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A New International Monetary Fund?

By Domenico Lombardi, president, Oxford Institute for Economic Policy,
and non-resident senior fellow, Brookings Institution

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It is time for the IMF to embrace transparency and accountability, in order to bring its practices into line with those of other international organizations.

Established as a small organisation to deal with relatively technical issues in international monetary cooperation, the International Monetary Fund (IMF) has gradually expanded its scope to encompass key aspects of the policymaking process in member countries. In so doing, it has come to affect an increasingly wide range of stakeholders. They do not necessarily recognise themselves in its formal governance framework, but their support has nonetheless become critical to the success of the IMF’s programmes and policies. This has prompted the need for the institution to develop a better understanding of such a broad range of non-institutional actors. In this vein, the IMF’s managing director has, for the first time, called on civil society – including academia, think tanks and non-governmental organisations (NGOs) – to provide input on the process for IMF reform under the so-called ‘fourth pillar’.

The conclusions drawn from such consultations, for which I served as rapporteur, have been finalised in a report for the IMF executive board. Among the most expected findings, the consultations confirmed civil society’s firm support for rebalancing the distribution of voting power between advanced and developing economies, for reshaping the composition of the executive board in favour of less represented regions following the consolidation of the European chairs, and for a transparent and merit-based selection of the managing director and the deputies.

The consultations, however, also revealed some less obvious findings that, if acted upon, would lay the basis for a new relationship between the institution and the broad stakeholder community. These observations relate to poor practices in appointing or electing executive directors, inadequate assessment of their performance, insufficient transparency of executive board proceedings and the absence of an ombudsman to monitor the compliance of officials’ behaviour to operational policies and procedures.

Current practices for selecting executive directors are unclear, to say the least. There are no job descriptions and no disclosed criteria that the relevant country authorities supposedly follow when deciding on their appointees. This is in stark contrast with the latest trends, even among central bankers – traditionally closer to the IMF culture – where professional requirements are set and public bodies confirm that prospective candidates fulfill them. The European Union treaty requires that board members of the European Central Bank (ECB) “be appointed from among persons of recognised standing and professional experience in monetary or banking matters”. Whether candidates do meet such standing is assessed by a specialised committee of the European Parliament that reviews the appointments proposed by the EU Council of Finance Ministers.

The United Kingdom has recently started to establish reasonably detailed job descriptions for the members of the Bank of England’s monetary policy-setting body – the Monetary Policy Committee. In contrast to the ECB, the selection is public, as vacancies and their respective job descriptions are announced in the international press and the qualifications of relevant candidates are then scrutinised by a high-level panel. By contrast, the selection of IMF executive directors is managed, with some exceptions, in closed circles, with no open consultations. This biases the selection toward candidates with little or no incentive to meaningfully engage stakeholders. The latter, in turn, know very little about their own country representatives and hesitate to engage them for fear of no responsiveness. It is emblematic that, even when expressly asked, not one single participant consulted managed to mention his or her country representative by name.

The executive board remains the last bastion of IMF secrecy. It takes several years to obtain documents related to board proceedings. Clearly, this affects the ability of stakeholders to reach out to their representatives. As one participant said: “How can we engage our executive director if we don’t even know what he says at the board?” Indeed, the combination of the lack of transparency in board proceedings and the lack of well-established criteria for selecting board members prevents any meaningful assessment of their performance, either individually or collectively.

Furthermore, the IMF does not have, with a few exceptions, formal operational policies and procedures. There are no board-approved, generally available documents that the public can use to appraise, for instance, how the IMF decides whom to consult when designing programmes, technical assistance missions or other forms of policy work. Operational policies and procedures do exist, however, in the form of memos from management to staff. They are typically not disclosed to the public (in contrast to World Bank practice) and have not been approved by the executive board. This hampers the ability of the institution and of stakeholders to determine whether the conduct of IMF officials conforms to the standards for measuring their performance.

For the interaction with the broader stakeholder community to be meaningful, stakeholders must be able to understand and predict how IMF officials should respond to a given circumstance. This knowledge is key to increasing public confidence and trust in the effectiveness of the institution’s work, beyond that held by a restricted circle of central bankers and senior finance ministry officials who typically understand the institution well. Unlike all the other multilateral financial institutions, the IMF has no formal mechanisms for stakeholders to hold it accountable for its operational policies and procedures. The establishment of an ombudsman would go a long way to increase their confidence. The ombudsman would have the independent power to review complaints from third parties that IMF officials have not complied with IMF-set operational policies and procedures. The role of that office would be flexible and relatively informal, and primarily that of problem solver.

The latter point illustrates well the basic thrust of these consultations, that the IMF should be held broadly accountable for its own decisions. The task is challenging, due to the complex nature of the IMF and its evolving role. But it is off to a good start, as witnessed by the managing director’s call on civil society to contribute to the debate on IMF reform. One thing is certain: the time has come for the IMF to uphold those good practices already adhered to by other national and international organisations.

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