Source:
IPS
"There is a problem at the IMF and reform is needed (...) reforms must recognise the political reality of existing power distribution", says Jeffrey Oathamon, one of the authors of the study. February, 2007
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The mismanagement of the financial crises in the 1990s and the inability to accomplish its self-imposed expectations about poverty reduction in heavily indebted poor countries triggered questions about the Fund's ability to fulfill its various tasks in an adequate way. While most NGOs along with many academics and politicians agree on the failure of the IMF, they disagree on how to deal with it.
In general terms, reformists acknowledge that the Fund is needed in a liberal global economy as a guide and a lender in times of huge financial crises. Therefore, they want to enhance the quality of IMF work and call for the termination of structural adjustment programmes, a change in lending conditionality in favor of supporting local self-reliance and environmental sustainability as well as openness and citizen's participation in the Fund's projects.
Radicals, in contrast, do not believe in the capacity of the Fund to reform. Although some of them also support the existence of an organization to guide the world economy, they do not think that the IMF is able to fulfill this task and prefer to abolish rather than restructure it.
The concerns of NGOs about reform of IMF programmes can be broadly divided into two different approaches. On the one hand, many NGOs call for the role of the IMF to be limited to its core tasks: surveillance of the global economy and lender in cases of short-term balance-of-payment deficits. This means an end to the Fund's structural adjustment and debt relief programmes, which should be left to other organizations such as the World Bank and UNDP. On the other hand, NGOs argue, if the IMF remains engaged in long-term development programmes, it should take this task seriously and consider the social and environmental consequences of the programmes. According to NGOs, the structural adjustment programmes often have devastating consequences for the borrower country's social structure and environment. The Fund's focus on policy measures that aim to correct short-term balance-of-payment problems without regard for the long-term impacts of such measures contribute to environmental destruction and the deterioration of living conditions. Moreover, the Fund operates within a framework that cannot accommodate the complexity of the different economic situations in each country. This lack of a country-specific approach questions the legitimacy and effectiveness of the structural adjustment programmes.
According to many NGOs, the bad record of IMF policies is mainly a result of the organization's isolation and the dominance of the US Treasury in its policy-making process. Therefore, what the IMF needs the most, is a reform of its institutional structure. It has to become more transparent, more accountable to citizens in developing countries, and needs a more equal voting structure.
As a reaction to NGO pressure the Fund has implemented some reforms. IMF programmes increasingly consider their social consequences. While the focus of the mission is changing, the core of the goals such as the priority given to macroeconomic stability remains relatively fixed. The reforms in policy content are not yet reflected in changes in the instruments employed. Strict conditionality to the programmes still applies, though there is a growing awareness of the need for fewer conditions. Reforms can also be seen in the IMF institutional structure. The Fund has made some progress in making its decision-making and operations more transparent. The establishment of the Independent Evaluation Office increased the accountability of the IMF to interests outside the Fund. Nevertheless, the basic distribution of power remains unchanged. The G7 dominates the Board of Governors, the Executive Board and the International Monetary and Financial Committee. For many civil society groups the changes made so far have been merely symbolic and they continue to lobby for more radical reforms.
The IMF reform is an ongoing process. While some early reform proposals might be reflected in more recent IMF structure and policies, others are not. The list below is not meant to reflect a chronology of IMF reform, but rather aims to highlight important cornerstones of the debate.
The IMF is one of the most powerful international organizations. Its policies change the lives of millions of people in developing countries.
Campaigns
NGO-organised
actions
Reform of International Institutions
The campaign's objective is to spark off a process leading to the reform of the system of international institutions with the participation of all world actors and moving towards a system of global democratic governance.
Report of the Meltzer Commission which was initiated by the US Congress to review the IMF. Its main recommendations include a more focused IMF that should act as quasi-lender of last resort in case of financial crisis in emerging economies and should provide surveillance and advice to its members. Long-term development should be left to the World Bank. Moreover, the Fund's operations should become more transparent and its officials should be held accountable for their actions (pdf-file).
This article states that the IMF should return to its original mandate and reduce its conditionality. Moreover, it has to become more transparent, accountable, and democratic. In case the Fund fails to change, alternative forms of governing the global economy have to be sought.
A new initiative to rewrite the rules of engagement with the IMF could mark the biggest change in creditor-debtor relations in a generation. Debate around these issues is gaining momentum in the current political climate where the failure of IMF economic orthodoxy is challenged daily by social movements in the streets and the election of reform-oriented governments across Latin America. By Roberto Bissio, Social Watch, Uruguay. May 2004.
While failing structural adjustment programs have forced the Fund to consider poverty reduction as part of a long-term development strategy in the poorest countries, the G7 want to turn the IMF into a surveillance institution to assist private investors in emerging markets and a quasi-lender of last resort to help manage financial crises. The result is a Fund with conflicting priorities and inappropriate mechanisms to deal with the variety of financial problems.
This study reveals the environmental destruction as consequence of IMF programs. Therefore, it demands that the IMF considers the environmental impact of its programs and consults ministers of environment as well as civil society groups before implementing programs (pdf-file).
Martin Khor argues in this speech that IMF policies have not worked in the past because of the Fund’s inadequate knowledge of the debtor countries and even of the international financial markets. IMF programs need to be reviewed and not only renamed.
In this speech the Managing Director of the IMF Horst Köhler admits that the Fund needs to refocus on its original tasks. He proposes a closer cooperation with the World Bank, leaving development programs to the Bank. However, Köhler does not want the IMF to withdraw from its controversial PRGF program.
