## _091505

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### Motivation and objective
- Consensus emerged on the need to reflect on the Fund’s future direction despite a generally positive assessment of its work and adaptability.
- Three motivating factors:
  - The Fund has been pulled into many new directions over the past decade, straining the original vision devoted to international monetary stability and financing temporary balance of payments problems (examples: data transparency, standards and codes, financial sector and safeguards assessments, combating the financing of terrorism and anti-money laundering, expanded roles in low-income countries covering poverty reduction strategies).
  - Accretion of new mandates without eliminating old ones has made resource allocation difficult and hampered staying ahead of emerging challenges.
  - Uncertainty whether the Fund is fully prepared for major macroeconomic challenges ahead (e.g., unprecedented global payments imbalances, capital account crises from abrupt shifts in global asset allocation, helping members—especially low-income countries—grow through integration into the world economy).
- Objective of the strategy paper:
  - Identify an organizing principle to define the Fund’s mission and prioritize elements (section II).
  - Outline a strategy explaining reorganization with concrete actions and outcomes for the next 3–5 years (section III).
  - Provide concluding observations (section IV).
  - Caveat: this is a strategy paper, not a five-year plan; thinking is more advanced in some areas than others.

### Globalization as the organizing principle
- Globalization (real sector and financial) is the central force affecting members—bringing large benefits but creating scale for major challenges.
- Globalization-related challenges highlighted:
  - Size of world current account imbalances and risk of disorderly adjustment, enabled by financial market integration and a global savings pool.
  - Integration of goods and services markets creates cross-cutting competitive pressures (examples cited: Chinese textiles, IT services rise in India; need for sector modernization such as cotton in West Africa).
  - Integration of capital markets increases the size, speed, and reach of shocks across mature and emerging-market countries (examples: Mexico, Thailand 1997, Russia 1998, near miss involving Long-Term Capital Management).
- The Fund’s mandate (first Article of Agreement) to foster global integration is affected by twenty-first century globalization—large capital movements and abrupt comparative advantage shifts—exposing gaps across surveillance, lending facilities, and governance.
- Proposed organizing response:
  - Tailor Fund support to country needs: fiscal and monetary frameworks, structural reforms for trade integration, strengthening financial systems.
  - Country teams to prioritize surveillance of risks and trends, Fund programs to prevent/relieve crises and catalyze donor aid, and technical assistance to build institutions and policy credibility.

### Key tasks and strategic priorities
- Principal tasks for change across surveillance, financing, capacity building, and governance:
  i. make surveillance more effective;
  ii. adapt to new challenges and needs in different member countries;
  iii. help build institutions and capacity;
  iv. prioritize and reorganize work within a prudent medium-term budget;
  v. address the issue of fair quotas and voice.

### A. More effective surveillance — findings and actions
- Findings:
  - Need less cover-the-waterfront reporting and more incisive analysis of specific weaknesses/distortions.
  - Surveillance must be more active in policy debates and better at securing timely policy, framework, and institutional changes.
- Proposed actions:
  - Global surveillance: Keep WEO and GFSR central; pursue deeper, longer-term analysis of globalization beyond the six-monthly WEO/GFSR cycle by convening staff across departments and outside experts for year-long topical work (possible presentation as a new Report on the Macroeconomics of Globalization or modifications to existing publications).
  - Multilateral dialogue: Lead policy collaboration on issues like global imbalances; discuss unilateral versus multilateral action at the level of the International Monetary and Financial Committee.
  - Financial market surveillance: Better integrate financial experts into area teams; shift Financial Sector Assessment Programs to streamlined updates integrated into Article IV and program discussions (two-thirds of membership have participated in FSAPs).
  - Standards and Codes: Focus on follow-up; selectivity in initiating new reports based on macro-criticality to free resources.
  - Regional surveillance: Focus more systematically on regional developments, increase dialogue with regional institutions and think tanks, and have area departments present regional implications at annual meetings.
  - Country surveillance: Give area departments explicit flexibility to streamline Article IV reports to core macroeconomic issues (exchange rates, fiscal and debt sustainability, financial sector stability), identify globalization challenges, and focus on why policy advice is ineffective and on fostering ownership.
  - Communications: Strengthen confidential advisory role while enhancing public outreach—seminars, media events, regular post-Article IV press conferences; External Relations Department to work with area departments on best practices and a work program.

