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Accountability and representation: Weaknesses in IMF corporate governance

Date
Time (GMT +01) 12:00 13:30
Hero image description: Flags outside UN HQ Image credit:Noah Bulgaria Image license:Creative Commons

Speaker:

Thomas Bernes - Director of the Independent Evaluation Office (IEO) of the IMF

Simon Burall - ODI

Nick Joicey - Director of International Finance, HM Treasury

Chair:

Jan Aart Scholte - Professorial Research Fellow, Centre for the Study of Globalisation and Regionalisation, University of Warwick

The recently published report,  Aspects of IMF Corporate Governance – Including the Role of the Executive Board, analyses the degree to which Fund governance is effective and efficient, as well as whether it provides sufficient accountability and channels for stakeholders to have their views heard.

1. Thomas Bernes

After a brief introduction by chair Jan Aart Scholte, the director of IEO-IMF, Thomas Bernes, started by noting that the report looks at the institutional structure of the IMF and it focuses on the Fund’s main bodies of governances: The Executive Board, Management and the International monetary and Financial Committee (IMFC). Four dimensions of governance were analysed: Effectiveness; Efficiency; Accountability; and Voice. He continued by presenting the main findings and conclusions, stressing that Effectiveness is the strongest dimension of the Fund’s governance, while Accountability and Voice are the weakest ones.

In relation to effectiveness, the main issue relates to how the IMF can come to a conclusion rapidly in a crisis scenario. The report finds that the decision-making process during crisis periods is opaque because responsibilities are not clearly identified and the role of Board committees is weak. In relation to efficiency, the report found the IMF to be relatively efficient, however, there are high costs related with the size of the Board in terms of staff.

On the dimensions of accountability, the report found that there are significant weaknesses. In particular, while most directors are accountable to their authorities, it is not clear to whom is the Board accountable to itself and there are no agreed standards and mechanisms for accountability. In addition, there is a high turn over of Board members, resulting on new teams not accountable for previous decisions. Finally, in relation to the dimension of voice, the report found that there are heavy demands on those directors that represent constituencies and the language in board reports is sometimes vaguely or contradictory. In addition, the report found a ‘chilling effect’ with some low income countries being reluctant to express disagreement for fear to repercussions. The report also found that there is limited engagement with civil society and that current disclosure practices obstruct transparency and engagement.

The report makes a number of broad recommendations backed up by more detailed proposals. The broad recommendations include that the International Monetary and Financial Committee (IMFC) should activate a Ministeral-level Council that would be transformed into a decision making body. The decision making system should strive for consensus and important issues should be subject to special majorities. In addition, there should be a transparent process for selecting the chair.

The report also makes recommendations for the Board, specifically that it should shift to a more supervisory role, giving greater emphasis on oversight. In doing this it should meet less frequently, give greater role to Board committees and effectively delegate to Management while developing an accountability framework for the Management. The process for making appointments must be clearer and more transparent.

The Management, the report recommends, should be selected on merit, and there should be clear assignment of regional and functional responsibilities.

Thomas Bernes finished his presentation by saying that there is not single best mode of governance and, because reform will require the agreement of the member states, it is important that governments and citizens get involved.

2. Nick Joicey

Nick Joicey, from the UK HM Treasury, reacted to the presentation by presenting the UK view. He stressed that while the Treasury has other concerns to deal with right now, the current crisis highlights the importance of the International Financial Institutions (IFIs). Reforming governance will enable the IFIs to address global issues better. In proposing to look at governance through three point of view, legitimacy, relevance and effectiveness, he agreed with the findings and main recommendations in the report.

Moving beyond the presentation he raised the question of what is the IMF for? He highlighted two key issues. Firstly that it should focus on the financial sector, in particular on macro financial issues and multilateral surveillance. Secondly that it should review the IMF lending criteria as many countries are going to other lenders in order to avoid IMF practises.

In order to ensure that the IMF is effective, it needs to get better at surveillance and therefore it is necessary to establish a statement of surveillance. In addition, conditionality is still an issue and progress must be made here. Finally, transparency must be addressed, more of the IMF’s work must be published and communications improved.

He concluded that without reform the IMF will not be able to promote financial and macro stability.

3. Simon Burall

Simon Burall then reacted. He agreed with Nick Joicey that financial crises will continue to occur and a global institution is needed to deal with them. This requires legitimacy which flows from accountability. Taking up from Nick Joicey’s presentation, he pointed out that the IMF is becoming marginal and stressed the important role accountability has in overcoming this process. If countries do not have a say, they will look other mechanisms to protect themselves. If governments withdraw the IMF, there will be fewer tools to deal with global issues.

He noted that while formal decision is important, the link with broader stakeholders is important too. Beyond dealing only with formal structures, the IMF should liaise with broader stakeholders in order to avoid to ensure that governments have support at home for their decisions at the IMF. He concluded by noting that while in the short-run efficiency might require quick decisions, if these decisions are unaccountable, in the long run the organisation will be damaged and its efficiency suffer. So while involving more people in decisions might slow down decision-making in the short-term, in the long run it might be more efficient.

4. Floor discussion

The IMF effectiveness during crisis was challenged. The point was made that there is a difference between two types of effectiveness; during routine work and during crisis. It was suggested that the IMF has not dealt with crises well. Thomas Bernes disagreed and argued that, while it is possible to disagree with the decision, the IMF has proved able to take decisions quickly in contrast to many other international organisations. The problem has been in part that the decision making has been un-transparent.

The space for discussion within the IMF was also questioned. It has been said that part of the problem of accountability is that the IMF does not provide space for dialogue; moreover, the staff tends to be conservative and very defensive. According with Thomas Bernes there is some criteria for establish dialogue within the IMF, but it is not an open discussion. Nick Joicey said that it will not be easy to establish a space for open discussions without changing the institution culture. Hopefully this report and others will contribute to create the space. 

The issue of participation and incentives for the staff was been also raised on the floor discussion. Both Thomas Bernes and Nick Joicey agreed that incentive structures should follow from the Board identifying strategy policies and holding the Management accountable

Concerns were posed about whether the reforms proposed by the IEO report would make the IMF a more technocratic institution. While Nick Joicey considered that the process could make the IMF more neutral and technical but also more accountable, Thomas Bernes disagreed on that a more technocratic IMF will follow from the report’s recommendations.

There was a last question to Nick Joicey regarding the UK and other developed countries position towards the reform, mainly if they are prepared to give up space to give more voice to southern countries. Nick Joicey confirmed that the UK is pushing strongly for the reform to happen and that they are particularly interested in strengthen developing countries participation (voice)

Thomas Bernes concluded by stressing the importance of political validation as well as ownership from countries (Governments and civil society) to get the attention of Ministries and make the reform possible.

As a final reflection, Simon Burall highlighted that issues of accountability are linked with the process of reform that not only the IMF but many IFIs are going through (UN, WB, etc) the key is on how to unlocked political issues in the process. 

Description

The recent evaluation of aspects of IMF corporate governance by the IEO found that accountability and voice have been the weakest aspects of IMF governance and that this risks undermining the effectiveness of the institution. But action on the IEO's recommendations will require the attention of policy makers in the capitals of the IMF's 185 member countries, who have other concerns given the state of the global economy. In this meeting Tom Bernes, director of the IEO, set out his vision of why reform to the internal structures at the IMF is so vital to ensuring that the Fund can remain relevant to the global economy of the 21st century.