## Position of Reports on Key Governance Reforms (_070109)

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### I. Introduction and scope
- Crisis moments have prompted reassessment of Fund structures; dissatisfaction predates the crisis with concerns about waning relevance, effectiveness, and legitimacy.
- IMFC communiqué (April 2009) requests Executive Board reporting on broader governance reforms, referencing the Report by the Eminent Persons Group.
- Scope:
  - Focus on allocation of responsibilities between Fund organs; size and composition of the Executive Board; selection of Fund management; design of voting rules.
  - Quota share acknowledged as a key governance problem but not addressed here (separate track). Manuel report notes quota and other governance reforms may need to be implemented as a package [Manuel ¶ 41].
- Inputs synthesized from reports: Trevor Manuel, the IEO, the Moser Group, civil society, Boutros-Ghali/Boorman, G20, UN/Stiglitz, academics.
- Staff to prepare, for discussion in September, a more pointed paper with Board views and specific recommendations.

### II. Political engagement, IMFC, and proposal to activate a ministerial-level Council
- Current structure and problem:
  - IMFC is advisory and lacks decision-making authority; ministerial-level engagement seen as missing [Manuel ¶s 8-10, IEO ¶ 65].
  - Substantive negotiation and policy coordination often occur in G-7/G-20 fora.
  - Absence of a high-level political body undermines accountability for Executive Board decisions.
- Council proposal (Manuel and IEO):
  - Activate Schedule D Council (as envisaged in the Articles of Agreement) converting IMFC into a ministerial-level Council [Manuel ¶s 13, 41; IEO ¶ 66].
  - Purposes:
    - Make strategic decisions on early warning, crisis response and coordination, multilateral consultations, establishment of major new facilities (e.g., Flexible Credit Line), selection of the Managing Director.
    - Vest the Council with decision-making mandate (not merely advisory).
    - Supervise the management and adaptation of the international monetary system (Schedule D language cited).
  - Re-configuration implications:
    - Council must mirror Board constituencies under the Articles, implying Executive Board reconstitution.
    - Size: proposals vary; Manuel calls for consolidation to around 20 chairs [Manuel ¶ 22]; IEO notes lack of consensus [IEO ¶ 42].
  - Legitimacy and voting:
    - Retain culture of decision by consensus; allow split voting in Council constituencies to enhance small members’ voice.
    - Subject critical decisions to special majorities (see section on voting) proposed by Manuel and IEO [Manuel ¶ 26, IEO ¶ 67].
  - Leadership:
    - Manuel recommends a troika model—past, current, future heads—with regular rotation (two-year terms) and transparent selection; IEO supports five-year term limits [IEO ¶ 67].
- Objections to activating a Council:
  - Practical: ministers may not engage detail, Council could become rebranding of IMFC without stronger engagement; split voting could complicate procedures.
  - Principle-based: risk of weakening the Executive Board and disadvantaging smaller members; risk of concentrating power in staff and management.
  - Counterargument: a strategic, policy-oriented Board and strengthened Board oversight of management could mitigate concentration-of-power risks [Manuel ¶ 37, IEO ¶ 69].
- Alternative: reform IMFC without Schedule D activation
  - Strengthen IMFC by adopting Council elements (recomposition, troika, meeting format) without formal activation; could be implemented without amending the Articles.
  - Risk: without de jure decision-making authority oversight and accountability may remain limited [IEO ¶ 34].

### III. Executive Board — role, size, composition, and functions
- Centrality:
  - Executive Board is responsible for conducting the “business of the Fund” (Box 2) and is the pivotal governance organ.
  - Criticisms noted by the IEO: (a) too large and too unrepresentative [IEO ¶s 27, 42]; (b) too involved in organizational minutiae rather than broad oversight and strategy [IEO ¶s 70-72].
- Responsibilities (Box 2 summary):
  - Board of Governors: vested with “[a]ll powers under this Agreement not conferred directly on the Board of Governors, the Executive Board or the Managing Director” (Article XII, Section 2(a)).
  - Executive Board: “shall be responsible for conducting the business of the Fund…” (Article XII, Section 3(a)).
  - Managing Director: “shall be the chief of the operating staff of the Fund and shall conduct, under the direction of the Executive Board, the ordinary business of the Fund” (Article XII, Section 4(b)).
  - Board decisions cover approval of general terms for use of Fund resources, regulatory approvals (e.g., the 2007 Surveillance Decision), approval of a member’s request for a Fund arrangement, Article IV assessments, budget approval, broad employment policies.
- Size:
  - Board has doubled since inception to the current 24 Directors.
  - No consensus on right size: IEO finds about half of Executive Directors think it is too large; a slightly higher proportion of country authorities find it adequate [IEO ¶ 42].
  - Corporate governance literature cited by IEO suggests effectiveness declines above 12 Board members [IEO ¶ 40].
  - Several reports consider downsizing to 20 chairs — the number envisaged in the Articles of Agreement — which can be exceeded only if an 85 percent majority of the Board of Governors agrees.
  - The US, or any group of countries controlling more than 15 percent of votes, could force a return to a 20-chair Board at the next regular election in October 2010.
- Composition — three concerns:
  - Voice of emerging markets and developing countries:
    - Emerging and developing economies hold 10-12 chairs of 24 chairs, depending on rotation within constituencies.
    - Large constituencies burden Executive Directors and limit voice and accountability of represented countries.
  - Europe:
    - EU occupies 8 chairs in the Board at present, compared to 2-5 for other regions; perceived over-representation is a major theme.
    - Consolidation within Europe could reduce fragmentation but might concentrate voting power.
  - Appointed chairs:
    - Five largest shareholders entitled and obliged to appoint their own Executive Director (Article XII, Section 3(b)(i)); up to two additional Directors may be appointed by the two largest creditors if not already entitled (Article XII, Section 3(c)).
    - Manuel and IEO recommend eliminating appointed chairs to remove perceived “two-class system” [Manuel ¶ 24, IEO ¶ 74].
- Composition mechanics (Box 3 highlights):
  - Board originally 12 Executive Directors; increased to 20 between 1948 and 1964; remained 20 until 1978; increased to current 24 between 1978 and 1992.
  - Nineteen Executive Directors are elected by other members; Articles set elected Directors at fifteen (Article XII, Section 3(b)(ii)) but Board of Governors increased this number since 1992 by an 85 percent majority.
  - Schedule E election mechanics: persons receiving greatest votes elected, subject to minimum and maximum percentages traditionally set at 4 percent and 9 percent respectively.
- Role and functions — identified problems and remedies:
  - Overstretch: Board too involved in routine operations reducing capacity for oversight and strategy.
  - Strategic mandate: need to strengthen Board’s strategy function; Manuel proposes Board advise the Council and prepare strategic work [Manuel ¶ 37].
  - Oversight: introduce an accountability framework for the Board to track management performance and strengthen independent oversight [Manuel ¶ 37, IEO ¶ 69].
  - Boundaries: devolve certain operational functions (e.g., surveillance conclusions, some UFR program reviews) to management or Board committees to free Board for strategic oversight [Manuel ¶ 33; IEO ¶s 72, 77].
  - Committees: greater reliance on committees could preserve Board authority while enhancing time for strategic roles; committee recommendations would still require Board approval.