### B. Role in advanced and/or systemic economies
- Issue: Globalization magnifies systemic importance of surveillance-only cases; incidence of globalization varies across advanced countries.
- Actions:
  - Continue to identify first-best policies but report more carefully on reasons Fund advice is not accepted and on policy adaptations that might meet concerns.
  - Staff reports on regionally or systemically important countries to spell out regional and global implications and longer-term trends (e.g., aging) in a separate section, drawing on quantitative models and research where possible.

### C. Role in emerging market economies
- Issue: Emerging markets face boom-bust cycles from volatile capital flows; work has focused on crisis prevention and, in rare cases, crisis resolution with large Fund financing.
- Actions:
  - Crisis prevention: Priority is early warning of vulnerabilities; integrate staff from International Capital Markets and Monetary & Financial Systems departments into surveillance papers.
  - Crisis resolution: Review effectiveness of Fund instruments including the Lending Into Arrears policy; promote market initiatives (collective action clauses, voluntary debt restructuring principles).
  - Financing and insurance: Debate high access precautionary arrangements and a possible successor to the Contingent Credit Line to address perceived insurance shortfalls while recognizing moral hazard and Fund risks; work with members to develop local financial markets and risk-management instruments.

### D. Capital account liberalization
- Issue: Financial globalization and capital account liberalization are mutually reinforcing; sequencing and management pose macroeconomic and financial challenges.
- Actions:
  - Staff to bring a paper to the Board laying out key issues and a program of case studies to deepen knowledge and advise on managing capital account liberalization (not on whether liberalization should be an explicit Fund purpose).

### E. Role in low-income countries
- Strategic aim: Remain engaged but determine how best and to what degree.
- Strategy components (four):
  - More focus:
    - Emphasize macroeconomic aspects of development: monetary frameworks, financial sectors, public expenditure management systems.
    - Objectives: (i) maintain macroeconomic stability where achieved and promote progress where lagging (especially post-conflict); (ii) enable countries to take advantage of globalized trade and finance; (iii) absorb projected scaling up of aid sustainably.
    - Fund to remain aware of imminent shifts in aid flows that finance substantial portions of low-income country budgets.
    - Shift from diffusion of activity to an intensified agenda in Fund core expertise; other agencies to handle donor coordination, harmonization, and PRSP consultative processes.
  - More flexibility:
    - Immediate program envisages: (i) a new Policy Support Instrument—for countries where support for high quality macroeconomic policies, rather than Fund credit per se, is most important; (ii) making permanent the Poverty Reduction and Growth Facility (PRGF)—for members with identified need for sustained financing; (iii) establishing a shocks facility within the PRGF—for those requiring occasional access to concessional financing; and (iv) providing further debt relief to poor and indebted countries.
  - More emphasis on the Millennium Development Goals (MDGs):
    - MDGs are the defining objectives for the next decade.
    - Future staff papers will assess whether macroeconomic policies support the MDGs and will report the World Bank’s and donors’ assessment of MDG achievability under what the Fund considers realistic macroeconomic scenarios and financing envelopes.
  - Less procedure:
    - Reduce excessive procedures (numerous documents, frequent Board reviews, complex procedures for trivial misreporting); Policy Development and Review department to propose steps to streamline activity and make procedures less taxing.

### F. Building institutions and capacity
- Issue: Globalization increases need for strong institutions; technical assistance and training are key but have at times been supply-driven or donor-preference driven.
- Actions:
  - Give area departments central role in setting technical assistance priorities in context of Article IV surveillance and Fund-supported programs.
  - Area departments, with functional departments and regional technical assistance centers, will discuss macroeconomic importance of technical assistance needs with authorities.
  - Step up efforts to assess how effectively technical assistance builds institutions that yield policy credibility.
  - Facilitate implementation of Independent Evaluation Office and Executive Board recommendations to ensure government ownership, better tracking of outputs, follow-up, and improved evaluation.
  - Continue to enhance fiscal transparency and governance.

