Voice reform, however, cannot by itself be expected to improve the IMF’s effectiveness or relevance. More often than not, the IMF is managed through consensus; rarely does the IMF Executive Board take a formal vote in its decisions. For this reason, the 2008 report of the IMF Independent Evaluation Office (IEO) on governance argued that a reform of the decision-making mechanism would be far more important. The committee of eminent persons, which the IMF Managing Director set up with Trevor Manuel as chairman to follow up on the IEO Report, accepted the IEO assessment on this point.
The IEO Report notes that the IMF Executive Board is far too removed from the actual decision makers in the member countries. Executive Directors are usually mid-level bureaucrats from central banks or finance ministries who have little direct access to the governors or ministers. Because they are not given decision-making power, it takes the IMF a long time to make any substantive decision. A more effective and relevant IMF, therefore, requires greater involvement from senior policymakers, who are Governors of the Fund. To make this happen, the Manuel Report proposed that the ministerial-level ‘Council’ envisioned in the IMF Articles of Agreement should be activated, an idea broadly endorsed by the G-20 Summit though in more general terms.
Implementing these reforms will not be easy. Even on the merit of greater ministerial involvement, there is a diversity of opinion, with some countries (or Executive Directors) not so keen on giving the IMF (or Governors) any more authority. We saw a glimpse of the extent of the possible resistance in the April 2009 meeting of the International Monetary and Financial Committee (IMFC), where IMF governance reform was initially not put on the agenda, even though the meeting immediately followed the G-20 Summit and was timed with the release of the Manuel Report.
If nothing of substance happens at the IMF over the coming months, the prestige and credibility of the G-20 will diminish. What does it mean for a group of counties that constitute some 85 per cent of world GDP to have little meaningful impact on the working of an international organization of 186 members? It means either the G-20 is a sham; the IMF will continue to suffer from legitimacy problems; or both.
Shinji Takagi is Professor of Economics, Graduate School of Economics, Osaka University.
The disappointing achievement in IMF quota and voice reform in the two recent rounds reflects, among other things, the continued advocacy by some European countries of the use of ‘market’ exchange rate-converted GDP as an element in the quota formula.
Thus Germany’s Minister of Finance, Mr Peer Steinbruck, said in his Statement to the International Monetary and Financial Committee on 20 October 2007 that “Germany advocates a fair representation of all members of the Fund according to their relative weight in the global economy” – but then went on to claim that “There is no principled case for the calculation of GDP in the formula using anything other than market exchange rates.”
In contrast, the statement on the same day by India’s Mr P Chidambaram rightly recognised that representation according to relative weight in the global economy required the use of GDP converted into a common unit using purchasing power parities (PPP):
“India … started out with a position that in any quota formula, GDP should be computed entirely at PPP terms. We have now accepted the idea of a blended GDP, in order to reach a consensus… We continue to believe that having a formula with an adequate measure of GDP at PPP is the ONLY way to achieve the Singapore mandate [to provide a meaningful transfer of quota shares from developed to developing countries]” (EMPHASIS in original).
The position put by Germany’s Finance Minister was directly contrary to the United Nations Statistical Commission (UNSC) instruction that “Exchange rate converted data must not … be interpreted as measures of the relative volume of goods and services concerned” (para. 1.38, System of National Accounts, which was welcomed and unanimously approved by the UNSC at its session in New York, 22 February to 3 March 1993).