### IV. Resident versus nonresident Board; Board chair; management selection; staff hiring
- Resident vs nonresident Board:
  - Pros of resident Board: Executive Directors could be more senior, provide strategic guidance, focus on oversight, and lower costs.
  - Cons: risk of inadequate engagement by nonresident Directors; loss of daily organizational insight; emerging and developing countries may incur higher costs.
  - Stakeholder sentiment: most are between agnostic and antagonistic to a nonresident Board.
- Board chair:
  - Some argue Managing Director should give up chairing the Executive Board for clearer accountability.
  - Manuel and IEO propose special arrangements (e.g., Executive Director chairing the Board or Board committees) when Board exercises purely oversight functions [Manuel Table 1, IEO ¶ 77].
- Managing Director (MD) selection and DMDs:
  - MD has always been European; perception problematic for legitimacy.
  - 2001 Board “endorsed” guidelines for more open process; guidelines never implemented.
  - Board adopted a procedure specifying qualification criteria, a nomination period, and an interview process; skepticism remains until politically backed and different outcomes achieved.
  - DMDs perceived as informally reserved for certain nationalities; DMD appointments by MD are subject to Executive Board approval.
  - Political commitment via Council/IMFC or Executive Board could help make DMD positions open and non-reserved.
- Staff composition and hiring:
  - Criticisms: lack of country-specific knowledge, limited regional and academic diversity, limited prior work experience; regional rotation may amplify issues.
  - Proposals: overhaul HR policies to promote diversity, reduce staff rotation, enhance staff accountability (link career progression and country outcomes), allow wider range of economic views.
  - Fund actions: increase regional and academic diversity and prior work experience via hiring; slow staff rotation via minimum periods on desks and in departments.
  - Pace of progress hindered by tradeoffs (e.g., downsizing vs. hiring in major financial centers).
  - IEO recommends Board play more active role in selection of General Counsel and Secretary of the Board [IEO ¶ 78].

### V. Voting rules, majorities, and reform options
- Current default:
  - Article XII, Section 5(c): “[e]xcept as otherwise specifically provided, all decisions of the Fund shall be taken by a majority of the votes cast”.
  - Most decisions may be adopted by a majority of votes cast, i.e., by as few as 8 Directors.
- Special majorities:
  - Require either 70 percent or 85 percent of total voting power; calculated on “total voting power”; abstentions effectively count as negative votes.
  - Existence of an 85 percent special majority perceived as giving excessive leverage to the United States (any small group able to form a blocking minority would have similar leverage).
- Proposals:
  - Manuel and civil society propose lowering the 85 percent threshold to 70-75 percent [Manuel ¶ 26].
  - Consider double majorities (require majority in voting power plus an additional metric such as number of members) to dilute pure weighted voting and enhance smaller members’ voice.
- Constraints:
  - Changing thresholds or establishing double majorities requires amendment of the Articles — acceptance by three-fifths of members having 85 percent of the total voting power.
  - Care needed to avoid undermining the Fund’s capacity to respond quickly; special majorities exist as safeguards on far-reaching policy questions.

### VI. Mandate, surveillance, capital account jurisdiction, and SDRs
- Mandate review rationale:
  - Changes in the global economy prompt questions whether Fund’s mandate is appropriate and whether Articles need amendment.
  - Key debate areas: (i) perimeter of surveillance; (ii) jurisdiction over capital movements; (iii) international reserve currencies.
- Surveillance mandate:
  - Manuel and Boutros-Ghali/Boorman stress Fund lacks explicit mandate to oversee global financial stability in all dimensions — not just exchange rate developments but also financial sector developments, capital flows, domestic macroprudential policies [Manuel ¶ 2, Boutros-Ghali/Boorman p. 2].
  - Existing mandate focuses on members’ obligations to promote “ a stable system of exchange rates”, emphasizing “external stability” (2007 surveillance decision).
  - Case for broadening surveillance to give equal weight to macroeconomic and prudential policies and financial spillovers; broadened mandate would enhance necessary expertise.
  - Concerns about evenhandedness: current approach perceived to lead to closer scrutiny of members with fixed or managed exchange rates.
- Capital account jurisdiction:
  - Extending Fund jurisdiction to international capital movements would facilitate oversight of risks and cross-border spillovers from capital account liberalization and advise on sequencing and assessment of domestic macro-financial risks.
  - Granting such powers would require capacity development and mechanisms to ensure any restrictions imposed are non-discriminatory [Boutros-Ghali/Boorman p. 4; Manuel Box 2].
- SDRs and global reserve system:
  - Interest in making the SDR a principal reserve asset; debate covers administration, form, production and allocation, countercyclical emission rules, and transition management [UN/Stiglitz Chapter 5, ¶s 30-54].
  - Governance implications: an enhanced IMF role (e.g., regular or countercyclical SDR emissions) could require a less political and more independent central bank–type arrangement.

### VII. Reports’ findings and core recommendations (selected highlights)
- Trevor Manuel (Eminent Persons Group) — recommendations:
  - Quota and voice: ratify April 2008 reform; bring forward next quota adjustment to April 2010.
  - Recompose Executive Board: remove five appointed Directors; consolidate chairs including European ones; reduce Board size to 20.
  - Activate ministerial-level Council; adopt troika leadership with regular rotation.
  - Devolve operational decision-making to management; elevate Board to strategic/oversight role.
  - Make MD selection open, transparent, merit-based; MD appointed by Council.
  - Lower special majority threshold from 85 percent to 70-75 percent; consider double majorities.
  - Expand surveillance mandate beyond exchange rates to include macroprudential and financial spillovers; include capital account in mandate.
- IEO Report — recommendations:
  - Activate the Council to set strategic directions and provide high-level oversight; use special majorities for critical decisions.
  - Implement framework to hold Management accountable and open, merit-based selection for top management.
  - Reorient Board to supervisory role: strategy formulation, monitoring implementation, oversight of Management.
- Boutros-Ghali/Boorman:
  - Support Manuel; examine Council activation; consider extending IMF jurisdiction over capital account issues.
- G-20 Working Group 3:
  - Support open, merit-based selection for top management; review Board and IMFC structure and decision rules to reflect changing economic weights.
  - No consensus on Council activation sequencing relative to quota reforms.
- Stiglitz Commission (UN):
  - Propose Global Economic Coordination Council in the UN; extend double majority voting; merit-based selection; IMF support for national capital account management; consider global reserve currency managed by IMF.
- Moser (Executive Board Group):
  - Categorize recommendations by decision forum; propose Board retreat on Executive Board effectiveness; refer other matters to committees and working groups.
- De Larosière (EU High-Level Group):
  - Call for more effective symmetric multilateral surveillance, mandatory FSAPs on fixed schedule, comprehensive early warning mechanism, Council activation, and EU consolidation to not more than two Board members for the EU [¶ 256].