### G. Prioritization within a medium-term budget
- Issue: Accumulated mandates have reduced budget flexibility; pressure expected as earnings from large Fund arrangements are projected to recede.
- Actions:
  - Use globalization as organizing principle to set priorities bottom-up, based on country-by-country analysis drawing on Article IV and functional department inputs.
  - Consonance with a top-down budget constraint reflecting financial realities on the income side.
  - Review Fund finances to look into options for broadening the income base, including through investment of the Fund’s reserves.
  - Income and expenditure issues to be taken up next April, when a Medium-Term Budget will be presented to the Executive Board.
  - Assess appropriateness of a zero real growth limit on the Fund’s budget after consensus on medium-term strategy.

### H. Organization, staffing, and management
- Issues:
  - Globalization has altered needed expertise (e.g., greater banking expertise); multiple Board mandates have increased staff burdens; organizational structure has not fully adapted.
- Actions:
  - Staff:
    - Implement a compensation system geared to attracting diverse, high-quality staff and allow flexibility to change skill mixes as needs evolve; outcome of the upcoming Employment, Compensation, and Benefits Review later this year will inform changes.
  - Departmental structure:
    - Reassess size, coherence, overlaps, and desired results of departments (examples: Technology and General Services Department combining IT with administrative services; overlap among International Capital Markets, Research, Monetary & Financial Systems, and Policy Development & Review on financial sector work).
    - McDonough Financial Market Review Group addressing financial sector overlap; continuous reassessment needed.
  - Management:
    - Devolve routine decision-making to department directors (routine and uncontroversial papers/briefs) with increased staff accountability and safeguards for quick, coherent decision-making and uniform treatment of members.
    - Staff working with an international consulting firm for a comprehensive modern risk management assessment of operations.
  - Executive Board:
    - Board peer review is central but broadening Fund activities have increased demands and documentation volumes (some 90,000 pages of Board documentation produced each year, including 12,000 pages by the Board itself).
    - Strategic review should yield proposals to reduce documentation and time on routine matters so the Board can focus on larger issues (crisis resolution, global imbalances).
  - IMFC:
    - Consider modifying meeting formats to enable more frank, interactive ministerial discussions and more focused communiqués.
  - Division of labor with the World Bank:
    - Initiate dialogue with new Bank counterparts to rationalize division of labor and strengthen cooperation, addressing overlaps in financial sector work, donor coordination, and the PRSP process.

### I. Quotas and voice
- Issue: Fair weight and voice are crucial to legitimacy; current allocation risks legitimacy in regions (e.g., Africa, Asia). Rising importance of regional institutions reflects unhappiness with global representation.
- Actions:
  - Use the Thirteenth General Review of Quotas as an opportunity.
  - Consider reallocating existing quotas even if there is no general increase.
  - Consider membership proposals such as more basic votes and consolidation/reallocation of chairs in the Executive Board.
  - Seek solutions to give more vote to countries with larger shares of the world economy and more voice to smaller members that account for a larger share of the Fund’s work.

### Concluding observations and next steps
- Continuity:
  - Strategy emphasizes integrating surveillance, assessing vulnerabilities, tailoring lending, strengthening technical assistance, and addressing governance; approach is evolutionary, not revolutionary.
- Change:
  - New proposals include deeper analysis of globalization, stronger external communication, research into capital account liberalization, and assessment of MDG achievability under realistic financing scenarios.
  - Financing these activities requires prioritization and scaling back some activities: sharper delineation of the Fund’s role in low-income countries; less time on procedures and documentation; less work on standards and codes; reduced overhead/support activity (e.g., more offshoring of information technology).
  - A more precise answer to resource trade-offs will be provided in the medium-term budget next year.
- Next steps:
  - Key deliverables are indicated and summarized in Table 1; most require further reflection and detailed follow-up papers for the Executive Board.
- Selected deliverables and timing highlights:
  - Present Medium-Term Budget starting April 2006 and reflect priorities in a three-year medium-term framework.
  - Staff to bring a Board paper on capital account liberalization case studies shortly.
  - Consideration of high access precautionary arrangements and successor Contingent Credit Line to be debated further.
  - Policy Development and Review to propose steps to streamline excessive documentation and procedures.

