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FINANCE: Reforms Urged to Fix Ailing IMF

Emad Mekay

WASHINGTON, Apr 10 2007 (IPS) - The International Monetary Fund, which is undergoing a review of its role in the global economic architecture, should take more aggressive measures to improve its accountability and transparency and to be more responsive to its members, a high-level panel said Tuesday.

The New Rules for Global Finance Coalition said in a new report that the Washington-based institution should change how it selects its managing director and how its board operates, as well as how it communicates with the outside world.

The panel submitted the report to the IMF Executive Board for its consideration prior to the Apr. 14-15 Spring Meetings of the IMF and its sister institution, the World Bank, when dozens of finance ministers and central bank governors descend on Washington from across the world.

Questions about the Fund’s governance, effectiveness and responsibilities have emerged recently – and are coming from many sources, including from within the IMF itself and its membership.

During its last annual meeting in Singapore in September 2006, the IMF’s membership approved a programme to modernise the governance of the institution. Some steps were taken to modify quotas and the allocation of votes within the Fund’s Executive Board as part of the so-called medium-term strategy.

The agreement approved increases in the quotas of China, Korea, Mexico and Turkey.

However, critics say that these reforms pay little attention to equally pressing issues such as participation, transparency and accountability.

This what the panelists – who include Marc-Antoine Autheman, former IMF and World Bank executive director, John Odling-Smee, former deputy chief economic advisor of Britain’s Treasury, and Djoomart Otorbaev, former deputy prime minister of Kyrgyzstan – tried to address in the report.

“The current weak form of oversight of the Executive Board by Governors means the Executive Board is neither accountable for its actions vis-à-vis the global community nor are all Board members accountable to the countries they represent in their constituencies,” they said in their report.

The Fund’s Executive Board runs the day-to-day business of the IMF while the Board of Governors is a body comprised of the finance ministers of the IMF’s member nations.

The new report calls on the Board of Governors, the highest governing body of the Fund, to set up a committee whose main job would be to review how the Fund’s Executive Board is doing.

The panelists urged the Board to set up its own internal committee to monitor its work and arrange for periodic evaluations by independent external evaluators.

On the transparency issue, the IMF was advised to release the minutes of Board meetings within a publicly known schedule.

“The Executive Board should consider the precedent of the Security Council of the United Nations as a model to follow. With rare exceptions, all Security Council meetings are televised live,” said the report.

The report also says that the Executive Board should encourage member countries to ensure that relevant country-specific documents are available in principal local languages and disseminated so they become available to all local stakeholders.

It revisited the process for selecting the Managing Director (MD), a staple issue for critics of the Fund. The study says the selection should be open and merit-based rather than geography-based, as is currently the case.

A European has traditionally led the Fund while the top job at the World Bank is always given to a U.S. national. Current IMF Managing Direct Rodrigo de Rato is a former economy minister from Spain.

The report advises interviewing prospective candidates to ensure merit-based appointment.

“Management experience and skill should be an explicit criterion in the selection process,” says the report.

It called on the Fund to create external complaint and response mechanisms that could be used to question the organisation’s performance. These could include review panels, juries and ombudsmen.

While some of these recommendations appear fairly basic, they in fact show how much the IMF has strayed from the more transparent principles widely held in the outside world – including in corporations, among the biggest beneficiaries of IMF loan programmes.

Yet in a speech at the Peterson Institute for International Economics on Monday, IMF Managing Director Rodrigo de Rato painted a less than optimistic picture of the path to reform.

“The changes we need won’t be easy,” he said. “There are 185 members of the Fund, all with their own, sometimes conflicting, objectives. Almost all of the changes that we are considering to the Fund’s financing model and to quotas require very large majorities.”

Several countries have in recent months tried to escape the Fund’s tutelage, leading to a declining reputation and shrinking global influence for the once powerful lender.

The IMF has been facing a near exodus of borrowers trying to its escape its sway by paying up their debts early to have cleaner balance sheets.

The latest was the Philippines, which announced in December that it was paying 220 million dollars in obligations to the Washington-based lender. Ecuador signaled its intention to do the same.

Several borrowing nations have also unloaded their IMF debt stocks, saying that IMF loans have become a vehicle for intrusive dictates from the Fund’s economists and patrons among the world’s richest nations while denying poor countries enough voice or corrective mechanisms.

The Fund’s portfolio of loans fell from 96 billion dollars in 2004 to only 20 billion dollars now, half of it owed by Turkey alone.