### VIII. Next steps, consensus challenges, and key measures (Table 2 summary)
- Next steps (¶36–¶38):
  - Board report to IMFC to cover: obtaining high-level IMFC engagement (Council activation or reformed IMFC); which Manuel recommendations to take forward; handling other proposals.
  - Directors’ guidance sought on key questions (selection of Council vs reformed IMFC; Board downsizing and elimination of appointed chairs; devolving functions to management; voting-rule reforms including double majorities and lowering 85 percent threshold; MD and DMD selection processes; staff diversity; Articles amendments).
  - Risks: protracted debate, positioning, impasse, and inaction.
  - Ministers could provide early guidance on broad parameters: desired shift in quota shares to dynamic/emerging economies; increase in total quotas; size and composition of Board; role of IMFC ministers and governors in strategic decisions.
- Key measures needed to implement reform proposals (summary of Table 2):
  1. Quota and Voice reforms
    - Complete 2008 Q&V reform: amendment of Articles requires acceptance by three-fifths of members having 85 percent of the total voting power.
    - Accelerate next round of quota revisions to be completed by Jan 2011.
    - Adoption of a Board of Governors resolution proposing quota increases requires 85 percent majority of the total voting power.
  2. Political Engagement
    - IMFC leadership reform: troika model with 2-year terms and open, transparent elections; Board of Governors resolution requiring majority of votes cast to revise Resolution 54-9.
    - IMFC meeting format reforms: more informal/interactive with concise background material.
    - Council activation (if pursued): Amendment to Schedule D requires acceptance by three-fifths of members having 85 percent of the total voting power; Board of Governors resolution requiring 85 percent majority of total voting power to activate Council.
    - Define Council functions via Board of Governors resolution requiring majority of votes cast to revise By-Law 15 delegation.
  3. Executive Board
    - Facilitate consolidation by eliminating appointed chairs: amendment to Article XII, Section 3 and Schedule E requires acceptance by three-fifths of members having 85 percent of the total voting power.
    - Devolve surveillance function (conclusion of Article IVs, and WEO/GFSR) to management: Executive Board decision by majority of votes cast may determine these functions part of “ordinary business of the Fund” (Article XII, Section 4(b)).
    - Accountability of Board: if via Council, oversight established as Council function; if via IMFC, revise Resolution No. 54-9 via Board of Governors resolution requiring majority of votes cast.
  4. Management
    - Make MD selection open, transparent, irrespective of nationality:
      - If Council activated and MD selection vested in Council: Amendment to Article XII, Section 4(a) requires acceptance by three-fifths of members having 85 percent of the total voting power; Council decision by majority of votes cast to establish selection framework.
      - If Council not activated: Executive Board decision by majority of votes cast to establish selection framework.
    - Make DMD selection open and transparent: MD to formulate guidelines; DMDs remain staff with appointment subject to Executive Board approval.
    - Accountability of Management: Executive Board decision by majority of votes cast may establish framework to evaluate the Managing Director (already in place).
  5. Voting rules
    - Lower threshold on key decisions from 85 percent to 70 percent: amendment to relevant Articles requires acceptance by three-fifths of members having 85 percent of the total voting power.
    - Establish double majorities: amendment to relevant Articles requires acceptance by three-fifths of members having 85 percent of the total voting power.

*Source: IMF staff paper "Position of Reports on Key Governance Reforms", sections I–III and subsequent excerpts from the provided chapter/section.*

### 1. Position of Reports on Key Governance Reforms ...............................................................23

### 1. Position of Reports on Key Governance Reforms

### I. INTRODUCTION
- Why governance has become a key issue:
  - Crisis moments prompt reassessment of Fund structures; dissatisfaction with Fund governance predates the crisis, reflecting a sense of waning relevance, effectiveness, and legitimacy.
  - Debates displaced to fora such as the Gs, regional variants, and specialized groups; responsiveness often driven by political forces outside the institution (previously the G-7, now the G-20).
  - April 2009 IMFC communiqué calls that, beyond quotas, “... broader reforms to ensure International Monetary and Financial Committee active participation in the Fund’s strategic decision making process should be promptly considered. The Committee calls on the Executive Board to report on this issue, as well as the Report by the Eminent Persons Group, and the work done by other groups, on enhancing the IMF governance structure by the next Annual Meeting in October 2009.”
- Scope of the paper:
  - Focuses on allocation of responsibilities between Fund organs; size and composition of the Executive Board; selection of Fund management; design of voting rules.
  - Touches on the Fund’s mandate; excludes detailed treatment of consultation with civil society, transparency, and internal organization issues to avoid diluting core IMFC decision issues.
- Quotas:
  - Quota share is acknowledged as a key governance problem but not addressed here due to an existing separate track and the IMFC’s request for a report on “broader reforms.”
  - Manuel report suggests quota and other governance reforms may need to be implemented as a package [Manuel ¶ 41].
- Inputs:
  - Paper synthesizes pros and cons of approaches proposed in recent reports (Trevor Manuel, the IEO, the Moser Group, civil society, Boutros-Ghali/Boorman, G20, UN/Stiglitz, academics).
  - Summaries of these reports are in Annex I; positions on key reforms summarized in Table 1.
  - Civil society concerns: accountability at all levels (IMFC, Executive Board, management, staff), mechanisms for complaints/feedback, and transparency.
  - Staff will prepare, for discussion in September, a more pointed paper with the Board’s views and specific recommendations.

### II. POLITICAL ENGAGEMENT AND ACCOUNTABILITY AT THE IMFC — CURRENT STRUCTURE
- Key issue identified:
  - Manuel and IEO reports argue ministerial-level engagement is missing, with blurred roles and processes hindering strategic decision-making [Manuel ¶s 8-10, IEO ¶ 65].
  - IMFC is advisory and lacks decision-making authority; substantive negotiation and policy coordination occur in G-7/G-20 fora.
  - Absence of a high-level political body undermines accountability for Executive Board decisions.
- Central question:
  - Whether to pursue a radical overhaul (e.g., activating Schedule D Council) or a more adaptive approach strengthening IMFC accountability and engagement.

### III. A MINISTERIAL-LEVEL COUNCIL — KEY ELEMENTS AND RATIONALE
- Proposal summary (Manuel and IEO favor converting the IMFC into a ministerial-level Council; Schedule D of the Articles of Agreement envisages this) [Manuel ¶s 13, 41; IEO ¶ 66].
- Purposes and rationales:
  - Strategic decisions:
    - Focus on core issues (early warning, crisis response and coordination, multilateral consultations, establishment of major new facilities like the Flexible Credit Line, selection of the Managing Director).
    - A mandate to take decisions (not merely to opine) is seen as more likely to engage senior policy-makers [Manuel ¶s 16-19, IEO ¶ 66].
    - Cites Schedule D’s call to “supervise the management and adaptation of the international monetary system, including the continuing operation of the adjustment process and developments in global liquidity.”
  - Re-configuration:
    - Council must mirror Board constituencies under the Articles, implying reconstituting the Executive Board (see Section III).
  - Size:
    - No consensus on appropriate size; Manuel calls for consolidation of both Board and Council to around 20 chairs [Manuel ¶ 22]; IEO notes lack of consensus [IEO ¶ 42].
  - Legitimacy, consensus, voting:
    - Legitimacy from full membership decisions with professional, politically neutral staff input [IEO ¶ 66].
    - Retain culture of decision by consensus; allow split voting in Council constituencies (unlike the Board) which could enhance voice of small members.
    - Manuel and IEO suggest subjecting critical decisions to special majorities (see section IV) [Manuel ¶ 26, IEO ¶ 67].
  - Participatory leadership:
    - Manuel recommends a troika model—past, current, future heads—for the Council, with regular rotation (two-year terms) and transparent selection; IEO supports five-year term limits [IEO ¶ 67]; leadership would set agenda with input from Board and management.

### IV. INSTITUTIONAL ACCOUNTABILITY
- The accountability gap:
  - Executive Board is, in theory, accountable to the Board of Governors for conducting the business of the Fund, but the Board of Governors is too large to offer effective oversight, and has never held the Executive Board to account for its advice and decisions.
- Role for the Council:
  - The Council could bridge accountability by mandating independent evaluators to report on Board performance or by having the Board report to the Council on management performance [Manuel ¶ 37, IEO ¶ 65].

### V. OBJECTIONS TO ACTIVATING A COUNCIL
- Practical objections:
  - Doubts that ministers would welcome accountability for global issues, take time to learn details, or confront fellow ministers on controversial topics; risk that a Council becomes rebranding of the IMFC without delivering stronger engagement.
  - Split voting by Councillors could complicate voting processes, though it would enhance small members’ voice.
- Principle-based objections:
  - Concern that activating the Council could weaken the Executive Board and disadvantage smaller members who rely on resident Executive Directors.
  - Risk of concentrating power in staff and management if the Board is weakened.
  - Counterargument from reports: a more strategic, policy-oriented role for the Board would strengthen rather than weaken it; strengthening Board oversight over management would avoid concentration of power [Manuel ¶ 37, IEO ¶ 69].