*Source: IMF strategy paper content provided in the supplied chapter excerpt.*

### 1. Motivation. Last year, on the 60

### 1. Motivation. Last year, on the 60th anniversary

### Motivation: why reflection was needed
- Consensus emerged on the need to reflect on the future direction of the Fund despite a generally positive assessment of the organization’s work and adaptability.
- Three motivating factors:
  - The Fund has been pulled into many new directions over the past decade, straining the original vision devoted to international monetary stability and financing temporary balance of payments problems. Examples of new initiatives and roles include data transparency, standards and codes, financial sector and safeguards assessments, combating the financing of terrorism and anti-money laundering, and expanded roles in low-income countries covering poverty reduction strategies.
  - Accretion of new mandates without eliminating old ones has made resource allocation difficult and hampered staying ahead of emerging challenges.
  - Questions remain whether the Fund is fully prepared for major macroeconomic challenges ahead, such as unprecedented global payments imbalances, capital account crises from abrupt shifts in global asset allocation, and helping members—especially low-income countries—grow through integration into the world economy.

### Objective of the strategy paper
- Identify an organizing principle that defines the Fund’s mission and prioritizes its elements (subject of section II).
- Outline a strategy explaining how the Fund might reorganize itself with concrete actions and outcomes for the next 3–5 years, addressing concerns of the entire membership (goal of section III).
- Provide concluding observations (section IV).
- Caveat: thinking is more advanced in some areas than others; this is a strategy paper, not a five-year plan.

### The challenge of globalization: pervasiveness and implications
- Globalization (real sector and financial) is the most important force for the membership, bringing large benefits in growth and efficiency but also creating scale for major challenges.
- Specific globalization-related challenges highlighted:
  - The size of world current account imbalances and risk of disorderly adjustment, enabled by financial market integration and a global savings pool.
  - Integration of goods and services markets creates cross-cutting competitive pressures (e.g., Chinese textiles, IT services rise in India) and necessitates major efforts in regions such as West Africa to modernize sectors like cotton.
  - Integration of capital markets increases the size, speed, and reach of shocks across mature and emerging-market countries (examples: Mexico, Thailand 1997, Russia 1998, the near miss involving Long-Term Capital Management).

### Centrality of globalization to the Fund’s mission
- The Fund’s mandate (first Article of Agreement) to foster global integration is affected by twenty-first century globalization—large capital movements and abrupt comparative advantage shifts—exposing gaps in Fund work across:
  - Surveillance: WEO, GFSR, and Article IV reports are strong but do not always capture full globalization dimensions; Fund advice often fails to secure timely policy, framework, and institutional changes.
  - Lending facilities: private capital flows vastly larger relative to official flows and Fund quotas; emerging-market demand for insurance against large volatile capital flows; low-income countries’ needs differ (debt relief, concessional financing, or signaling/policy support).
  - Governance: changes in membership and economic weight raise concerns over fair quotas and voice, affecting legitimacy.

### Globalization as an organizing principle
- The Fund should help members meet globalization challenges tailored to country needs:
  - Better fiscal and monetary frameworks for some members.
  - Structural reforms to adapt to rising trade for others.
  - Strengthening financial systems for still others.
- Country teams should prioritize outputs accordingly: surveillance of risks and trends, Fund programs to prevent or relieve crises and catalyze donor aid, and technical assistance to build institutions and policy credibility.

### Conclusion on globalization
- Globalization is a reality to be managed, not a cause; the Fund’s role is anchored in its mandate to promote a stable and open trading system and to avoid destructive protectionism.
- Viewing challenges through globalization can prioritize the Fund’s macroeconomic mandate and address criticisms of limited effectiveness, focus, and preparedness.

