RefoRm of the
30Group of Thirty
About the Authors
The views expressed in this paper are those of the Working Group on the Reform of the International Monetary Fund
and do not necessarily represent the views of all of the individual members of the Group of Thirty.
ISBN I-56708-148-7Copies of this report are available for $30 from:
The Group of Thirty1726 M Street, N.W. Suite 200
Washington, D.C. 20036Tel: (202) 331-2472 Fax: (202) 785-9423www.group30.org · email:[email protected]
Published in October, 2009.
RefoRm of the
30Group of Thirty
3
5
EU EuropeanUnion
FSAP FinancialSectorAssessmentProgram
FSB FinancialStabilityBoard
FSF FinancialStabilityForum
FSSA FinancialSectorStabilityAssessment
GDP GrossDomesticProduct
IEO IndependentEvaluationOffice
IMF InternationalMonetaryFund
IMFC InternationalMonetaryandFinancialCommittee
MoU MemorandumofUnderstanding
NAB NewArrangementstoBorrow
NGO Nongovernmentalorganization
PPP PurchasingPowerParity
ROSC ReportontheObservanceofStandardsandCodes
SDRs SpecialDrawingRights
7
Foreword
This reportunderscores the continuedneed
forreformoftheIMF.Tothatend,itidentifies
anumberofkeyrecommendationsforreforms
thatwebelievearenecessaryasregardsgover-
nance,resourcesand,mostimportant,surveil-
lance,bothbilateralandmultilateralinnature.
Itisonlywitheffectivegovernancereformthat
enhancesthelegitimacyoftheFundthatitcan
achievethenecessarychangesinsurveillanceto
maketheprocessmoreeffectivenotonlyforthe
smaller member countries but also, and most
important, as applied to the largest and most
systemically significant countries that have
tendedtopaytoolittleattentiontothiscentral
monitoringfunctionoftheFund.
The Working Group feels strongly that the
reforms we have identified would help ensure
that the IMF can strengthen its surveillance
role, build its early-warning facilities, and,
importantly, enhance its legitimacy among
member governments, thebroaderpublic, and
theinternationalcommunityatlarge.
The Working Group urges the leadership
oftheG-20,themembercountriesoftheIMF
anditsmanagement,andotheractorstowork
TheGroupofThirty’s(G30’s)missionistodeepenunderstandingofinternational
economicandfinancialissues,toexploretheinternationalrepercussionsofdeci-
sionsmadeinthepublicandprivatesectors,andtoexaminethechoicesavailable
to market participants and policymakers. This report continues the G30’s long
historyofrespondingtochallengesfacedbythesupervisory,centralbanking,and
financialcommunitieswithrecommendationsthatcanbeadoptedbypolicymakers
acrosstheglobe.
The Group decided in May 2009 to com-
mencearapidanalysisof theunderlying justi-
ficationsforfurtherreformoftheInternational
MonetaryFund(IMF)inresponsetoaconcern
felt by many in the G30 that, as the immedi-
atesevereeffectsofthefinancialcrisisbeganto
wane,theimpetusforreal,substantive,andlong-
lastingreformofthiskeyinternationalfinancial
institution would diminish and begin to stall.
Thisreport,theculminationofthateffort,isa
natural complement to the G30’s recent study
reportsonfinancialsupervision(The Structure
of Financial Supervision: Challenges and
Opportunities in a Global Marketplace,2008)
and on a framework for financial stability
(Financial Reform: A Framework for Financial
Stability,2009).Thereportdrawsonthework
of others, most notably on the recommenda-
tions of the Committee on IMF Governance
Reform, appointed by the Managing Director
of the Fund and chaired by Trevor Manuel
of South Africa, the work of the Fund’s own
Independent Evaluation Office, and the High
Level Group on Financial Supervision of the
EU, chairedbyJacquesdeLarosière.
R e fo Rm o f t h e
collaborativelyandmoveforwardwithdispatch
tocreateastrengthenedorganization.Thenew
IMFshouldbebetterpreparedtoperformmul-
tilateral surveillance in the future in a man-
nerthatwillassistpolicymakersinidentifying
developing risks and in responding to them
beforetheymutateintosevereregionalorglobal
financialcrisessuchastheextremelysevereone
wehavealljustlivedthrough.
9
OnbehalfoftheentireGroupofThirty(G30),
I would like to express appreciation to those
whosetime,talent,andenergyhavedriventhis
projecttosuccessfulfruition.