### VI. ALTERNATIVE — IMFC REFORM
- Elements and rationale:
  - Strengthen the IMFC by adopting elements of the Council without formal activation under Schedule D.
  - Recomposition of the IMFC, in parallel with the Executive Board, could raise IMFC profile and effectiveness while retaining constituency representation.
  - IMFC size and composition could be dissociated from the Executive Board without amending the Articles, offering flexibility.
  - Troika leadership model and changes to meeting format (more informal exchanges on specific ministerial issues) could be introduced at the IMFC.
  - The Board could assist a reformed IMFC by distilling Fund analysis, framing strategic issues, and assessing its own and management’s performance.
- Counterpoints:
  - Without formal decision-making authority and accountability, engagement and oversight may remain limited and the status quo persist.
  - De jure decision-making and oversight authority (as in a Council) can concentrate minds and induce behaviors that looser arrangements may not.
  - IEO notes that because the IMFC is only advisory it lacks capacity to exercise robust oversight [IEO ¶ 34]; a reformatted IMFC without decision authority may not match political heft of the G-20 on systemic risks.

*Source: IMF staff paper "Position of Reports on Key Governance Reforms", sections I–III (excerpt).*

### 11.      Role. The Executive Board, where all 186 members of the Fund are represented, is

### 11.      Role. The Executive Board, where all 186 members of the Fund are represented, is

### Executive Board: mandate and centrality
- The Executive Board is the pivotal organ in the Fund’s governance structure and is responsible for conducting the “business of the Fund” (Box 2).
- Legitimacy and effectiveness are central; criticisms documented by the IEO include:
  - (a) the Board’s size and composition—specifically that it is at once too large and too unrepresentative [IEO ¶s 27, 42];
  - (b) the Board’s functions—specifically that it is too involved in organizational minutiae rather than in providing broad oversight and strategy [IEO ¶s 70-72].

### Box 2 — Responsibilities of the Executive Board (summary)
- Broad allocation:
  - Board of Governors: vested with “[a]ll powers under this Agreement not conferred directly on the Board of Governors, the Executive Board or the Managing Director” (Article XII, Section 2(a)).
  - Executive Board: “shall be responsible for conducting the business of the Fund, and for this purpose shall exercise all the powers delegated to it by the Board of Governors” (Article XII, Section 3(a)).
  - Managing Director: “shall be the chief of the operating staff of the Fund and shall conduct, under the direction of the Executive Board, the ordinary business of the Fund” (Article XII, Section 4(b)).
- Board decisions:
  - The Executive Board has a central role in policy formulation and application, including approval of general terms for use of Fund resources, regulatory approvals (e.g., the 2007 Surveillance Decision), approval of a member’s request for a Fund arrangement, assessment under Article IV consultations, budget approval, and broad employment policies.
- Delineation of responsibilities:
  - Executive Board and Managing Director exercise separate but closely related powers.
  - The Articles (Article XII) could be made more prescriptive but the Board has refrained; instead delineation evolved through specific Board decisions and practice.
  - Examples: Guidelines on Conditionality; Rule N-16(d) modification authorizing management to accept technical assistance requests without Board approval; exceptional access policy circumscribing Managing Director’s authority.

### A. Size and Composition

- Size:
  - The Board has doubled since inception to the current 24 Directors.
  - No consensus on right size: IEO finds about half of Executive Directors think it is too large, while a slightly higher proportion of country authorities believe it adequately balances effectiveness and representation [IEO ¶ 42].
  - Corporate governance literature cited by IEO suggests effectiveness declines above 12 Board members [IEO ¶ 40].
  - Several reports consider downsizing to 20 chairs — the number envisaged in the Articles of Agreement — which can be exceeded only if an 85 percent majority of the Board of Governors agrees.
  - The US, or any group of countries controlling more than 15 percent of votes, could force a return to a 20-chair Board at the next regular election in October 2010.
  - Greater size reduction could yield effectiveness benefits but may be outweighed by representation concerns.

- Composition — three related concerns:
  - The voice of emerging market and developing countries:
    - Emerging and developing economies hold 10-12 chairs of 24 chairs, depending on rotation within constituencies.
    - Most Executive Directors representing these countries lead large constituencies and face heavy workloads, limiting the voice and accountability of the represented countries.
    - Civil society argues for reshaping constituencies to ensure more even distribution of countries.
  - Europe:
    - The EU occupies 8 chairs in the Board at present, compared to 2-5 for other regions.
    - Perceived over-representation of Europe is a major theme; calls exist for greater consolidation within Europe [see e.g., Manuel ¶s 27, 41; de Larosière ¶ 256; Bini Smaghi, 2006].
    - Consolidation could reduce fragmentation but might concentrate voting power.
  - Appointed chairs:
    - Five largest shareholders are entitled and obliged to appoint their own Executive Director, a constraint on Board composition.
    - Even unanimous European consolidation would be constrained by this requirement given current quota shares of Germany, France, and the UK.

- Box 3 — Composition, size, and election rules (key points preserved)
  - Composition and size history:
    - Board originally 12 Executive Directors (five appointed, seven elected); increased to 20 between 1948 and 1964; remained 20 until 1978; increased to current 24 between 1978 and 1992.
  - Appointments and elections:
    - Five Executive Directors are appointed by the five members with the largest quotas (Article XII, Section 3(b)(i)). Up to two additional Directors may be appointed by the two largest creditors if not already entitled (Article XII, Section 3(c)). Saudi Arabia was the last member to exercise this provision in 1990.
    - Nineteen Executive Directors are elected by the other members. The Articles set elected Directors at fifteen (Article XII, Section 3(b)(ii)) but the Board of Governors has increased this number since 1992 pursuant to Article XII, Section 3(b) by 85 percent majority.
  - Guidance for Board size (Res. No. 36-3): effective dispatch of business; desirable balance in composition; size of constituencies; freedom to form constituencies; relative equilibrium in voting power.
  - Schedule E election mechanics:
    - Persons receiving the greatest number of votes are elected, subject to a minimum and maximum percentage of eligible votes.
    - Percentages traditionally set at 4 percent and 9 percent respectively.
  - Regulations:
    - Board of Governors customarily modifies Schedule E to permit election when nominations equal vacancies and to allow exceeding the 9 percent ceiling in specific circumstances.

- Proposals and considerations:
  - Manuel report supports reducing Board size and enhancing representation of emerging and developing countries by eliminating appointed chairs and consolidating European chairs [Manuel ¶ 22].
  - Approaches to consolidation vary with implications:
    - Mixed vs homogeneous constituencies: homogeneous constituencies speak with one voice; mixed constituencies (creditor and borrower countries) encourage mutual understanding and balanced positions.
    - Concentrated vs diluted voting power: consensus benefits from chairs’ voting power within a relatively narrow range; EU consolidation would concentrate voting power and skew distribution across chairs, possibly requiring modifications.
    - European consolidation could give fewer European chairs stronger veto power than the US currently holds but may not enhance Europe’s voice if foreign economic policy integration lags; premature consolidation could weaken ability to speak forcefully; constituencies are formed voluntarily.
  - Possible approach:
    - Consider elimination of appointed chairs, as recommended by Manuel Committee and IEO [Manuel ¶ 24, IEO ¶ 74], to remove the perceived inequity of a “two-class system”.
    - An all-elected Board could facilitate consolidation, open the door to single-member chairs accepting other countries, reduce burden on large constituencies, improve voice and legitimacy, and enhance decision-making effectiveness.
    - Risk: potential concentration of voting power argues for rules to avoid excessive concentration in individual chairs.

