The evidence that its member states are
seeking to escape from the International Monetary
Fund's "jurisdiction" continues to mount. Uruguay,
the IMF's third-largest borrower, became the
latest country to announce that it was pre-paying
its outstanding obligations to the fund, and the
IMF was forced to downgrade the multilateral
consultations on global economic imbalances that
it had proudly unveiled in April because leading
economic powers
have
proved reluctant to engage fully in these
consultations.
The IMF has made some
efforts to deal with the challenges it faces. In
September, its members approved marginal increases
in the voting power of China, South Korea, Mexico
and Turkey and agreed to consider more general
revisions to the formula for calculating each
member state's quota and a doubling of its basic
votes.
These changes still leave the IMF's
decision-making concentrated in the hands of the
world's richest nations, and since the increase in
basic votes requires an amendment to the IMF
Articles of Agreement, it is not clear when this
may occur. Even if they are fully implemented,
these modest reforms will fail to resolve the
IMF's legitimacy and relevancy crisis because they
do not effectively address the underlying cause of
its problems: the IMF's failure to adapt its
governance structures to its evolution from a
specialized monetary organization into a
macroeconomically oriented development-financing
institution.
To understand the IMF's
problem it is necessary to look at its original
governance arrangements and the distortions that
have arisen from its failure to adapt these to its
changing functions.
When the IMF was
established in 1944, its member states agreed to
surrender some of their monetary sovereignty in
exchange for the benefits of a rules-based
monetary system in which all states committed to
maintain a fixed value for their currencies, and
in which the IMF acted as both the overseer and
the financier to members in need. In all its
operations, the IMF staff, operating under the
firm oversight of its board of executive
directors, focused only on those macroeconomic and
monetary variables that affected the state's
obligation to maintain its currency's par value,
leaving the member states free to choose policies
needed to reach the agreed macroeconomic and
monetary goals.
The IMF's governance
structure, despite being based on a system of
weighted votes, had a built-in check on the
influence of its most powerful member states. They
understood that, since they would use (and in fact
did use) the IMF's services, its policies could
directly affect their own citizens and they could
be held accountable by them for these policies.
When this system collapsed in the 1970s,
the IMF amended its Articles of Agreement to allow
each member state to determine its own
exchange-rate policy. This had two important
operational consequences. First, it created a de
facto distinction between those rich IMF member
states, such as the United States, Germany and
Japan, which had access to alternative sources of
funds and so did not need to use the IMF's
services ("IMF supplier states") and those
developing-country member states that did need to
use its services, such as Argentina, Ghana and
Indonesia ("IMF consumer states").
Second,
at least in the case of IMF consumer states, the
range of the fund's interests expanded, over time,
beyond macroeconomic and monetary issues to
include any issue, regardless of how intrusive,
into the affairs of its member states that could
affect the balance of payments and the monetary
situation of its member states.
The IMF's
failure to adapt its original governance
arrangements to its changed operations has
resulted in the following problems.
IMF-supplier-state relations. The
supplier states, because of their wealth and
power, are both independent from the IMF and have
the votes and board representation to control its
decision-making. This means they can make
decisions for the IMF that will never affect their
citizens. This situation of decision-makers having
power without accountability to those most
affected by their decisions is ripe with potential
for abuse.
IMF-consumer-state
relations. Although there is great variation
in conditions among the consumer states, the
underlying causes of their macroeconomic
challenges lie in the governance of their
societies. The IMF has attempted to deal with this
reality by increasing the range of
non-macroeconomic issues it addresses in its
operations in these countries, thereby becoming an
important actor in their policymaking processes.
Although this narrows their policy space, consumer
member states cannot effectively challenge the IMF
because they are dependent on its financing or its
approval for access to financing, and cannot
easily influence its decision-making.
IMF-non-state-actor relations. The
creators of the IMF believed that it was not
necessary for the fund to have any direct
interaction with non-state actors, such as labor
unions, human-rights organizations or community
associations. Given its important role in domestic
policymaking, this position is no longer valid.
There is no obvious reason that the IMF, when it
"descends"