In particular, I would like to acknowledge
theleadershipandworkofthemembersofthe
SteeringCommittee,includingStanleyFischer,
ArminioFragaNeto,andGuillermoOrtiz,who
workedconsistentlyontheprojectandprovided
invaluableinput.TheSteeringCommittee’scol-
lective understanding of what it takes to lead
theInternationalMonetaryFund(IMF)andof
theurgentneedforsubstantiveandfundamen-
tal reformof this key international institution
ismuchappreciatedandisreflectedinthefinal
product.
Special recognition must also go to those
membersoftheG30whoactivelyparticipated
in the Working Group’s project deliberations
anddiscussions.
Crafting a thoughtful, precise report that
addresses the fundamental reforms necessary
for the IMF to work most effectively in the
future requires considerable knowledge of the
issuesandanabilitytosynthesizetheviewsof
numerousindividuals.Weparticularlyappreci-
ate theworkof theSteeringCommitteemem-
bersandourG30colleaguePeterKenen,who
served on the Steering Committee and as the
principal draftsman of the report, and who
brought extraordinary experience and accom-
plishmenttothattask.
Thanksalsogototheeditor,DianeStamm,
and the designers, Sarah McPhie and Katie
Burgess,fortheirdedicatedeffortsandflexibil-
ityworkingonthisproject.
Finally,thecoordinationofthisprojectand
themanyaspectsofreportproductionhadtheir
logistical center at theofficesof theGroupof
Thirty.Thisprojectcouldnothavebeencom-
pleted without the efforts of the Executive
Director,StuartMackintosh,andtheAssociate
Director, Sviatlana Francis, of the Group of
Thirty.
JacobA.Frenkel
Chairman and CEO
Group of Thirty
11
ChairmanandCEO,GroupofThirty
FormerGovernor,BankofIsrael
FormerCounselor,DirectorofResearch,InternationalMonetaryFund
Governor,BankofIsrael
FormerFirstManagingDirector,InternationalMonetaryFund
FoundingPartner,GáveaInvestimentos
ChairmanoftheBoard,BM&F-Bovespa
FormerGovernor,BancoCentraldoBrasil
WalkerProfessorofEconomics&InternationalFinanceEmeritus,PrincetonUniversity
FormerSeniorFellowinInternationalEconomics,CouncilonForeignRelations
Governor,BancodeMexico
ChairmanoftheBoard,BankforInternationalSettlements
FormerSecretaryofFinanceandPublicCredit,Mexico
ExecutiveDirector,GroupofThirty
R e fo Rm o f t h e
ExecutiveSecretary,GroupofThirty
President,GeoffreyBell&Company,Inc.
ChairmanandCEO,DFCAssociates,LLC
FormerMinisterofEconomy,Argentina
AdvisoryDirector,MorganStanley
FormerPresident,MorganStanley
International
FormerCOO,FederalReserveBank
ofNewYork
SeniorAdvisor,FinancialStabilityInstitute
FormerU.S.ComptrolleroftheCurrency
ViceChairmanoftheGoverningBoard,
SwissNationalBank
FormerPartner,MooreCapitalManagement
Conseiller,BNPParibas
FormerPresident,EuropeanBank
forReconstructionandDevelopment
FormerGovernor,BanquedeFrance
FormerManagingDirector,
InternationalMonetaryFund
FormerDeputyGovernor,BankofJapan
FormerDeputyGovernor,Japan
DevelopmentBank
SeniorViceChairman,CitigroupandCitibank
Chairman,PromontoryEurope
FormerMinisterofEconomyandFinance,
Italy
FormerChairman,InternationalAccounting
StandardsCommittee
FormerMemberoftheExecutiveBoard,
EuropeanCentralBank
PartnerandSeniorAdvisor,
TheRohatynGroup
FormerManagingDirector,JPMorganChase
FormerManagingDirector,WorldBank
MinisterofFinance,Singapore
FormerManagingDirector,Monetary
AuthorityofSingapore
President,EuropeanCentralBank
FormerGovernor,BanquedeFrance
Director,YaleCenterfortheStudy
ofGlobalization,YaleUniversity
FormerPresidentofMexico
* Allthemembersparticipatedintheprojectintheirindividualcapacities.Theviewsexpresseddonotnecessarilyreflectthoseoftheinstitutionswithwhichthemembersareaffiliated.