### The elements of a response: key tasks
- Principal tasks for change in Fund outputs (surveillance, financing, capacity building) and governance:
  i. make surveillance more effective;
  ii. adapt to new challenges and needs in different member countries;
  iii. help build institutions and capacity;
  iv. prioritize and reorganize work within a prudent medium-term budget;
  v. address the issue of fair quotas and voice.

### A. More effective surveillance — issues and proposed actions
- Issue: Surveillance is a crucial public good; prior Board reviews summarized recommendations as “focus and context.” Need less cover-the-waterfront reporting, more incisive analysis of specific weaknesses/distortions, and more active Fund engagement in policy debates.
- Proposed actions:
  - Global surveillance: Keep the World Economic Outlook (WEO) and Global Financial Stability Report (GFSR) central; pursue deeper, longer-term analysis of globalization beyond the six-monthly WEO/GFSR cycle by convening staff across departments and outside experts to focus on one area for a full year. Potential topics: (i) benefits, imbalances, and fragilities from cross-border flows; (ii) how institutions and policies can be developed to help especially low-income countries obtain greater advantage from global flows. Consider whether to present work as a new Report on the Macroeconomics of Globalization or via modifications to existing publications.
  - Multilateral dialogue: The Fund, as a universal institution, should lead policy collaboration on issues like global imbalances; objective analysis of unilateral versus multilateral action could be discussed at the level of the International Monetary and Financial Committee.
  - Financial market surveillance: Capital flows are harder to understand with dominant institutional investors and risk transfers across sectors. Better integration of financial experts into area teams is crucial. With two-thirds of the membership having participated in Financial Sector Assessment Programs, shift attention to streamlined updates integrated into Article IV and program discussions on vulnerabilities.
  - Standards and Codes: Progress has been made; the recent review finds the larger need now is follow-up. Focus work with fewer reviews and selectivity in initiating new reports based on macro-criticality to free resources.
  - Regional surveillance: Fund surveillance will focus more systematically on regional developments, increase dialogue with regional institutions and think tanks, and have area departments make special presentations around annual meetings highlighting regional implications of global surveillance.
  - Country surveillance: Reduce pressure to “cover too much” in Article IV reporting. Area department teams should be given explicit flexibility to streamline reports to core macroeconomic issues (e.g., exchange rates, fiscal and debt sustainability, financial sector stability), identify globalization challenges, and draw synergies from global and regional surveillance. Adapt internal staff and Board procedures away from lengthy questionnaires and boilerplate annexes toward continuous dialogue with authorities; streamlining should enable staff to focus more on why policy advice is ineffective and on fostering ownership.
  - Communications strategy: Surveillance effectiveness requires being a trusted, confidential advisor and helping bring about policy change. Fund transparency and outreach must go beyond publication to active public engagement—seminars, media events, and regular post-Article IV press conferences—to help convince broader public opinion. The External Relations Department will work with area departments on a concise paper to highlight best practices and develop a work program.

### B. Role in advanced and/or systemic economies
- Issue: Globalization magnifies systemic importance of surveillance-only cases; incidence of globalization in advanced countries varies.
- Actions proposed:
  - Adaptation: Continue to identify first-best policies but report more carefully on reasons Fund advice is not accepted and on policy adaptations that might meet concerns.
  - Global implications: Staff reports on regionally or systemically important countries will spell out regional and global implications of country policies and longer-term trends (e.g., aging) in a separate section, drawing on quantitative models and research where possible.