In this report Köhler reviews the reform process of the IMF two years after he called for a change at the World Bank/IMF meeting in Prague in 2000. He concludes that the Fund made considerable progress in areas such as surveillance, crisis prevention and resolution, and support to low-income countries, but that the reform process is still underway.
To achieve the Millennium Development Goals (MDGs) the IMF should open up the debate on what the optimal macroeconomic framework would be to reach the target of substantial poverty reduction. Financial and monetary recommendations should be based on a broad consensus. The gatekeeper role of the IMF in defining aid and debt relief should be decreased (pdf-file).
In this article it is suggested that IMF conditionality should be reduced to core macroeconomic problems and repayment of loans, but not include rules for the privatization of the economy and the liberalization of trade.
This paper discusses the G8 proposals for IMF reform in its main working areas: crisis prevention in middle-income countries and poverty reduction and development in the poorest countries. In particular in latter area the G8 reform efforts are limited to intensifying IMF and World Bank cooperation instead of providing the IMF with new tools to address this objective. As a consequence, a merge of the two institutions might be advisable.
So far, the IFIs lack the capacity to respond to the challenges related to reach the MDGs. Instead of the Washington Consensus, which is still implemented, the IFIs need to develop operational practices that are consistent with their stated commitments in areas such as poverty reduction, gender equality, core labor standards, quality public services, and an international financial system that is supportive of stable and sustainable development in all regions.
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. Thus, the International Monetary Fund (IMF) has been advised to implement a "double majority voting system" to salvage its teetering global standing by reforming its "democratic deficit". These voting majorities should be based on a system of one-country one-vote combined with economically weighted quotas for any decisions to be made, according to the report "Bridging the democratic deficit". February, 2007
The nomination and election of the heads of IMF and World Bank are a result of backroom negotiations between the G7 states, leaving out the developing countries. As these institutions are providing global public goods including high-quality research and policy advice, their members should be enabled to elect the most technically competent and universally acceptable candidate.
This report advocates a more transparent and accountable selection process of the heads of World Bank and IMF. The decisions should also take into account the impact they might have on the selection process at other international financial institutions. Instead of establishing a formal vote, it suggests that consensus should be reached in the appointment of the new top.
The IMF makes decisions with major implications for developing countries, yet its structure inadequately represents these countries. While the Fund requires accountability and transparency from its lenders it fails to provide these itself. The IMF should retreat to its original mandate and democratize its decision-making (pdf-file).
Addressing the Board of Governors of the Fund at the Prague 2000 meeting, Köhler outlines his vision of the IMF as an open and learning institution that adapts continuously to the changing circumstances in the world economy. The Fund should become more sympathetic to calls for increased transparency and accountability.
Chapter five of the UNDP Human Development Report 2002 deals with the lack of democratic representation in international organizations. While the tasks of the IMF changed dramatically since it was founded, this transformation is not mirrored in the Fund’s structure, where the voice of the developing countries needs to be increased (pdf file).
As the share of developing countries in the world economy has rapidly grown the IMF creditor countries, which so far hold a majority of votes, have to reduce their stake to increase the influence of the debtor countries (pdf-file).
New challenges to the IMF require the institution to increase the voice of developing countries, and to become more accountable and transparent to the general public. Three aspects of the IMF's governance structure need to be adjusted so that it can operate effectively as an institution of global governance. These are representation and power in the IMF's governing bodies, transparency and accountability of the Board, and transparency and accountability of the staff and management.
This paper offers some recommendations for reform of IFIs governance structure in the area of voting structure and composition of the board, transparency and decentralization of decision-making processes, selection of the President of the World Bank and Managing Director of the Fund and selection of staff as well as the relationship between the IFIs and the UN (pdf-file).
Christian Aid suggests fundamental changes in the governance structure of the IFIs. Recommendations include a more equal voting structure, ideally based on the one-country-one-vote principle. Formal and majority voting should replace the consensus-based decision-making and the leaders should be elected in a fair and transparent process (pdf-file).
This statement of various NGOs identifies key problems with IFI governance and their demands for minimum steps to improve it. These include rebalancing board composition and voting power, making the governing bodies more transparent, opening the leadership selection and reversing the “mission creep”.
According to this factsheet the IMF has taken a number of steps to provide more information on its own role and operations. Most papers, whether on country matters or policy issues, are now published. Internal and external reviews of IMF policies and operations are also released.
What reform? Views of IMF critics on the ongoing reform process
In face of the IMF/World Bank annual meeting in Prague 2000 this paper reviews the reform efforts of both institutions. It concludes that, despite the pressure, IMF attempts to change itself seem impossible, due to its extremely technocratic and isolationist mentality as well the institution’s instinct of self preservation. Moreover, the Fund is still guided by the developed countries and their neoliberal interests.
In this articles, it is argued that the IMF has undertaken only minor steps to reform so far. Although, it recognizes the importance of participation and ownership it failed to became more transparent in its own operations. And, though the Fund admitted that its financial stringency in Asia contributed to the downturn, it prescribed the same measures again in Argentina.
This paper states that progress on international financial reform has been uneven and asymmetrical. While developing countries strengthened their macroeconomic policies, developed countries failed to provide sufficient funds for development and to increase participation of receiving countries in the decision-making process.
The IMF responded to widespread criticism regarding its handling of financial crisis and poverty reduction strategies with FAQ-style remarks. As a reaction 50 Years Is Enough, Bretton Woods Project, Center of Concern, and the Halifax Initiative published this rebuttal with includes the complete IMF text and replies to every claim (pdf-file).