# Observers.
13
TheGroupofThirtyWorkingGroupon theReformof the InternationalMon-
etaryFundwasestablishedinMay2009toaddresstheneedforfurtherreformsin
thiskeyinternationalfinancialinstitution.Theworkinggroupincludedindividu-
alswhoservedinleadershippositionsintheFundandincountriesthathaveused
Fundresources.AlloftheWorkingGroup’smembersarefamiliarwiththechal-
lengesfacedbytheFundandthedifficultiesinachievingmeaningfulreform.
Monitoring of emerging systemic risks and
theprovisionoftimelyearlywarnings;
Performing macroeconomic and prudential
analysesthatprovidesmemberswithacon-
sideredviewof futurerisks toglobalfinan-
cial stability, with a focus on the largest,
mostsystemicallysignificanteconomies;
Addressing balance-of-payments crises in
member countries and, where needed, pro-
viding financing to member countries, cou-
pledtonecessaryconditionality;
Acting as a global reserve, via its liquidity
facilities;and
RevivingtheoriginalpurposeoftheFundas
setoutintheArticlesofAgreement,Article
I(i), “To promote international monetary
cooperationthroughapermanentinstitution
whichprovides themachinery for consulta-
tionandcollaborationoninternationalmon-
etaryproblems.”
TheFundisunique,andhasauniquelegiti-
macy in that it is a near-universal institution,
establishedbytreaty,withahighlyprofessional
The Working Group is strongly of the view
thatthefinancialcrisisexposednotonlymajor
institutional failures on the part of financial
institutions,regulators,andinternationalfinan-
cial institutions, including the International
Monetary Fund (IMF)—though the Fund’s
Global Financial Stability Reports certainly
issued some of the most prescient warnings
about global financial instability in the period
before thecrisisbroke.Thecrisisalso revealed
the interconnectedness of national economies
aroundtheglobe.Asgovernments,financemin-
istries, and central banks continue to work on
the reform of the international financial archi-
tecture, to address and correct these failures
individually and holistically, they are urged to
reformtheFundtobetterreflectglobalrealities.
TheWorkingGroupbelievesthatthemission
ofa reformed IMFmustbe clearly statedand
understood by all the stakeholders. That mis-
sionshouldincludethefollowing:
Delivering unbiased, respected analysis and
macroeconomic advice, both confidential
and public, via an enhanced bilateral and
multilateralsurveillanceprocess;
R e fo Rm o f t h e
staff,inwhichtypicallybothfinanceministries
andcentralbanksrepresenttheircountries.
Yetsignificantreformsarenecessaryintwo
areas for the Fund to better serve its member
countriesandtoenhance its legitimacy. First,
the governance system of the Fund must be
reformed. Second, and equally important, the
Fund’ssystemofbilateralandmultilateralsur-
veillance must be reinforced, buttressed, and
made more effective. Indeed, bolstering the
multilateral and cross-country perspectives in
its bilateral surveillance and placing greater
focus on international economic and financial
linkagesandspilloversarekey.Cross-checking
between multilateral and bilateral surveil-
lancewillhelptopromotebothpoliciesatthe
national level that are consistent with other
domesticpoliciesandglobaladjustmentwithin
the international monetary and financial sys-
tem. Moreover, the Working Group members
notethattheFunddoesnotoperateinavacuum
and must collaborate with many institutions,
including with the Financial Stability Board
andtheWorldBank,andthat,inparticular,the
former linkage shouldbe further clarifiedand
strengthened.Toachievethesegoals,thisreport
recommendsthefollowingmajorchangesinthe
governanceandfunctioningoftheFund.
The members of the G30 Working Group on
the reform of the IMF believe that a number
ofkeygovernancereformsmustbeundertaken
to strengthen the Fund and to ensure that its
institutional structure better reflects changing
globaleconomicrealitiesandrelationships.The
reportrecommendsthat:
In the future, quota adjustments would
be better achieved through a regularized
automatic process. Under such a system,
quotareviewwouldoccureveryfouryears,
usingtheexistingformula,withareviewand
if necessary changes to the quota formula
everyeightyears.Further,nosinglecountry
shouldretainavetooverFunddecisions.
The
Council should replace the International
MonetaryandFinancialCommittee(IMFC),
andwouldprovidestrategicdirectiontothe
Fundanddiscusspolicycoordinationneeds.
It would exercise oversight of the Fund’s
ExecutiveBoardandmanagement.Itwould
alsoinitiatemultilateralconsultationsaimed
at reaching agreement among the partici-
pating governments on policy responses to
majoreconomicproblems.
In the future, the
Board should focus more on strategic mat-
tersandleaveday-to-dayoperationalmatters
totheManagingDirectorandstaff.