### C. Role in emerging market economies
- Issue: Emerging markets have benefited on the real economy side but are at risk from boom-bust cycles due to volatile capital flows; work has focused on crisis prevention (fiscal policy, debt management, exchange rate regimes) and crisis resolution with large Fund financing in rare cases.
- Actions proposed:
  - Crisis prevention: Priority is early warning of underlying vulnerabilities in emerging markets and supply-side disturbances in advanced-country financial markets. Area departments will more consistently integrate staff from the International Capital Markets and the Monetary & Financial Systems departments into surveillance papers.
  - Crisis resolution: Review effectiveness of the Fund’s instruments to facilitate crisis resolution, including the Lending Into Arrears policy; recognize complexity of recovery and the Fund’s role in promoting market initiatives (e.g., collective action clauses, voluntary debt restructuring principles).
  - Financing and insurance: Fund financial assistance is small relative to capital flows in emerging markets. Perceived lack of adequate and reliable insurance has led countries to self-insure via massive reserve buildup. Propose a second round of debate on high access precautionary arrangements and a possible successor to the Contingent Credit Line to address emerging-market concerns while recognizing moral hazard and financial and reputational risks to the Fund. Also, work with members to develop local financial markets and instruments to enhance risk management.

*Source: IMF strategy paper content provided in the supplied chapter excerpt.*

### 14. Issue. Financial globalization has both caused and been caused by the liberalization of

### _091505 - 14. Issue. Financial globalization has both caused and been caused by the liberalization of 

### Capital account liberalization
- Issue: Financial globalization and capital account liberalization are mutually reinforcing. Capital account liberalization has brought macroeconomic and financial challenges that require careful management, including the orderly sequencing of liberalization with reforms in other areas, especially the financial system.
- Problem: At times the process has been disorderly, with controls removed and re-imposed to tackle pressures. There is no solid body of analysis on how best to proceed.
- Action: Staff will shortly bring a paper to the Board that lays out the key issues and a program of case studies. The Fund must deepen knowledge and be able to advise on how best to manage capital account liberalization rather than debate whether liberalization should be an explicit purpose of the Fund.

### Role in low-income countries
- Issue: Globalization has improved living standards but left some countries marginalized. The Fund’s role is to promote a stable macroeconomic environment conducive to private sector-led growth and poverty reduction. Work spans lending, debt relief, policy signaling, donor coordination, civil society outreach, investor councils, institution building, and technical assistance.
- Strategic aim: Remain engaged but determine how best and to what degree.
- Action: Strategy with four components to make for a different type—not lower level—of Fund involvement:
  - More focus:
    - Emphasize macroeconomic aspects of development: monetary frameworks, financial sectors, public expenditure management systems.
    - Objectives: (i) maintain macroeconomic stability where achieved and promote progress where lagging (especially post-conflict); (ii) enable countries to take advantage of globalized trade and finance; (iii) absorb projected scaling up of aid sustainably.
    - Fund to remain aware of imminent shifts in aid flows that finance substantial portions of low-income country budgets.
    - Shift from diffusion of activity to intensified agenda in Fund core expertise; other agencies to handle donor coordination, harmonization, and PRSP consultative processes.
  - More flexibility:
    - Immediate program envisages: (i) a new Policy Support Instrument—for countries where support for high quality macroeconomic policies, rather than Fund credit per se, is most important; (ii) making permanent the Poverty Reduction and Growth Facility (PRGF)—for members with identified need for sustained financing; (iii) establishing a shocks facility within the PRGF—for those requiring occasional access to concessional financing; and (iv) providing further debt relief to poor and indebted countries.
  - More emphasis on the Millennium Development Goals (MDGs):
    - MDGs are the defining objectives for the next decade.
    - Future staff papers will assess whether macroeconomic policies support the MDGs and will report the World Bank’s and donors’ assessment of MDG achievability under what the Fund considers realistic macroeconomic scenarios and financing envelopes.
  - Less procedure:
    - Current work is overloaded with procedures (numerous documents, frequent Board reviews, complex procedures for trivial misreporting) that absorb resources with questionable gains.
    - The Policy Development and Review department will propose steps to streamline activity and make Fund procedures less taxing.