### B. Role and Functions

- Overstretch:
  - Criticism that there is no meaningful accountability for the Board’s decisions and pronouncements (see Section II).
  - Effectiveness has suffered from lack of focus: Board too involved in routine day-to-day operations where it has limited value-added, reducing its capacity to exercise genuine oversight and strategic direction.
  - Board’s involvement in setting strategic directions and policy formulation has been mostly reactive.
  - Remedies concern both mandate and work practices; focus here on mandate.

- Strategic mandate:
  - Need to strengthen the Board’s strategy function is recurring, especially in Manuel and IEO reports.
  - Manuel argues for the Board to have a primary role in advising the Council on emerging/strategic issues and preparing its work (e.g., preparatory stages of critical Fund policies and cross-cutting themes in Article IV consultations) [Manuel ¶ 37].
  - A key motivation for giving management more decision-making authority over operational issues is to free the Board to advise the Council on strategic issues.

- Oversight:
  - Need to reinforce Board’s oversight role combined with reduced involvement in routine operations.
  - Manuel and IEO recommend introducing an accountability framework for the Board to track management performance and processes to strengthen independent oversight of agreed policies [Manuel ¶ 37, IEO ¶ 69].
  - Moving Board away from day-to-day operations is necessary to free time and delineate responsibilities so the Board can assess policy outcomes independently.

- Boundaries between management and Board:
  - Manuel suggests devolving surveillance to staff and management, with safeguards, and devolving the annual budget within a medium-term framework; Board would retain overall compensation policy and approve decisions regarding use of Fund resources [Manuel ¶ 33].
  - IEO recommends allowing Board committees or management to take decisions with little policy or systemic impact, giving management responsibility for certain non-systemic country issues such as approval of UFR program reviews and certain Article IV consultations [IEO ¶s 72, 77].

- Competing considerations and trade-offs:
  - Surveillance:
    - Manuel proposal would eliminate the peer review process distinctive to Fund surveillance [Manuel ¶ 30].
    - Views differ on peer review’s value-added [IEO ¶ 72]: in principle it distinguishes Fund surveillance; in practice many country authorities pay little attention to surveillance of their own country [Bossone/IEO Background Paper 10, 2008, ¶ 85].
    - Concerns that Board involvement undermines independence of surveillance; IEO suggests management should have greater responsibility for certain non-systemic country issues, including completion of certain Article IV consultations (IEO survey: only a fifth of Board members consider the Board contributes significant value added to Article IV consultations) [IEO ¶ 72].
    - Allowing Article IV reports to be discussed but not concluded by the Board (Manuel recommendation) provides a safeguard for countries or groups of Directors to voice concerns; broader quality control could be exercised ex post on a cross-country basis.
  - Use of Fund Resources:
    - IEO proposes straightforward, non-systemic, UFR decisions be taken by Board committees or management [IEO ¶s 72, 77].
    - If committees are given this function, efficiency could increase but the Board would still need to approve recommendations as committees lack final decision-making authority (approval could occur on a lapse-of-time basis).
  - Committees:
    - Greater reliance on committees could preserve the Board’s executive authority while freeing time to exercise more effective strategic and oversight roles; all committee recommendations would still require Board approval.

*Source: Excerpt titled "11.      Role. The Executive Board, where all 186 members of the Fund are represented, is" from the provided IMF chapter/section content.*

### 21.      Resident versus nonresident Board. Those who advocate that the Board should

### _070109 - 21.      Resident versus nonresident Board. Those who advocate that the Board should

### Resident versus nonresident Board
- Main arguments in favor:
  - Possibility of having as Executive Directors more senior officials, better positioned to provide strategic guidance and better plugged in to the policy-decision processes in their own countries (example cited: Mervyn King (2006)).
  - Built-in incentive to focus on oversight rather than operational issues.
  - Lower costs.
- Main disadvantages and risks:
  - Risk of inadequate engagement by nonresident Directors.
  - Insufficient familiarity with underlying issues and considerations.
  - Emerging market and developing countries feel the cost would be greater in their case, given institutional limitations.
  - A nonresident Board would further advantage the host country in terms of access to staff and management.
- Overall sentiment among stakeholders:
  - Most stakeholders are between agnostic and antagonistic to a nonresident Board, appreciating loss of organizational insight from daily engagement.

### Board chair
- Arguments and proposals:
  - Some academics and civil society organizations argue lines of accountability would be clearer if the Managing Director gave up the role of chair of the Executive Board.
  - So long as the Board retains operational responsibilities (and the Manuel report lists many such responsibilities), retaining the Managing Director as chair would be justified [Manuel ¶ 37].
  - Manuel and IEO reports propose special arrangements (e.g., having an Executive Director chair the Board, or Board committees) whenever the Board exercises a purely oversight function such as the assessment of management performance [Manuel Table 1, IEO ¶ 77].

### Voting majorities — current rules and concerns
- Two identified issues with existing voting rules:
  - Most decisions may be adopted by a majority of votes cast, i.e., by as few as 8 Directors.
  - Existence of key decisions that require an 85 percent majority is perceived as giving excessive leverage to the United States (though any small group able to form a blocking minority would have similar leverage).
- Consensus dynamics:
  - Consensus is often formed “in the shadow” of the voting rules: as proposals develop and requisite majority of voting power is evident, Directors originally opposed may signal support in exchange for concessions.
- Caution on reform:
  - The default majority-of-votes-cast rule ensures the Fund can be decisive and practical as membership increases; reform should not result in paralysis.
  - Special majorities can be seen as the price for granting the Fund authority to take certain decisions; removal or lowering of special majorities risks reducing the Fund’s authority in key areas.

### Box 4 — Voting majorities (high-level points)
- Default rule:
  - Article XII, Section 5(c): “[e]xcept as otherwise specifically provided, all decisions of the Fund shall be taken by a majority of the votes cast”.
  - Votes not cast because of abstention, or because no Executive Director is entitled to cast the number of votes allotted to a member, are excluded from the calculation and are not treated as negative votes.
- Special majorities:
  - Require either 70 percent or 85 percent of total voting power.
  - Calculated on “total voting power”; votes not cast because of abstentions are effectively counted as negative votes.
- Historical and policy considerations:
  - Preference for majority-of-votes-cast sought maximum facility in conducting Fund business.
  - Higher (special) majorities were retained as safeguards on far-reaching policy questions and as assurance to members conferring enabling authority.
  - Second Amendment streamlined special majorities to 70 percent or 85 percent of total voting power.

### Double majorities
- Concept:
  - Require a majority both in terms of (a) voting power and (b) an additional “democratic” metric to dilute pure weighted voting.
  - Analogous to “basic votes” which give every country an equal number of votes.
- Complications:
  - Choosing the additional metric depends on the decision forum (Executive Board, Board of Governors, Council).
  - For Executive Board decisions, the additional metric could be a majority of Executive Directors; since Directors cast votes as a block, number-of-members metric is not applicable for Board decisions.
- Implications and cautions:
  - Would significantly shift power from members with large quotas to members with smaller quotas.
  - Degree of shift depends on size and composition changes of the Executive Board.
  - Reform requires amendment of the Articles and broad support; care needed to avoid undermining the Fund’s capacity to respond quickly.
  - Alternative: consider increasing the number of decisions requiring a special majority (also requires Articles amendment).

### Special majority threshold debate
- Proposals:
  - Manuel report and civil society reports propose lowering the 85 percent special majority threshold to 70-75 percent [Manuel ¶ 26].
- Practical constraints:
  - Changing threshold requires an amendment of the Articles and thus the support of the US (amendments involve a double majority: three-fifths of the members, having 85 percent of the total voting power).
- Counterpoint:
  - The 85 percent threshold increases leverage not only of the US but of any group that can muster 15 percent of the total voting power; lowering the threshold would reduce their leverage as well.