Inparticu-
lar,thispositionshouldnotbeallocatedon
thebasisofnationality.
Recent commitments
include the creation of the Flexible Credit
Line,thesignificantenhancementstopoten-
tial financing through the issue of Special
DrawingRights(SDRs),theexpansionofthe
New Arrangements to Borrow (NAB), and
the development of Fund borrowing agree-
mentswithindividualmembercountries.
Therefore,itisessential
thatFundquotasincreasesignificantlyinthe
14thquotareview.
The members of the G30 Working Group
underscore that the current financial crisis
exposed failings in theFund’s systemofbilat-
eralandmultilateralsurveillance.Theseweak-
nesses are linked to the reluctance of certain
membercountriestoacceptsurveillanceadvice;
in some important cases member countries
ignoreitentirely.Theproposedreformswould
strengthenandbuttresstheFund’ssurveillance
function.Thereportrecommendsthat:
Governments should be obliged
to respondpromptly to those recommenda-
tions. Their responses and any subsequent
failuretoactshouldbebroughttotheatten-
tionoftheExecutiveBoard.
The Fund should monitor
theirprogressincomplyingwiththerecom-
mendations made by the FSAP. Members
whoseFSAPreportswerecompletedseveral
yearsagoshouldinvitenewreviewsoftheir
financialsystems.
Thenextcri-
sismaytakeplaceinthecoreofthefinancial
system,butitcouldjustaswellbeafiscalor
debtcrisisoran“old-fashioned”balance-of-
paymentsand inflationcrisis.Whatever the
cause,theFundmustenhanceitsabilitytodo
whateverittakestogetaheadofthecurveon
areal-timebasis.
The
Managing Director, advised by his or her
staff,shouldbeauthorizedtoissuesuchwarn-
ingswhendeemednecessary.TheFundmust
beabletoactasatrustedadviserinprivate.
However,intheinterestoftransparency,the
Fundmustbalancethisrolewiththeneedto
ultimatelymakeitsrecommendationspublic.
R e fo Rm o f t h e
InternatIonal CoordInatIon
The members of the G30 Working Group on
theReformoftheInternationalMonetaryFund
believethattherelationshipbetweentheFund
and the newly empowered Financial Stability
Board (FSB) must be formalized to enhance
coordinationandcooperationbetweenthetwo
institutions.
Care should
be taken to avoid duplication of tasks or
responsibilities.Thesurveillanceoffinancial
risks in member countries and globally
must be part of the Fund’s surveillance
responsibilities.
JointmissionsoftheFund
andmembersoftheFinancialStabilityBoard
couldwellbeveryusefulinthiscontext.
The members of the G30 Working Group
believe theabove reformsarenecessary to the
restorationof confidence in the supervisionof
theglobalfinancialsystemanditsstability,and
urgetheirpromptadoption.
17
R e fo Rm o f t h e
.....................................
1 MembersoftheG8areCanada,France,Germany,Italy,Japan,Russia,theUnitedKingdom,andtheUnitedStates.
2 See,inparticular,Financial Reform: A Framework for Financial Stability,January2009.ForacopyofthispublicationpleasevisittheG30websiteatwww.group30.org.
This report addresses a vital aspect of the international policy response to the
globalfinancialcrisis,namelythestepsnecessarytoensurethattheInternational
MonetaryFund (IMF) isable toplayanenhancedrole inpromoting the future
stabilityofnationaleconomiesandoftheglobaleconomy.
financialmarketswerenotonlyabletoallocate
resourcesefficientlybutalsotomanagecomplex
risks.Theviewwasthatthesesystemsweresup-
portedbystrongelements(orpillars)ofmarket
discipline: financial institutions with sophisti-
catedriskmanagementsystems,regulators,rat-
ingagencies,andthedifferentmechanismsfor
international cooperation. The financial crisis
shattered thisparadigm.Weak regulatoryand
supervisory frameworks, excessive reliance on
self-regulatedmarkets,distortedincentivesthat
converged to extreme risk taking in search of
short-term profits, and lax lending standards
madethefinancialsectorextremelyvulnerable.
