Organisational Arrangement

According to Article XII, Section 1 of the IMF Agreement, the IMF

40. Alexander Mountford, The Formal Governance Structure of the International Monetary Fund 19 (Int’l Indep. Evaluation Org., BP/08/01, 2008),

http://www.ieo-imf.org/ieo/files/completedevaluations/05212008BP08_01.pdf.

41. Leo Van Houtven,GOVERNANCE OF THE IMF:DECISION-MAKING,INSTITUTIONAL OVERSIGHT, TRANSPARENCY, AND ACCOUNTABILITY, at 73 (IMF Pamphlet Ser. No. 53, 2002).

42. This is the U.S. quota before 2006.

43. This is also the observation from an Alternate Executive Director of the IMF. Torres, supra note 33, at 446.

44. Jeff Chelsky, Summarizing the Views of the IMF Executive Board 8 (Int’l Indep. Evaluation Org., BP/08/05, 2008), available at

http://www.ieo-imf.org/ieo/files/completedevaluations/052108CG_background6.pdf.

45. Stephen Zamora, Voting in International Economic Organizations, 74 AM.J.INT’L.L. 566, 568 (1980).

shall have a Board of Governors, an Executive Board, a Managing Director, and a staff, as well as a Council if the Board of Governors so decides by an 85% majority. In addition to these formal governing bodies, the Board of Governors can also set up various committees for specific tasks or advisory purposes, such as the Interim Committee (set up in 1974 and renamed the International Monetary and Financial Committee in 1999). Other informal alliances, such as G-7, G-20 or G-24, formed by different IMF members also interact with the IMF. The IMF’s governance is illustrated in the following chart.

Organs set up under the IMF Agreement

Alliances outside the IMF’s institutional structure

Formal linkages/relationship under the IMF Agreement

Informal relationship

Adapted from: http://www.imf.org/external/about/govstruct.htm Board of Governors

IMFC

Executive Board

Managing Director

Staff G-7, G-20,

G-24…

According to Article XII, Section 2(a), all power under the IMF Agreement not conferred directly to the Board of Governors, the Executive Board, or the Managing Director shall be vested in the Board of Governors.

Although the Board of Governors is the IMF’s highest decision-making organ, since 1946 most of its power has been delegated to the Executive Board.⁴⁶ As a result, the Executive Board is the most important organ in the daily operations and decisions of the Fund, and has been the center of focus in the call for governance reform.

According to Article XII, Section 3(a), the Executive Board is responsible for conducting the business of the Fund, and for this purpose, it shall exercise all the powers delegated to it by the Board of Governors. The Executive Board consists of Executive Directors with a Managing Director as the chairman of the Executive Board. Five of the Executive Directors shall be appointed by the five members having the largest quotas (appointed Directors), and another fifteen shall be elected by the other members (elected Directors). The number of elected Directors can be changed by the Board of Governors using an 85% majority of total voting power. The Executive Board shall function in continuous session at the principal office of the Fund, i.e. its Headquarters in Washington, D.C. Regarding voting, appointed Directors are to cast the number of votes allotted to the member appointing him or her, whilst the elected Directors cast the number of votes which counted toward his or her election. In other words, split voting is not permitted for elected Directors. Two major reform issues relating to the Executive Board are the electoral system and the role of the Executive Directors under the IMF.

Currently there are twenty-four Executive Directors, including five appointed ones (the U.S., Japan, Germany, France, and the UK) and nineteen elected. Elected Directors serve a two-year term. Since three elected Directors come from constituencies that have only one member (China, Saudi Arabia,⁴⁷ and Russia), only sixteen elected Directors come from multi-member constituencies. While there are three elected Directors coming from constituencies consisting of only one member, two Directors elected by most of the African members come from constituencies of twenty-one and twenty-four members, respectively.⁴⁸ Because not all members have an appointed Director representing them at the meeting of the Executive Board, Article XII, Section 3(j) provides that when a member is not entitled to appoint an Executive Director, that member can send a representative to attend any meeting of the Executive Board when a request is made by the

46. Mountford, supra note 40, at 7.

47. According to art. XII, § 3(c), Saudi Arabia became entitle to appoint its own Director in 1978 when its currency became widely used by the members.

48. Mountford, supra note 40, at 10.

member or a matter particularly affecting that member is under consideration.