### Building institutions and capacity
- Issue: Globalization increases the need for strong institutions; integrated markets have become dominant providers of financing and arbiters of acceptable policy. Technical assistance and training are key to building economic institutions and play a crucial role in surveillance and Fund-supported programs. Technical assistance has at times been supply-driven and donor-preference driven.
- Action:
  - Give area departments the central role in setting technical assistance priorities in the context of Article IV surveillance and Fund-supported programs.
  - Area departments, in consultation with functional departments and regional technical assistance centers, will discuss with authorities the macroeconomic importance of technical assistance needs.
  - Step up efforts to gauge how effectively technical assistance builds institutions that yield policy credibility.
  - Facilitate implementation of Independent Evaluation Office and Executive Board recommendations to ensure government ownership, better tracking of outputs, follow-up of advice, and improved evaluation.
  - Continue to enhance fiscal transparency and governance.

### Prioritization in a medium-term budget
- Issue: Accumulated mandates have reduced budget flexibility. Pressure will increase as earnings from large Fund arrangements are projected to recede.
- Action:
  - Use the organizing principle of meeting the challenge of globalization to set priorities bottom-up, based on country-by-country analysis drawing on Article IV consultations and functional department inputs.
  - Bring this into consonance with a top-down budget constraint reflecting financial realities on the income side.
  - Review of Fund finances to look into options for broadening the income base, including through investment of the Fund’s reserves.
  - Both income and expenditure issues will be taken up next April, when a Medium-Term Budget will be presented to the Executive Board.
  - The continued appropriateness of a zero real growth limit on the Fund’s budget will need assessment after consensus on medium-term strategy.

### Organization
- Issue: Effectiveness rests on staff. Globalization has altered needed expertise (e.g., more banking experts) while multiple Board mandates have increased staff burdens. Organizational structure has not fully adapted to incremental priority shifts.
- Action:
  - Staff:
    - Implement a compensation system geared to attracting diverse, high-quality staff and allow flexibility to change skill mixes as needs evolve.
    - Top staffing priority may shift over time; outcome of the upcoming Employment, Compensation, and Benefits Review later this year will inform changes.
  - Departmental structure:
    - Reassess size, coherence, overlaps, and desired results of departments (examples: Technology and General Services Department combining IT with administrative services; overlap among International Capital Markets, Research, Monetary & Financial Systems, and Policy Development & Review on financial sector work).
    - McDonough Financial Market Review Group is addressing the last point; continuous reassessment of other departments is needed.
  - Management:
    - Decision-making remains centralized, making it difficult to address broad systemic issues and to trade off strategic/political tasks with routine administration.
    - Devolution from management to staff is essential—e.g., make department directors responsible for routine and uncontroversial papers and briefs—with increased staff accountability and safeguards for quick, coherent decision-making and uniform treatment of members.
    - Staff are working with an international consulting firm for a comprehensive modern risk management assessment of operations.
  - Executive Board:
    - Board peer review is central to legitimacy but the broadening of Fund activities has increased demands on the Board and volume of documents.
    - Presently some 90,000 pages of Board documentation are produced each year, including 12,000 pages by the Board itself.
    - Strategic review should yield concrete proposals to reduce documentation and time on routine matters, enabling the Board to focus on larger issues (crisis resolution, global imbalances).
  - International Monetary and Financial Committee (IMFC):
    - Consider modifying meeting formats to enable more frank, interactive ministerial discussions and more focused communiqués.
  - Division of Labor with the World Bank:
    - Initiate dialogue with new Bank counterparts to rationalize division of labor and strengthen cooperation, addressing overlaps in financial sector work, donor coordination, and the PRSP process.

### Quotas and voice
- Issue: Fair weight and voice are crucial to legitimacy. Current allocation risks legitimacy in regions (e.g., Africa, Asia). Rising importance of regional institutions reflects unhappiness with global representation. Governance and ownership imbalances rival global current account imbalances.
- Action:
  - Thirteenth General Review of Quotas presents an opportunity.
  - Even if there is no basis for a general increase, consider reallocating existing quotas.
  - Consider membership proposals such as more basic votes and consolidation/reallocation of chairs in the Executive Board.
  - With political will, find solutions to give more vote to countries with larger shares of the world economy and more voice to smaller members that account for a larger share of the Fund’s work.

