## Executive Board Report to the IMFC on Reform of Fund Governance

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### Background and motivation
- Purpose: Responds to the IMFC request for the Executive Board to report on governance reform; preliminary Board discussions yield agreement in some areas but more work is needed.
- External inputs considered: Trevor Manuel Group, Independent Evaluation Office, academics/think tanks, civil society.
- Concern: Perception that recent responsiveness was driven by outside forces (e.g., the G-20) and that old dissatisfactions with vote, voice and process may resurface once the crisis fades.
- Focus areas of the report: fair quota share; high-level engagement; Executive Board effectiveness and representation; open selection of management and staff diversity; updating of the Fund’s mandate.

### I. Fair quota share
- Defining issue: Realigning quota shares with current global realities remains politically vexing and incomplete.
- Timing: Concluding the next quota review by January 2011 is described as highly ambitious.
- Momentum and target:
  - There is new momentum for a shift in quota share to dynamic emerging market and developing countries of at least 5 percent from over-represented to under-represented countries using the current IMF quota formula as the basis to work from.
- Role of an overall quota increase: Setting a target for the overall quota increase—aside from raising the Fund’s permanent resources—also facilitates rebalancing shares.
- Sequencing and interdependence:
  - Many reforms (representation at the IMFC, Board composition, voting power, voting majorities and blocking minorities) hinge on the quota outcome and may need to be decided as a package.
  - Other reforms can proceed in parallel: enhancing engagement in the IMFC, strengthening the work of the Board, instituting an open management selection process, and reviewing the Fund’s mandate.
- Status note: The April 2008 quota and voice reform remain unratified by many members.

### II. High-level engagement (IMFC)
- Participation and challenge:
  - Engagement by ministers and governors is essential but formalistic IMFC meetings have impeded serious discussion, displacing debate to smaller outside groupings.
  - The crisis increased vesting of important new tasks for the Fund (e.g., early warnings, elaboration of exit strategies) and added resources, making continued engagement more important.
- Debate on IMFC reform versus Council activation:
  - Transforming the IMFC into a Council with formal decision-making powers (as envisaged in the Articles of Agreement and espoused by the Manuel Report) would focus ministerial attention and institutionalize engagement.
  - Concerns: Could weaken consensus-based guidance, transfer decisions from a resident Board to a more distant entity, and have negative implications for oversight of management and staff.
  - Board views: A few counsel activation, a number are open to further deliberation (especially after quota reform), and a somewhat larger group considers activation counter-productive.
- Proposals to enhance ministerial engagement (Box 1 highlights):
  - Move from formalistic meeting formats to more fluid and interactive ones; adopt a more inclusive leadership model; improve communiqué drafting; incorporate mechanisms for greater Board accountability.
  - Specific operational proposals and exact text preserved:
    - Strategic priorities: IMFC can give greater specificity to the Fund’s work objectives.
    - IMFC interaction: Focus on a few systemic or controversial issues, with lead speakers, a Q&A session, and time-limited interventions; comprehensive set speeches should be eliminated.
    - Plenary size:
      - Problem: over 40 people at the table and 350 participants in the room.
      - Proposal: Combine a shorter plenary with more restricted sessions (invited participants); cut drastically the number of Fund staff in the room and non-IMFC members at the table (ILO, OECD, UNCTAD, etc.).
    - Informality: Extend the time allocated to the informal restricted breakfast meetings.
    - Leadership: Consider a troika model—of past, current, and future heads—to foster ownership, broaden participation, and avoid dominance.
      - To encourage rotation, terms might be of 1-2 years, and Spring meeting venues could include troika capitals.
      - Precise modalities of rotation, regional balance, venues etc. to be worked out by the IMFC or their deputies.
    - Deputies’ meetings: Deputies should propose an overhaul and consider holding these meetings only in compelling circumstances.
    - Communiqué drafting:
      - Communiqué should be concise, forward looking, strategic, and prepared ahead of the meeting (with early drafts circulated for electronic comment prior to the formal drafting session); only unresolved issues need be brought to the IMFC.
      - Avoid addition of new items to the communiqué at the last minute.
    - Board accountability, not accounting: IMFC could ask the Board to report on the use of its delegated authority to achieve priorities; report on progress and problems in one or two specific areas at each meeting rather than comprehensive accounting.

### III. Executive Board effectiveness and representation
- Role and modernization:
  - The Executive Board plays a central role; a strong Board is vital to decision-making, bringing members’ views and lending political voice to technical work.
  - Board effectiveness could be enhanced by modernizing work practices, better use of Board committees and lapse of time procedures, and a stronger role in setting the institution’s strategic agenda.
  - Streamlining processes for considering Article IV reports is possible.
- Size and composition:
  - Most Directors view a reduction in Board size from 24 to 20 chairs as unlikely to net efficiency gains in excess of representational costs.
  - Importance of increasing relative presence of emerging market and developing country members on the Board is stressed by some.
  - Manuel Report suggestion: move to a system of all elected Executive Directors, removing the provision for the largest five quota holders to appoint Executive Directors; this has advantages (e.g., facilitating consolidation of chairs) but requires more careful consideration.
- Consensus, majorities, and thresholds:
  - Consensus-based decision making remains the norm; consensus is formed “in the shadow” of voting rules, making quota reform important.
  - Two Manuel Report proposals warrant careful consideration:
    - Lowering the 85 percent threshold for special majorities to 70–75 percent:
      - Effect: eliminates the US veto and appears to level the playing field.
      - Tradeoff: reduces the voice of all minority groupings by making it more difficult to form blocking minorities.
    - Extending double-majority voting to key decisions:
      - Effect: can broaden support on critical issues.
      - Risk: potential for gridlock in decision making.
  - Both changes involve amendments to the Fund’s Articles and require a level of support not yet forthcoming.

### IV. Management selection and staff diversity
- Management selection:
  - Principle: Selection of the Managing Director and Deputy Managing Directors should be open, transparent and without regard to nationality.
  - Historical note: A 2001 draft report on the selection process recommended principles and procedures for search; it was merely “endorsed” by the Executive Board and “noted” by the IMFC in April 2001.
  - Recommendation: A firm political commitment and a clear IMFC statement against informal understandings on nationalities among major shareholders would help.
- Staff diversity:
  - Dimensions: nationality, gender, education, and experience.
  - Obligation: Enhance staff diversity in line with the Articles’ injunction to pay due regard to geographic diversity subject to securing the highest standards of technical competence.
  - Progress: Work underway to increase regional and academic diversity and work experience through the Fund’s hiring policies; these efforts need to be redoubled.

### V. Mandate
- Post-crisis role and surveillance:
  - The current crisis suggests need for a careful review of the Fund’s mission statement.
  - Concern: The formal surveillance mandate’s emphasis to promote a stable system of exchange rates is too narrow a reflection of the Fund’s actual activities and new directions.
  - Need: Discussion on arrangements to require and enable the Fund to go deeply into all issues that bear on global stability and to do so in a more multilateral way.
  - Constraints: Surveillance is limited in various ways and there are important data gaps facing country authorities and Fund staff.
- Path forward:
  - A reconsideration of the Fund’s work need not necessarily entail a formal change in the Articles of Agreement at this stage.
  - A declaration from the IMFC, and associated policy modifications by the Board, may well suffice.

*International Monetary Fund. Executive Board Report to the IMFC on Reform of Fund Governance, October 3, 2009.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2009/_100309.pdf_