### Management selection and staff hiring
- Managing Director selection:
  - Fact that Fund’s Managing Director has always been a European (and World Bank’s always a US national) is problematic for legitimacy.
  - In 2001 the Board “endorsed”—but did not adopt a formal decision approving—guidelines for a more open process; these guidelines have never been implemented.
  - Process has evolved: Board adopted a procedure specifying qualification criteria, a nomination period, and an interview process; skepticism remains until guidelines receive political backing and a different outcome is achieved.
- Deputy Managing Directors (DMDs):
  - Clear perception that these positions are unfairly reserved for certain nationalities (e.g., First Deputy Managing Director informally a US national historically; other DMD positions show regional stickiness).
  - DMD appointments by Managing Director are subject to Executive Board approval.
  - A firm political commitment—expressed through the Council/IMFC or the Executive Board—that these positions are not reserved could help.
- Staff composition and hiring concerns:
  - Criticisms: lack of country-specific knowledge (amplified by regional rotation), limited regional and academic diversity, and limited prior work experience.
  - Proposals (e.g., New Rules for Global Governance): overhaul HR policies to promote diversity, reduce staff rotation, enhance staff accountability (link career progression and country outcomes), allow wider range of economic views.
  - Fund actions underway: increase regional and academic diversity and prior work experience via hiring policies; slow staff rotation via minimum periods on desks and in departments.
  - Pace of progress hindered by tradeoffs (e.g., downsizing vs. hiring staff with financial expertise in major money centers).
  - IEO proposal: Executive Board should play a more active role in selection of the Fund’s General Counsel and Secretary given their special relationship with the Executive Board [IEO ¶ 78].

### Fund mandate — overview and surveillance mandate
- Mandate review rationale:
  - Significant changes in the global economy have prompted questions whether the Fund’s mandate is appropriate and whether the Articles need amendment.
  - Three areas of debate: (i) perimeter of surveillance; (ii) jurisdiction over capital movements; and (iii) international reserve currencies.
  - One approach (G-20 paper): IMF commission a group of experts to analyze issues and negotiate needed amendments to the Articles [G-20 ¶ 92].
  - UN Stiglitz commission proposal: an intergovernmental advisory panel of experts to pool available knowledge on a host of critical economic and social issues [UN/Stiglitz Chapter 4, ¶ 19].
- Surveillance mandate specifics:
  - Manuel and Boutros-Ghali/Boorman reports stress Fund lacks explicit mandate to oversee global financial stability in all its dimensions—not just exchange rate developments but also developments in the financial sector, capital flows and domestic macroeconomic policies [Manuel ¶ 2, Boutros-Ghali/Boorman p. 2].
  - Existing mandate focuses on members’ obligations to promote “ a stable system of exchange rates”, which forces Fund to view macroeconomic developments through prism of their impact on exchange rates (“external stability” as defined under the 2007 surveillance decision).
  - Illustration of mandate limitation:
    - Transmission of the current crisis from the United States occurred through financial sector de-leveraging and massive capital reflows from emerging markets to US safety, not via a dollar collapse as previously feared.
  - Case made to broaden the Fund’s surveillance mandate to give equal weight to macroeconomic and prudential policies and financial spillovers.
  - Concern about evenhandedness:
    - Current approach perceived to undermine evenhandedness because “firm” surveillance is only to be exercised over members’ exchange rate policies, implying closer scrutiny of members with fixed or managed exchange rates.
  - Related question whether mandate for multilateral surveillance needs clarification [de Larosière ¶ 50].
  - Proponents argue a broader mandate would enhance the Fund’s ability to build necessary expertise in these areas.

*Source: _070109 - 21.      Resident versus nonresident Board. Those who advocate that the Board should (IMF PDF).*

### 34.      Capital account jurisdiction. As the Boutros-Ghali/Boorman report notes, many

### 34.      Capital account jurisdiction. As the Boutros-Ghali/Boorman report notes, many

### Capital account jurisdiction
- Recent crises have been associated with poorly planned and sequenced financial liberalization [Boutros-Ghali/Boorman p. 4].
- Extending the Fund’s jurisdiction over the current account to also cover international capital movements would:
  - Facilitate oversight of risks and cross-border spillovers associated with capital account liberalization.
  - Aim to ensure countries adequately assess domestic macroeconomic and financial risks ahead of liberalization, not to champion liberalization per se.
- Granting the Fund such powers would require:
  - Development of capacity to effectively monitor capital account policies of members.
  - Mechanisms to ensure any restrictions imposed are non-discriminatory.
- Rationale: Given the Fund’s role in providing financing when members face instability in the capital account, it is appropriate for the Fund to play a central role in advising members on the pace of financial liberalization [Manuel Box 2].

### SDRs and the global reserve system
- Interest has grown in making the SDR a principal reserve asset in the international monetary system (Article VIII, section 7, and Article XXII), alongside concerns about the dollar’s long-term standing as the premier reserve asset.
- Debate status and open questions:
  - How the global reserve currency system should be administered.
  - What form a new stable reserve currency should take.
  - How it might be produced and allocated.
  - Whether countercyclical rules of emission might be desirable.
  - How the transition to a new system could be managed [see for instance UN/Stiglitz Chapter 5, ¶s 30-54].
- Governance implications if the IMF were given an enhanced role (e.g., regular or countercyclical SDR emissions):
  - Could require a less political and more independent central bank–type arrangement.

### VII. NEXT STEPS — Expectations (¶36)
- The Board’s report to the IMFC is expected to cover three key areas:
  - How to obtain more high-level engagement at the IMFC (whether by activating the Council or some other means).
  - What other reforms suggested in the Trevor Manuel report to take forward (or not).
  - How to handle the proposals put forward by others.
- The Board must be mindful of broader public expectations of change created by high-profile external analyses on governance deficiencies.

### VII. NEXT STEPS — Specific input (¶37)
- Staff need Directors’ guidance on the following specific points (noting some combinations may not work together):
  - Do problems with legitimacy, engagement, and accountability warrant governance reforms beyond quotas? [¶1-¶2]
  - Should the Council be activated or would a reformed IMFC suffice? [¶5]
  - What areas should the Council/IMFC cover? How would it hold the Board and management accountable? Is recomposition and troika leadership desirable? [¶6-¶10]
  - Should the Board be downsized and the chairs recomposed, with fewer EU chairs and more emerging and developing country chairs? How might this be achieved? Should appointed chairs be eliminated? [¶12-¶15]
  - Should the Board perform less of an operational role and more of an oversight one? What functions might be devolved to management—surveillance? [¶16-¶22]
  - Should double majorities be considered? If so, for what type of decisions? Should the 85 percent special majority threshold be lowered? [¶23-¶28]
  - What specifically should be done now to open up the process for selecting the Managing Director and the Deputy Managing Directors? [¶29-¶30]
  - What should be said with regard to increasing staff diversity? [¶31]
  - Is a change in the Fund’s mandate, as set forth in the Articles, needed? In what areas and on what timeframe? [¶32-¶35]
  - Can these reforms be phased in or should they be treated strictly as a package?
  - What other issues should be raised in the Board’s report to the IMFC?

### VII. NEXT STEPS — Moving ahead (¶38)
- Reaching agreement will be difficult, especially since the full governance agenda also includes quota reform. Risks include protracted debate, positioning, impasse, and inaction.
- Directors may consider early ministerial-level agreement on broad parameters to guide the process, such as:
  - Desired shift in quota shares to dynamic/emerging economies.
  - Increase in total quotas.
  - Size and composition of the Board.
  - Role of IMFC ministers and governors in strategic decisions.
- Such ministerial guidance could revitalize the governance reform process.

