Public Information Notice No. 10/108

Public Information Notice: IMF Executive Board Discusses IMF Governance Reform

August 2, 2010

On July 28, 2010, the Executive Board of the International Monetary Fund (IMF) discussed reform of the Fund’s governance.

Background

At its April 2010 meeting, the International Monetary and Financial Committee (IMFC) called on the Fund to accelerate discussions on quotas and the full range of governance reforms. The latter topic, the focus of today’s discussion, builds on previous Board discussions on IMF governance, which have benefitted from inputs by the Independent Evaluation Office, outside experts and civil society in recent years. The related issue of quotas is being discussed on a parallel track of the Fourteenth General Quota Review.

Executive Board Assessment

Executive Directors welcomed the opportunity to advance the discussion of IMF governance reform. At today’s meeting, while a few conclusions emerged, Directors expressed a range of views on key issues. Views remained divided on the package approach to governance and quota reforms. Nevertheless, all Directors underscored the importance of moving to a shared vision of reforms to enhance the Fund’s legitimacy and effectiveness.

Enhancing ministerial engagement and oversight. Directors agreed that engagement by ministers and governors is essential to the effective discharge of the institution’s responsibilities, including to promote multilateral cooperation and coherence of policies. However, views on the best means of delivering such engagement—whether through reform of the advisory IMFC or a shift to a decision-making entity—continued to differ. On the proposal for a new decision-making ministerial body, illustratively titled the “International Monetary and Financial Board (IMFB):”

• Many Directors remained unconvinced of the need for a ministerial-level decision-making body. They saw little difference between the IMFB and the Council, and felt that the decisions proposed to be taken up by such bodies require an understanding of institutional detail and process beyond the time and inclination of ministers and governors. These Directors cautioned against weakening the Board of Governors and the Executive Board, or upsetting the current accountability framework, which they viewed as appropriate. In addition, some of these Directors noted that IMFC members were already very much engaged in the formulation of the Fund’s policies and multilateral coordination.

• A number of Directors welcomed the IMFB proposal, noting that it strikes a balance between securing deeper ministerial engagement in decisions of strategic importance and preserving the role of the Executive Board in the operational work of the Fund. Most of these Directors preferred broadening further the scope of ministerial involvement to include, for instance, the accountability of the Managing Director and setting the guidelines for the Fund’s lending framework. But others considered that a more limited number of key strategic decisions, including importantly some decisions currently reserved for the Board of Governors, would be more appropriate.

• Finally, a few Directors saw the IMFB proposal as addressing concerns raised previously with respect to the “Council” envisaged in the Articles of Agreement. However, they were not in a position to express any firm views ahead of consensus on the scope of responsibilities that would be transferred to such a body. The process of amending the Articles of Agreement was also seen as challenging.

• Against this background, many Directors called for further reforms of the IMFC, including its procedures—through shorter term limits of the IMFC chair, more interactive plenary discussions, and earlier circulation of communiqué drafts. Other Directors agreed on the need for continuing IMFC reforms, but did not see only procedural reforms as a substitute for a more fundamental shift to a decision-making body.

Board size, composition, and decision making. Directors agreed that a strong Board has been vital to the effective functioning of the institution, but views varied on the need for change in its size, composition, and decision-making majorities.

• Size. Most Directors reiterated that the current size of the Board strikes an appropriate balance between representation and effectiveness, and reverting to the size implied by the Articles of Agreement is unlikely to yield significant gains. In this context, a number of these Directors called for amending the Articles to set the size of the Executive Board at 24. On the other hand, a few Directors maintained that reducing the size of the Board could enhance efficiency, and a few remained open to considering this option.

• Composition. Directors stressed that representation at the Board must respect the principle of voluntary constituency formation. Some Directors also reiterated the importance of increasing the relative presence of emerging market and developing countries at the Board. A few Directors called for a third chair for sub-Saharan Africa at the Board.

• All-elected Board. Many Directors viewed a move to an all-elected Board, together with steps to avoid further concentration in voting power, as useful to level the playing field among Executive Directors. However, a number of others argued against changing well-established rules, noting that the present system provides appropriate limits to the concentration of voting power, critical to an effective Board. A few Directors called for raising the upper limit on the voting power of elected chairs to facilitate greater consolidation, while a few others favored lowering it to ensure a more even distribution of voting power.

• Second Alternate Executive Director. Most Directors noted that greater leeway to appoint a second Alternate Executive Director for multi-country constituencies could facilitate a re-composition of the Board, with a few regarding it as an effective tool to strengthen the representation of smaller members. A few Directors considered it premature to move in this direction at this stage, and a few others pointed to the budgetary implications of such a move.

• Decision making. A few Directors favored lowering the threshold for special majorities, thereby removing the veto power of the largest shareholders and placing all chairs on an equal footing. Some Directors called for greater, albeit selective, use of double majorities.

Management selection and staff diversity. Directors reiterated their commitment to an open and transparent process for selecting management, and many agreed that a political commitment to end the unwritten understandings that govern the selection of management would be necessary. A number of Directors stressed that any such commitment would need to apply to the selection of the heads of all the international financial institutions. Some Directors also reaffirmed their support for an opening up of the nomination process, although the question of how much to expand the circle of those who should be eligible to nominate a candidate remained unresolved. Directors took note of the progress to date in ensuring that the Fund’s staff reflects its diverse membership, and urged management to continue to pay close attention to these efforts. They emphasized, however, that more needs to be done to promote staff diversity—with respect to nationality, gender, and background—particularly at senior levels, and a number called for more ambitious targets and initiatives. Directors looked forward to keeping abreast of efforts to strengthen results.

Next steps. The next formal opportunity to take up these issues will be in the context of the Executive Board’s Report to the IMFC on the Reform of Fund Governance, scheduled for late September.