Many of these issues have been addressed by
previousG30reports.2
Webelievethatgloballeadersmustrecognize
that,whiletheIMF’sGlobal Financial Stability
Report accurately warned about some of the
keyrisksfacingtheinternationalfinancialsys-
tem,theFundfailedinoneofitsprincipalmis-
sions—toconvinceitsmembergovernmentsof
the risks to the world economy posed by the
emergingfinancialcrisisintheUnitedStatesand
byotherimbalancesthatwereevidentelsewhere
priortothecrisis.TheFundurgedthemtotake
appropriateaction, individuallyandcollective-
ly,tolimitthethreatposedbythecrisistothe
stabilityoftheglobaleconomy.TheFundwas
notcomplacent,butitwasnotforcefulenough
in calling for concerted action to minimize
the damage to global stability and prosperity
The global financial crisis reflected major
institutional failures on the part of financial
institutions, regulators, rating agencies, and
international financial institutions, including
theIMF,andothermoreinformalmechanisms
forinternationalcooperation.Notwithstanding
pre-crisis G-81 rhetoric in support of interna-
tional coordination aimed at the resolution of
these problems, there was little political com-
mitmenttodealseriouslywiththeproblemsas
theyemerged.
Thecrisishadnumerouslinkedcauses.Itwas
aproductofacombinationofbothmacro-and
microeconomic failures.The crisishad itsori-
gins in a prolonged period of excess liquidity
andcreditexpansionleadingtogrowingglobal
imbalances(facilitatedbytheampleavailability
ofcurrentaccountdeficitfinancingandthewill-
ingness to accumulate large foreign exchange
reserves in surplus countries) and themispric-
ingofrisk.Inthissense,thecurrentcrisishas
manyoftheelementsofpreviousfinancialcri-
ses.Whatmakes this crisis unprecedented are
itssize,scope,andseverity.Thesecharacteris-
tics,inturn,aretheresultofthecrisisgenerated
intheworld’smostimportantfinancialcenter,
the massive amount of leverage and maturity
mismatches involved, extremely lax lending
standards,excessiverisktaking,andtheglobal
interconnectednessofthefinancialsystem.
The prevailing paradigm prior to the erup-
tion of the crisis was that lightly regulated
stemmingfromdevelopmentsintheworld’slarg-
esteconomyandinothermembercountries.3
One of the clearest pieces of evidence that
surveillancehasbeen ineffective relates to the
decisionsadoptedin2006tocomplementIMF
surveillance arrangements with multilateral
consultations.Thefirstconsultationfocusedon
globalimbalances.Theobjectivewastoprovide
aforumforimprovingunderstandingandshar-
ingviewsonglobalimbalancesandonhowbest
toreducetheminacontextofsustainingrobust
globalgrowth.Therecommendationsincluded
the following: steps to boost domestic saving
in the United States, including fiscal consoli-
dation; further progress in growth-enhancing
reforms in Europe; further structural reforms
in Japan, including fiscal consolidation;
reformstoboostdomesticdemandinemerging
Asia;greaterexchangerateflexibilityinanum-
ber of current account surplus countries; and
increased spending consistent with absorptive
capacity and macroeconomic stability in oil-
producing countries. These recommendations
wereinlargepartignored.
A successful multilateral consultation pro-
cess—that is,aprocess that leads toaction to
carry out the key recommendations—would
havecontributed toavoiding thecurrent crisis
or at least ameliorating the harshness of the
adjustmentprocess.TheFunditselfcanhardly
be blamed that its recommendations were not
implemented.Thatwastheresponsibilityofthe
member countries. However, there is always
an issue about how strongly the Fund issues
warnings, and—most important—how much
themembercountriesrecognizetheneedforthe
Fundtospeakout,evenwhentheyarethesub-
jectsofitscriticisms.
Weareconvincedthatnationalgovernments
must now exploit the opportunity created by
theeconomicandfinancialcrisisandtheappar-
ent G-204 consensus concerning the need to
enhancetheroleoftheIMF.
Thefirststepinthatreformprocessistoimple-
mentasamatterofurgencyaseriesofgover-
nancereforms,manyofwhichhavebeendebated
anumberoftimesinthepastandhavereceived
widespreadsupportfromdiverseconstituencies.
Thesereformsconcern:strengtheningthepoliti-
cal leadershipof theFund through theactiva-
tion of the IMF Council; a further realign-
ment of IMF quotas to enhance the influence
of emerging and developing economies; and
changesinthesize,makeup,andfunctioningof
theExecutiveBoard.
All of these reforms are absolute prerequi-
sitesfortheFundanditsmanagementtodeliver
formembercountriesonmultiplefronts.Justas
important,governancereformsarerequiredto
upholdthelegitimacyoftheFundandtomod-
ernizeitsoperation.AFundthatwasdesigned
at the Bretton Woods Conference before the
endofWorldWarIImusttodaybereformedto
reflectnewgeopoliticalandeconomicrealities.