The IMF Agreement does not specify how the constituencies are formed. Thus, a constituency may be based on an informal arrangement or a written agreement among participating members.⁴⁹ However, as the IMF Agreement does not contain specific rules on constituencies, the legal effect or status of these informal arrangements or written agreement amongst members remain questionable and uncertain. There are diverging views regarding the role of mixed multi-country constituencies, as well as the related issue of whether constituencies containing a dominant country allow for proper representation of small countries.⁵⁰ The Executive Board began as a compact body in 1945 where multi-country constituencies represented, on average, around 5.6 members. As the Fund membership expanded, the average size of a multi-country constituency grew to the 10.8 members of today. When the single-country constituencies increases from five to eight, accounting for a third of the Board’s seats, crowded constituencies became even more apparent.⁵¹ Controversies have arisen over how best to ensure that elected Directors from constituencies of members with divergent interests (for example, a creditor member vis-à-vis a member using the Fund’s resources) reflect the positions of all the constituent members.

Directors representing an individual member can be held directly accountable by their authorities and in effect dismissed and replaced at will.

An elected Director, on the other hand, serves a fixed two-year term once elected, which might give him or her little incentive to be accountable to his or her constituency.⁵² In fact, when members in a constituency select a Director, he or she is not obligated to defer to the views of those members or to cast his or her votes in accordance with their instructions. His or her votes are valid even if they are inconsistent with any instructions he or she may have received from the members in the constituency.⁵³

Another criticism related to the electoral system is that, two multi-country constituencies representing African countries, with twenty-one and twenty-four members respectively, are too large. In contrast, the average size of multi-country constituencies is eleven members. This increases the

49. Murilo Portugal, Improving IMF Governance and Increasing the Influence of Developing Countries in IMF Decision-making, in REFORMING THE GOVERNANCE OF THE IMF AND THE WORLD BANK 75, 94 (Ariel Buira ed., 2005).

50. Id. at 95.

51 . Leonardo Martinez-Diaz, Executive Boards in International Organizations: Lessons for Strengthening IMF Governance 18-19 (Int’l Indep. Evaluation Org., BP/08/08, 2008), available at http://www.ieo-imf.org/ieo/files/completedevaluations/05212008BP08_08.pdf.

52. Ngaire Woods & Domenico Lombardi, Uneven Patterns of Governance: How Developing Countries Are Represented in the IMF, 13 REV. OF INT’L POL.ECON. 480, 492 (2006).

53. Gianviti, supra note 39, at 48.

burden of these two Directors, especially considering that they represent members that usually engage in long-term borrowing, which is quite demanding in terms of workload.⁵⁴

As has been stated previously, the Board of Governors has delegated most of its powers to the Executive Directors. Therefore, the Executive Directors possess great power, with duties including approval of relevant policies of the Fund, discussion of bilateral surveillance under Article IV, as well as multilateral surveillance of the international monetary system, approval of all decisions relating to the use of Fund’s resources, approval of the selection of the Managing Director, approval of the IMF budget and personnel, etc. In other words, the Executive Directors carry out most, if not all of the important day-to-day operational decisions of the Fund.

The second reform issue relating to the Executive Board concerns the role and character of the Executive Directors. Are they officials of the IMF or representatives of member governments? This is a crucial question since the way in which it is answered determines to whom the Executive Directors should be held accountable. During the drafting of the IMF Agreement, the UK was primarily of the view that Executive Directors are international officials. The U.S., however, preferred to grant more political power to the Executive Directors. The U.S. view seemed to have prevailed, as the result was a resident, twelve-member board based at the IMF Headquarters that meets in continuous sessions.⁵⁵ Nevertheless, the IMF Agreement does not specify whether the Executive Directors should be fully or partially accountable to their appointed or elected members.

After analysing the functions and duties of the Executive Directors, Grancois Gianviti, the former General Counsel of the IMF, concludes that

“an Executive Director of the IMF is an official of the organisation, legally accountable to the IMF for the discharge of his duties.”⁵⁶ Yet, appointed Directors can be recalled at will by their capitals. And in the case of both appointed and elected Directors, the potential impact of their voting behavior on their future careers in their home countries provides an incentive to listen to their authorities’ guidance.⁵⁷ It is, thus, impossible that Executive Directors should ignore instructions or guidance from members and act as independent officials of the IMF. As a result, the character of the Executive Directors remains controversial. This problem is exacerbated by the fact that the Executive Board itself lacks any process of self-evaluation. Furthermore,

54. Portugal, supra note 49, at 96.

55. Martinez-Diaz, supra note 51, at 15-16.

56. Gianviti, supra note 39, at 45-48.

57. Indep. Evaluation Office,GOVERNANCE OF THE IMF:AN EVALUATION 16 (2008), available at http://www.ieo-imf.org/ieo/files/completedevaluations/05212008CG_main.pdf.

its performance is not evaluated by any other body, meaning that it is only subject to members’ evaluation of the performance of the Directors that represent them.⁵⁸