. In fact, I say the opposite in the paper. I say that the best deal to keep everybody honest is to have something that I call approximate balance, and this could be 48 percent and 52 percent, or whatever it is, so that there would always be countries that at the margin would vote issues on their merits and you would keep everybody honest.

Now, it is true that there has been this distinction which you made between everybody being potential users of Fund resources in 1944 and industrial countries not being users of Fund resources for the last 25 years. I made the same point, and I believe that this is the reason why industrial countries have lost interest in providing the Fund with adequate resources. But the issue is that they are not allowing the potential users to provide the Fund with adequate resources.

DAWSON: Next question?

QUESTIONER: Thank you. I enjoyed this forum very much. I'm Jo Marie Griesgraber with the New Rules for Global Finance coalition, and we are beginning to work very intensively on what we call voice and vote, both in Washington and in New York in the UN Financing for Development process.

One comment for Carol. In terms of transparency, the standards of the Federal Reserve Board for transparency of Board minutes is probably a model that could be replicated in that the decisions are made public immediately; after about six weeks you get the record of vote and minutes, and then in about five years you get the transcript of the meetings. So you really have to be intense to track the transcripts. Some people are. The historians love it. But, in any event, it's a standard that's out there and that works even in the United States.

I do want to raise a question with Ariel. I understand and appreciate and support the broad democracy elements of his position. I think we have gross underrepresentation, it's unfair. That's very easy to see. It's very easy to explain to congressional staff and everyone. What's problematic then is when you increase the voice and representation of a country that doesn't represent its own people, that's a serious problem, regardless of their position on, you know, environmental and labor and human rights. If you have a fundamentally unrepresentative government, why am I going to go to bat to give them more voice?

BUIRA: Well, I'd make a little distinction, which is not unimportant, between democracy and representativeness. You see, if you want to talk about the global adjustment process, you better bring in China, whether they meet your democratic standards or not, because they're a big player. It doesn't make sense to meet in Boca Raton and exclude half a dozen large countries in in Asia which have pegged their exchange rates at a very competitive rate and are running large current account surpluses. So what you have is that the U.S. will be talking to the Europeans, who are a bit helpless in the whole thing. So for things to work well, you need to have all the major players in. And this, I think, requires a reform of the Fund.

DAWSON: Thank you. I think we have run out of time. I think your last comment is interesting. We have always viewed ourselves as an international financial institution. But there's no doubt that as the world has changed, political considerations and the legitimacy of us as well as of others comes into it.

I would just note, as a last parting shot you know, that Ariel mentioned his concerns about creeping conditionality and too many conditions and so on. Sometimes our critics refer to it as mission creep. My own observation is that there has been much more mission push as we as an institution are being asked to do much, much more. Sometimes it is to fill in an economic area where other institutions are viewed as not doing what they should be doing; sometimes it is to fill in a gap in the social or the political area. Every one of these may represent a good cause, but one of the results of it is an institution that is asked to do too much, I won't go on and say with too little resources. That's another discussion we can have again later on.

Well, thank you very much to both Ariel and Carol. This was a successful experiment, and let me assure them they will be invited back into the building.

[Applause.]