Under the auspices of the 13th review of quotas at the International Monetary Fund, there has been increasing discussion about changing the governance regime of the IMF. Civil society organisations and others have long pointed out that the IMF wields enormous power over developing country governments, yet has severe shortcomings in its democracy, transparency, accountability, effectiveness and legitimacy. The proposals on the table – for a two-stage governance reform process, ad hoc quota increases and quota formula review – are simply insufficient to address the underlying problems with this institution and risk removing the impetus for genuine reform. To redress the democratic deficit, fundamental reform of the institution’s power and accountability structures must occur.
While the United States is the largest shareholder at the Fund, governments in Europe have the potential to make or break any reform effort, and the UK should be proactive by working in concert with its European partners to propose steps to empower those voices that have too long been silenced in the governance of the global economic system.
The undersigned organisations hereby call on the UK government to put forward a progressive proposal for fundamental reform of the IMF that includes, at a minimum, the following:
1) Ending inequality in decision making
The executive board and board of governors of the IMF do not give all countries an equal opportunity to represent themselves. Votes are allocated based on a system that prioritises wealth over democracy. Richer countries dominate the executive board both in terms of chairs and votes despite the Fund increasingly focusing on low- and middle-income countries. This system, designed during the colonial era and controlled by developed country governments, is inadequate and should be fundamentally changed.
We demand a genuinely democratic structure, which would satisfy the standards of democracy expected at the national level, including the use of population size to help determine voting share. To move towards this goal, we demand the immediate adoption of a double-majority voting system as the first, interim step on the way to comprehensive reform. Decisions by the boards should be made only when both the requisite majority of member governments agree and the decision garners support of the requisite majority of votes. One-country, one-vote decision-making would counterbalance the one-share, one-vote system. Combining a weighted-voting system with a requirement for agreement by a majority of member governments would move towards ending the inequity in IMF decision making.
2) Eliminating appointed board chairs
The organisational structure of the IMF, designed during the colonial era, privileged the winners of World War II with more power in global economic governance while leaving the majority of the world’s population unrepresented. This system is illegitimate for a democratic, equitable global economic order. It reflects neither contemporary principles of good governance nor the nature of the global economy. Transparent, democratic governance is essential for any institution to hold legitimacy in the eyes of citizens.
We demand an end to the system of board chairs automatically going to the five most powerful countries, and that the United Kingdom should lead efforts to promote this by declaring its willingness to abandon its appointed chair in favour of elections by the board of governors to determine all board seats. Consensus-based multilateralism necessitates removing the privileges accorded to a few members at the expense of the many.
3) Making governing bodies transparent
There has not been enough progress in increasing the transparency of the IMF. We believe that, as this institution makes decisions which affect the welfare of people across the world, citizens have a right to know what positions their representatives have taken within the IMF’s governing structures. This is essential to making the IMF accountable to its stakeholders.
We demand that the transcripts of IMF board meetings be published so that citizens can see who is taking what position and what their representatives said on their behalf. This should reflect a broader move to a presumption of disclosure for all information (see Global Transparency Initiative). Exceptions to this principle should be narrowly drawn and based on a clear indication of harm that would result from disclosure of specific information. Additionally we demand that board members should express their position on all decisions with formal votes rather than informal indications, and that these votes likewise be publicised. This is a necessary complement to any other reform if the IMF and its executive directors are to become accountable to citizens.
4) Opening leadership selection
The managing director and deputy managing director of the IMF play an important role in defining the direction of the institution. The convention of European countries nominating the IMF managing director while the USA nominates the World Bank president and the IMF first deputy managing director is deplorable. Likewise the United Kingdom’s monopolisation of the post of chair of the IMFC is unacceptable.
We demand the introduction of a transparent and democratic process for selecting the leadership of multilateral organisations, including the chair of the IMFC. This should involve all member countries equally and include significant stakeholder groupings, and assess candidates exclusively on merit, regardless of their nationality. Geographical diversity in top positions should be actively encouraged. Opening the selection process would be ineffective on its own, and must be accompanied by ending the inequity in decision making and board chairs so that all member governments can effectively participate in the selection process.
Since the illegitimacy and ineffectiveness of the IMF is inextricably linked to both its mandate and governance, any wholesale reform must address both the role the IMF plays in poor countries and how those countries are represented in the institution. However, now is the opportune time for the UK government to step forward to propose the required fundamental reform of IMF governance, rather than tinkering with the wholly unacceptable quota adjustments and two-stage process that have been proposed. Developed country governments must sacrifice their hold over chairs on the board of the IMF and their inordinate decision-making power. The above demands for a double-majority decision-making system, electing all board chairs, enhancing the transparency of the board and opening the leadership selection process represent only the bare minimum first steps that should be included in proposals to fundamentally reform the governance of the IMF. Additional measures towards redressing the democratic deficit of these institutions could include:
- increasing the basic votes accorded to every country as a member of the institutions;
- reducing the number of European seats on the boards;
- introducing democratic accountability for executive directors;
- ensuring that World Bank governance systems are not defined by those at the IMF; and
- creating separate, fit-for-purpose formulae to determine voting weights in, access to resources of, and financial contributions to the IMF.
Only by creating democracy and transparency in international financial institutions can there ever be hope of having fair and effective governance of the global economy.
- Bretton Woods Project
- Jubilee Debt Campaign
- Christian Aid
- ActionAid UK
- new economics foundation
- Oxfam GB
- One World Trust
- World Vision UK
- Catholic Agency for Overseas Development (CAFOD)
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