IFI governance


UK Treasury to focus on IMF surveillance reform in 2007

Full analysis of UK and IMF 2006 report to parliament

18 May 2007

In its annual report to parliament about the UK and the IMF, this year subtitled “Reform to delivery prosperity for all”, the UK Treasury’s most ambitious goal for 2007 is to revise the IMF’s surveillance framework. While also setting out to build on the proposals for governance reform of the IMF, the report does not prioritise creating an open and merit-based process for selecting the managing director of the IMF, overhauling the transparency policy at the Fund, or grappling with the issue of what role the Fund should be playing in low-income countries.

The UK and the IMF 2006 was published in the beginning of April just in advance of the Spring meetings of the IMF and World Bank. It gives of an overview of developments at the IMF in 2006, described the UK’s stance on issues of importance to the Fund and sets the agenda for work in 2007. Though being a report to parliament, the Chancellor of the Exchequer does not appear before any parliamentary committee on a regular basis to answer questions about the UK’s role in the IMF.

It describes the IMF’s Treasury’s activities in three broad categories: “ensuring growth and stability” involving surveillance, crisis prevention and crisis management; “a strong and modern IMF” discussing IMF governance and finances; and finally “the IMF in low-income countries”.

Preparing for crises

Surveillance reform is highlighted in the report as an area where the UK wants to see progress in 2007. The UK wants to “switch the Fund’s focus from crisis management to crisis prevention” and Treasury prioritises a revision of the 1977 decision on surveillance, particularly in relation to exchange rates, and the design of a remit for surveillance. The UK feels that surveillance — meaning the Fund’s oversight and analysis of its member countries economies through annual Article IV reports and of the global economy through the biannual publication the World Economic Outlook — “is the Fund’s foremost crisis prevention instrument.”

The reference to a new annual remit for surveillance, though a bit obtuse, is an effort at overhauling the fundamentals behind how the IMF works. Currently surveillance is largely done autonomously by the Fund staff and then vetted by the Executive Board. This proposed reform would “[allow] the member countries to set the priorities for surveillance over a time period, with the IMF staff accountable for delivering them.” This is at odds to some proposals that the IMF should become completely independent of its members when exercising its surveillance functions.

Finally the UK supports a replacement for the Contingent Credit Line, a now-defunct IMF facility to provide finance to middle-income countries with less conditionality. “The UK continues to believe that there is a need for a liquidity instrument for emerging markets that have implemented strong policies buy may nonetheless be vulnerable to external financial shocks.” The UK sets the key question for 2007 as whether they can find the balance between good terms for potential borrowers and protecting the IMF’s resources.

Going no where fast on governance

While Treasury has outlined some ambitious reforms on surveillance, it plans for fixing the inequitable and outdated governance of the Fund are less impressive. Instead of taking a strong line on the need for a comprehensive overall of the IMF’s governance – including voting arrangements, executive board seats, leadership selection and transparency – the report praised the tinkering of voting shares that occurred in Singapore in September 2006 and set out at the official agenda as prioritising “developing a quota reform package that reflects the weight and role of countries in the global economy, and enhances the voice and participation of low-income countries”. Questions have already been raised about whether the reforms on offer will meet the goals of the second half of that agenda (see Updates 55, 53).

Civil society organisations have consistently pressed for a comprehensive reform package that addresses the many failings of the IMF’s governance arrangements. But despite long-standing support for the concept of openness and transparency at the World Bank and IMF, this year’s UK and the IMF report only mentions transparency in relation to the publishing of country documents such as Article IV reports. There is no commitment to tackle the secrecy in policy-making and board discussions in this edition of the report. The most recent statement on this topic was in the 2002 report when the UK indicated “we will continue to push strongly for: . further measures to enhance the transparency of the Executive Board, including through accelerated access to the minutes of Board Meetings”.

The Fund’s financing is also on the agenda, following the scathing indictment of the Fund’s current financing arrangements from an independent committee chaired by Andrew Crockett (see Putting the cart before the horse). The report commits the UK to looking at the Funds finances “within an integrated framework” that addresses income and expenditure, but makes no reference the specific proposition that the IMF sell some of its gold holdings to finance an endowment. UK chancellor Gordon Brown indicated his support for such a move in his statement to the IMFC, just as the UK support the consideration of gold sales to fund debt relief.

Continued IMF oversight of low-income countries

Finally the report indicates that “the IMF will continue to be central to the delivery of the UK’s international poverty reduction goals” and that it should strengthen its role in low-income countries.

On the topic of collaboration between the World Bank and IMF, the UK supports “close and cooperative” work between the two institutions. It even goes on to say: “We see a continued role for both institutions in providing the long-term finance and support for poverty relief.” This is at odds with the recommendation of the external committee chaired by Pedro Malan that assessed Bank-Fund collaboration and called for an end to the IMF’s role in long-term development finance (see Update 55). The report also studiously avoided supporting any of the committee findings or recommendations.

The government’s stance also seems to contradict what the UK’s elected officials think on the subject. Last year’s enquiry from the parliament’s Treasury Select Committee on the role of the IMF recommended “the IMF should remain within its remit of crisis prevention, not extend its activities into areas of social policy and development it does not appear to be equipped to deal with.” Treasury’s report also fails to consider the recent IEO report on the role of the IMF in dealing with aid in Sub-Saharan Africa (see Update 55), which also found fault with the Fund’s approach in low-income countries.

Finally, Treasury commits itself to making the IMF “deliver debt relief to an increasing number of low-income countries through the MDRI and HIPC initiative”, referring to the debt relief deal established at the G8 meeting in Scotland in 2005. There have been worries that donors or not fulfilling their commitments to fund debt relief in addition to pledges on increasing aid.