### Key measures needed to implement reform proposals (summary of Table 2)
1. Quota and Voice reforms
- Complete 2008 Q&V reform:
  - Completion of the process for amending the Fund’s Articles (acceptance by three-fifths of members having 85 percent of the total voting power).
- Accelerate next round of quota revisions to be completed by Jan 2011.
  - Adoption of a Board of Governors resolution that actually proposes quota increases requires 85 percent majority of the total voting power.

2. Political Engagement
- Reforms of IMFC leadership:
  - Change leadership structure to troika model with 2-year terms and open, transparent elections.
  - Board of Governors resolution requiring a majority of the votes cast (if Resolution 54-9 is to be modified); otherwise by way of an informal understanding among IMFC members.
- Reforms to IMFC meetings:
  - Make more informal and interactive with concise, actionable background material; IMFC Chair may take initiative regarding recommendations for possible changes to the format of IMFC meetings.
- Composition and size; disconnect structure of IMFC/Council (if activated) from the Board:
  - IMFC: Board of Governors resolution requiring a majority of the votes cast (as a revision to Resolution 54-9 would be required).
  - Council (if activated): Amendment to Schedule D of the Articles requires acceptance by three-fifths of members having 85 percent of the total voting power.
- Activate the Council:
  - Board of Governors resolution requiring 85 percent majority of the total voting power.
- Define functions/roles of the Council (if activated):
  - Board of Governors resolution requiring a majority of the votes cast (to revise the delegation of power currently set out in By-Law 15 of the IMF’s By-Laws).

3. Executive Board
- Facilitate consolidation of chairs by eliminating appointed chairs:
  - Amendment to Article XII, Section 3 and Schedule E, requires acceptance by three-fifths of members having 85 percent of the total voting power.
- Devolve surveillance function (conclusion of Article IVs, and WEO/GFSR) to management:
  - Executive Board decision, by a majority of the votes cast, may determine that these functions may be performed by Management as part of the “ordinary business of the Fund” (Article XII, Section 4(b)).
- Accountability of Board:
  - If through Council, oversight of the Executive Board would be established as one of Council’s functions; if through IMFC as a regular function, Board of Governors resolution requiring a majority of the votes cast to revise Board of Governors Resolution No. 54-9 to include oversight of the Executive Board.

4. Management
- Make MD selection open, transparent, and irrespective of nationality:
  - If Council is activated and selection of MD to be vested in the Council: Amendment to Article XII, Section 4(a) requires acceptance by three-fifths of members having 85 percent of the total voting power; and Council decision by a majority of the votes cast establishing a selection framework.
  - If Council is not activated: Executive Board decision adopted by a majority of the votes cast establishing a selection framework.
- Make DMD selection process open, transparent, and irrespective of nationality:
  - As DMDs are members of staff, MD to formulate guidelines for selection of DMDs; as DMDs may chair Board meetings, appointment continues to be subject to Executive Board approval.
- Accountability of Management:
  - Executive Board decision by a majority of votes cast may establish framework to evaluate the Managing Director (already in place).

5. Voting rules
- Lower threshold on key decisions from 85 percent to 70 percent:
  - Amendment to relevant Articles: requires acceptance by three-fifths of members having 85 percent of the total voting power.
- Establish double majorities:
  - Amendment to relevant Articles: requires acceptance by three-fifths of members having 85 percent of the total voting power.

*Source: IMF staff report excerpt (paragraphs 34–38 and Tables 1–2).*

### 6. Mandate

### 6. Mandate

### Core mandate proposals (opening bullets)
- Expand surveillance so as to eliminate primary focus on exchange rate policies.
- Amendment to relevant Articles: requires acceptance by three-fifths of members having 85 percent of the total voting power.
- Expand jurisdiction over current account transactions to cover also capital movements.
- Amendment to relevant Articles: requires acceptance by three-fifths of members having 85 percent of the total voting power.

### I. Report of the Eminent Person’s Group (Trevor Manuel) — Findings and Recommendations
Findings
- IMF advice has lost traction and effectiveness, reflecting governance drawbacks:
  - inadequate voice and representation and hence ownership of emerging markets and developing countries;
  - absence of high-level political representation that provides strategic and policy direction and oversight;
  - excessive involvement of the Executive Board in day-to-day operational activities undermining its effectiveness;
  - lack of clarity in roles and responsibilities of the Board, IMFC, and Management;
  - absence of a clear mandate for the Fund to oversee global financial stability in all its dimensions.

Recommendations
- Quota and voice reforms: ratify promptly the April 2008 reform and bring forward the next quota adjustment to April 2010.
- Re-composition of the Executive Board:
  - remove the requirement of five appointed Directors;
  - undertake constituency reforms to achieve needed consolidation of chairs, including European ones;
  - Reduce the size of the Board to 20.
- Activate the ministerial-level Council envisaged in the Articles of Agreement and adjust its composition in line with quota revisions.
- Adopt a troika leadership model, with regular rotation, and agenda setting by the leadership, with input from the Executive Board and management.
- Clarify roles and responsibilities:
  - give decision-making authority on surveillance and resource allocation to management;
  - elevate the Executive Board from day-to-day operational decisions to advising the Council on strategic issues and overseeing management.
- MD selection process: make it open, transparent, and merit based. MD to be appointed by the Council.
- Accountability: Council holds Board accountable. Board oversees management through ex ante goal setting and ex post performance assessments.
- Voting rules: lower threshold on critical decisions from 85 percent to 70-75 percent; consider double majorities for a wider range of decisions.
- Mandate: expand Fund’s surveillance mandate beyond exchange rates to provide equal coverage of macroeconomic policies, prudential issues, and financial spillovers. The capital account would fall within the mandate.

### II. IEO Report: Governance of the IMF – An Evaluation — Key findings and recommendations
Findings
- Evaluated along effectiveness, efficiency, accountability, and voice; effectiveness strongest, accountability and voice relatively weak.
- Weak ministerial engagement except in systemic crises, leading to inadequate attention to key functions (strategic goals, high-level oversight).
- Reliance on informal decision-making in crises undermined transparency and ex-post accountability.
- Political deal-making in senior management selection undermines transparency and legitimacy.
- Gaps and overlaps in responsibilities between management and the Board, and between the Board and the IMFC, detract from effectiveness and accountability.
- The Board plays a largely reactive role, leaving gaps in strategic guidance and oversight of Management.

Recommendations
- Activate the Council, as contemplated in the Articles of Agreement, to set strategic directions and provide high-level oversight; operate with a high degree of consensus, perhaps through the use of special majorities.
- Implement a framework to hold Management accountable and an open, merit based selection process for top management (Managing Director, and Deputy Managing Directors).
- Clarify respective roles of governance bodies, including the Board and Management, to minimize overlaps and address gaps.
- Reorient the Board to a supervisory role: formulate strategy, monitor policy implementation, and exercise effective oversight of Management.

### III. Boorman Report to IMFC Chair Boutros-Ghali — Findings and recommendations
Findings
- Global financial system architecture inadequate; IMF must be comprehensively reformed including governance to make surveillance and crisis response more effective.

Recommendations
- Support Manuel Report recommendations, including accelerating quota and voice reform.
- Consider a Council with decision-making powers; examine advantages and disadvantages for IMF functioning and improved representation.
- Consider extension of IMF’s jurisdiction over capital account issues to assist members who choose to liberalize capital accounts in an orderly manner within a consistent multilateral framework.

### IV. G-20 Working Group 3 — Recommendations and positions
Recommendations / Emphases
- Open, merit-based selection processes for top management; link selection of the next Managing Director and Deputy Managing Directors of the IMF to similar processes in the World Bank and other MDBs.
- Review structure and representation of the Executive Board and IMFC, and decision making rules, to reflect changing world economic weights and ensure greater voice for emerging markets and developing countries.
- Most G-20 members supported a review of the Fund’s mandate in the international economy, including lessons from the crisis related to the international monetary system and reserve currencies.
- No consensus on modalities for more consistent and effective engagement by Governors; mixed views on activating a Council of Ministers and on sequencing such activation relative to quota and representation reforms.
- No agreement to accelerate reforms aimed at improving operational efficiency and effectiveness of governance bodies; divergent views on whether to expedite delineation of roles and accountability frameworks.

