## 2010: The Year of IMF Reform

_IMF Blog, December 28, 2010_

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## Bibliographic details
- Authors: JamesBoughton
- Published: December 28, 2010

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### Governance and voting power
- Three major changes were agreed to in 2010 described as “the most important reform in the governance of the institution since its creation.”
- For the first time, the combined voting power of the United States and the current European Union members will fall below 50 percent.
- The reform is forward-looking, allowing future changes in countries’ growth rates to be incorporated every few years, reducing institutional inertia.
- Regional shifts in influence:
  - Asia and Latin America will gain in influence in the short term.
  - Africa can be accommodated as its economic performance improves.
  - Advanced European countries will have fewer seats on the Executive Board but can consolidate positions and become more effective as a group.
- Implementation challenges:
  - Requires sensitive political commitments by several countries.
  - Outcomes depend on how emerging markets choose to use new influence and how receptive traditional powers are.
- Implication: The transition is largely symbolic but has potential to change the culture of the institution.

### Lending flexibility and stigma reduction
- Historical lending evolution:
  - The IMF’s first loans in 1947 used a single technique: an immediate currency swap (domestic currency exchanged for a convertible currency, usually U.S. dollars).
  - It gradually expanded to include stand-by arrangements, extended arrangements, special terms for commodity price shocks, loans to low-income countries, and other special-use facilities.
  - At the end of the 1990s, the Fund had at least ten lending facilities; those in active use required detailed macroeconomic and structural reform programs.
- 2010 reforms:
  - The IMF created lending facilities more suitable for countries with good track records and solid commitments to implement policies on their own.
  - Goals: improve the Fund’s ability to avert financial crises, respond more flexibly to borrowers’ needs, and help reduce the stigma of seeking IMF support.
- Main challenge: ensure borrowers carry out strong policies, resolve financing difficulties, and repay loans when due.
- Past failures: flexibility attempts faltered because weak loan conditions were followed by weak national policies and because conditions were still considered stigmatic.
- Ongoing test: finding the right balance between discipline and flexibility.

### Financial resources and borrowing arrangements
- The general financial resources of the IMF are to be doubled.
- This increase is to be matched by a rollback in the Fund’s standing borrowing arrangements.
- Immediate effect: not primarily to increase the amount the IMF can lend, but to reduce the need for the Fund to borrow from creditor countries to finance large lending operations.
- Future challenge: ensure resources are adequate, used well, and do not substitute for necessary policy reforms.

### Leadership selection and future evolution
- Current leadership dynamics:
  - All of the Fund’s ten Managing Directors have been European.
  - All eight of the Deputy Managing Directors (First Deputies since 1994) have been from the United States.
- Ongoing effort: make any future competition for the leadership of the IMF more open and fully accessible to candidates without regard to geography.
- The Executive Board agreed in principle several years ago to open up the process; building higher political support has been difficult.
- Outlook: the IMF is expected to continue evolving to reflect rapid and major transformations in the world economy over the next decade.

*Source: 2010: The Year of IMF Reform (James Boughton, December 28, 2010)*

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_Source: https://www.imf.org/en/blogs/articles/2010/12/28/2010-the-year-of-imf-reform_