### Concluding observations
- Continuity:
  - The paper outlines principles for prioritizing the Fund’s work in light of globalization challenges—integrating surveillance, assessing vulnerabilities, tailoring lending, strengthening technical assistance, and addressing governance.
  - The strategy is evolutionary, not revolutionary.
- Change:
  - New proposals include deeper analysis of globalization, stronger external communication, research into capital account liberalization, and assessment of MDG achievability under realistic financing scenarios.
  - Financing these activities requires prioritization and scaling back some activities: sharper delineation of the Fund’s role in low-income countries, less time on procedures and documentation, less work on standards and codes, less research in other areas, and reduced overhead/support activity (e.g., more offshoring of information technology).
  - A more precise answer will be provided in the medium-term budget next year.
- Next steps:
  - Key deliverables are indicated and summarized in Table 1; most require further reflection and detailed follow-up papers for the Executive Board.

### Table 1 — summary of actions (selected points)
- A. MORE EFFECTIVE SURVEILLANCE
  - Research long-term economic aspects of globalization with staff and outside experts.
  - Foster debate on cooperative multilateral solutions to global current account imbalances.
  - Deeper analysis of financial markets; integrate financial expertise into area teams; Financial Sector Assessment Programs to shift to streamlined updates and integration into Article IV and program discussions.
  - Area departments to intensify analysis and contact with regional bodies and present regional outlooks to public.
  - Selectivity in Article IV coverage and flexibility to streamline guidance on content.
  - More contextual outreach to the public, including post-Article IV media events and seminars.
  - Shift focus to follow-up; new assessments to be selective and based on macro-criticality.
- B. ROLE IN ADVANCED COUNTRIES
  - Staff reports on systemic countries to introduce a section on global implications more regularly.
  - Staff to report on possible policy adaptations when Fund advice is not accepted.
- C. ROLE IN EMERGING MARKETS
  - More early warning work focused on EM vulnerabilities and financial market disturbances; integrate financial experts into country teams.
  - Review Lending Into Arrears policy.
  - Discuss high access precautionary arrangements and successor Contingent Credit Line; help develop local financial markets and instruments to manage risk.
- D. CAPITAL ACCOUNT LIBERALIZATION
  - Staff to undertake research on sequencing and other issues.
- E. ROLE IN LOW-INCOME COUNTRIES
  - Emphasize macroeconomic stability, promoting trade, and absorbing scaled-up aid.
  - Other agencies to handle donor coordination, harmonization, and PRSP consultative processes.
  - New instruments: (i) Policy Support Instrument; (ii) permanent PRGF; (iii) shocks facility within PRGF; (iv) further debt relief to poor countries.
  - Assess MDG achievability under realistic financing scenarios, jointly with Bank and donors.
  - Staff to propose steps to streamline excessive documentation and cumbersome procedures.
- F. BUILDING INSTITUTIONS AND CAPACITY
  - Area departments to set technical assistance programs aligned with Article IV and program priorities.
  - Implement IEO/Board recommendations to strengthen ownership, track outputs, follow up, and evaluate effectiveness.
- G. PRIORITIES IN A MEDIUM-TERM BUDGET
  - Reflect priorities in a three-year medium-term budget framework, starting April 2006.
  - Review Fund finances to propose means to broaden the income base.
- H. ORGANIZATION
  - Implement new compensation system and expert career streams.
  - Examine department size and overlaps, starting with financial sector and capital markets work.
  - Devolve routine responsibilities to departments with more accountability and safeguards.
  - Put a risk management assessment in place.
  - Develop proposals to reduce documentation volume and routine time, permitting the Board to focus on larger strategic issues.
  - Modify meeting formats for more frank IMFC discussions and more focused communiqués.
  - Initiate dialogue with new Bank counterparts to rationalize overlaps in financial sector work, donor coordination, and PRSP process.
- I. FAIR QUOTA AND VOICE
  - 13th General Review of Quotas to explore reallocation even without a general quota increase.
  - Consider measures to increase the role of smaller members at the Board.

*Source: IMF strategic review document (text as provided).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/omd/2005/eng/_091505.pdf_