### V. Report of the Stiglitz Commission to the UN General Assembly — Findings and recommendations
Findings
- The crisis exposed failure of global institutional and governance framework to ensure coherence and coordination in global policymaking.
- Neither the G7 nor the G20 is sufficiently inclusive to address global systemic challenges.

Recommendations
- Create a Global Economic Coordination Council within the United Nations at a level equivalent with the General Assembly and the Security Council; representation based on a constituency system to ensure continental and major economy representation; active participation by IFIs including the IMF and the World Bank.
- Extend double majority voting and eliminate effective veto powers over amendments to Articles of Agreement to strengthen ownership and compensate for voting imbalances. Extend double majority voting to selection of the Managing Director and the Chair of the IMFC, key policy decisions, and approving access to lending operations.
- Implement a merit-based, transparent process for selection of senior management with clear guidelines.
- IMF should support countries in designing and implementing policies for national capital account management, including price and/or quantitative instruments.
- Implement a global reserve currency, potentially managed by the IMF, to reduce global risks by not depending on economic policies in a single country.

### VI. Report of the Executive Board Group (Moser) — Overview and operational categorization
Overview
- Board established a working group of Executive Directors to review IEO recommendations and suggest next steps.

Operational categorization of recommendations
- Recommendations requiring decisions by the Board of Governors or concerning IMFC procedures (e.g., activation of the Council; clarification of roles of Board and management) — refer to Board of Governors/IMFC.
- Recommendations concerning effectiveness of the Executive Board (e.g., oversight processes, reducing Board’s day-to-day involvement, frequency of meetings) — to be discussed at a Board retreat.
- Recommendations falling within mandates of existing Board committees/working groups (e.g., accountability framework for management, independent advice for the Board, improved transparency, ethical oversight) — referred to appropriate committees/working groups.
- Recommendations needing further assessment by new Board Working Groups (e.g., strengthening Board’s committee structure; Board’s role in overseeing selection and performance of General Counsel and Secretary of the Board; selection processes for the MD and the DMDs).

### VII. De Larosière: Report of the High-Level Group on Financial Supervision in the EU — IMF-related findings and recommendations
Findings
- Fund’s multilateral surveillance did not function efficiently and failed to lead to timely correction of macroeconomic imbalances and exchange rate misalignments.
- Concerns about international financial system stability did not lead to sufficient coordinated action.

Recommendations vis-à-vis the IMF
- Surveillance:
  - Far more effective and symmetric multilateral surveillance by the Fund covering exchange rates and underlying economic policies to avoid continuation of unsustainable deficits [¶ 50].
  - Article IV reviews should survey enforcement by member countries of international financial regulatory standards [¶ 238], with mandatory FSAPs for all countries on a fixed schedule [¶ 245].
  - Set up a comprehensive early warning mechanism by the IMF and FSF, building on bilateral and multilateral surveillance; early warning results should be reported to the IMFC/Council [¶ 241, ¶ 246].
- Activate the Council to maintain political momentum and ensure accountability.
- Enlarge the FSF and charge it, with international standard setters, to promote convergence of international financial regulation and report regularly to the IMFC/Council on regulatory reform progress [¶ 228-229].
- Consolidation of EU representation: rearrange constituencies and reduce the number of Executive Board members for the EU to not more than two [¶ 256].

### VIII. Views from commentators, think-tanks, and academics — Main themes and proposals
Common emphasis
- Quota and representation reforms are consistently emphasized; broader debate covers activation of a Ministerial level Council, Executive Board role, voting rules, and appointment of senior management.

Council
- Supporters argue a Council would provide visible political support, set strategic goals, make high-level decisions (including MD appointment), and supervise the institution; suggest operation largely by consensus and voting only in extraordinary circumstances.
- Skeptical views argue a Council would be symbolic unless accompanied by major representation reforms.

Executive Board role and location
- Proposals include:
  - strengthen Board independence and oversight while making management accountable to the Board;
  - reduce Board size and make it less resident-intensive (non-resident Board meeting periodically), increasing managerial responsibilities for staff and raising internal accountability issues;
  - radical proposals include abolishing the Executive Board and having day-to-day decisions made by senior management with enhanced transparency and accountability mechanisms.

Voice, representation, and chairs
- Suggestions to consolidate EU constituencies (e.g., collapse multiple EU seats into a single constituency) to reduce Board size and free seats and votes for Asian countries.

Voting rules
- Broad support for double majority voting as a means to enhance voice for developing countries and induce coalition building.
- Examples cited: apply double majority (e.g., ratification by 85 percent of voting power and 60 percent majority of members) to broader decisions including MD selection and IMFC chair selection.
- Debate on veto power: many see elimination of effective US veto as beneficial; some argue consensus norms make veto elimination less consequential.

Managing Director selection and role
- Move to a fair, competitive, transparent selection process without regard to nationality; consider double majority involvement.
- Proposals to split the MD role (Chief Operating Officer vs. Chairman of the Executive Board) to strengthen Board oversight and staff performance; consider term limits and review processes.

IMF mandate debates
- Capital account:
  - Review Fund’s role with respect to capital accounts; consider mandate to oversee capital account while leaving countries free to use controls; guide orderly liberalization and manage procyclical capital flows.
- Global reserve currency:
  - Enhanced role for SDRs and potentially making the IMF more like a global central bank issuing a global reserve currency, used as a countercyclical tool for developing countries.

*Source: 6. Mandate — Annex I: Summaries of Governance Reform Recommendations in Various Reports.*

### References

### References

### References

- Bini Smaghi, L., 2006, “IMF Governance and the Political Economy of a Consolidated European Seat,” in Truman, ed., Reforming the IMF for the 21st Century, Special Report 19, Peterson Institute for International Economics, April, pp. 233-255.
- Birdsall, N., 2009, “Double Majorities at the World Bank and the IMF: For Legitimacy and Effectiveness,” Commentary (http://blogs.cgdev.org/non-commission/2009/03/19/double-majorities-at-the-world-bank-and-imf%e2%80%94for-legitimacy-and-effectiveness/).
- Boorman, J., 2008a, “Reform of the Global Financial System and the Role of the International Monetary Fund,” Emerging Markets Forum.
- Boorman, J., 2008b, “An Agenda for Reform of the International Monetary Fund,” Dialogue on Globalization, Occasional Paper No. 38, January.
- Bossone, B., 2009, “The Report of the Manuel Committee on IMF Governance Reform: What’s Good, What’s Less Good, and What’s Missing?” Commentary in VOX (http://www.voxeu.com/index.php?q=node/3474).
- Boutros-Ghali, Y., J. Boorman, and others, 2009, “Implications of the Current Crisis for the Work of the IMFC,” Cairo, Egypt, February 18, 2009.
- Bradlow, D., 2009, “The G-20 and Sustainable IMF Reform,” The Journal of Turkish Weekly No. 2 (Also available in http://www.voxeu.com/index.php?q=node/3285 ).
- Brookings, 2009, “IMF Governance Reform: A Discussion on the Recommendations of the Committee,” by Kemal Dervis, Trevor Manuel, George Soros, Eswar Prasad, and Jose Ocampo. Transcript in (http://www.brookings.edu/events/2009/0424_imf_reform.aspx).
- Buira, A., ed., 2005, Reforming the Governance of the IMF and the World Bank, for the G24 Research Program (Anthem Press, New York).
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*Source: _070109 - References*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2009/_070109.pdf_