Wearenot,however,naïve,andweunderstand
that governance reforms will require strong
leadershipandsupportfrommembercountries,
particularlythosethatcurrentlypossessthekey
.....................................
3 Someinstitutions,suchastheBankforInternationalSettlements,warnedofthedangersposedbydevelopmentsintheglobalfinancialsystem,buttheiradvicetosomeextentwasignoredbypolicymakers.Seewww.bis.orgfordetails.Theannualreportsleadinguptothecrisisprovideevidenceofthewarningsdeliveredtobutnotheardbypolicymakers.
4 ThemembersoftheG-20areArgentina,Australia,Brazil,Canada,China,France,Germany,India,Indonesia,Italy,Japan,Mexico,Russia,SaudiArabia,SouthAfrica,SouthKorea,Turkey,theUnitedKingdom,theUnitedStates,andtheEuropeanUnion,whichisrepresentedbytherotatingCouncilpresidencyandtheEuropeanCentralBank.Toensureglobaleconomicforumsandinstitutionsworktogether,theManagingDirectoroftheIMFandthePresidentoftheWorldBank,plusthechairsoftheInternationalMonetaryandFinancialCommitteeandDevelopmentCommitteeoftheIMFandWorldBank,alsoparticipateinG-20meetingsonanexofficiobasis.
R e fo Rm o f t h e
influence in the decision-making processes of
theFund.
Urgentreformsarealsorequiredtoenhance
the legitimacy and effectiveness of the Fund’s
surveillance mission. With the necessary sup-
port and tools at its disposal in the future,
the Fund’s surveillance, diagnoses, and policy
prescriptions should command respect, serve
asasourceof internationalexpertiseandbest
practice,andprovidesoundandcrediblepolicy
advice.TheFund’sunderstandingofeconomic
phenomenashouldbeaheadofthecurve,with
itsrecommendationsindependentandunbiased.
The Fund’s recommendations cannot languish
on a shelf in Washington, D.C., and instead
shouldbeacteduponbytheappropriateparties.
This report identifies reforms necessary to
prepare the Fund for this enhanced surveil-
lancerolepost-crisis.Weaddress thecoverage
andqualityofIMFsurveillance,withparticu-
lar attention to financial sector matters; the
redesignofmultilateralsurveillancetoelicitthe
policychangesthatgovernmentsareunlikelyto
adopt unilaterally, and the need for close and
mutually beneficial coordination between the
FundandtheFinancialStabilityBoard(FSB).
These reformsare required for theFund to
playthe largerrole that theG-20 leaders,and
themember countries that arenotpartof the
G-20,expectofitinthefuture.Theycannotbe
implemented,however,unlesstheFund’smem-
bersarepreparedtoactonmajorchangesinthe
Fund’s governance arrangements, in order to
refashiontheFundtomeetthechallengesposed
byarapidlychangingworldeconomy.
Reform of the IMF has been addressed
by other bodies and commissions. The G30
Working Group has drawn freely on their
work, especially the report of the Committee
on IMF Governance Reform,appointedbythe
ManagingDirectoroftheFundandchairedby
TrevorManuelofSouthAfrica,theworkofthe
Fund’sIndependent Evaluation Officeandthe
High Level Group on Financial Supervision of
the EU, chairedbyJacquesdeLarosière. Ithas
alsodrawnontheknowledgeandexperienceof
membersoftheGroupofThirtywhohavebeen
directly involved in leadershippositions in the
Fundandinmembercountries.
Itisparticularlyimportantthatthereforms
proposedinthisreportsecurethewholehearted
support of the Fund’s largest members, which
dominate the Fund’s decision-making process.
Without their active involvementand support,
the necessary reforms are not likely to mate-
rialize. Members of this Working Group urge
thosecountries’governments toplaya strong,
constructiveroleinthereformeffort.Onlywith
such commitments of political capital by the
leaders in whose countries the financial crisis
wasborn,andwiththeleadershipofthewider
membershipoftheFund,canweimplementreal
and lasting reform that enhances the Fund’s
legitimacy,effectiveness,andrelevance.
21
R e fo Rm o f t h e
WebelievethattheInternationalMonetaryFund’s(IMF’s)governanceandsurveil-
lancefunctionsarecloselyinterconnected.
When created, the IMF largely reflected
theeconomicpowerstructureoftheworld.In
recent years, however, a small groupof coun-
tries,generally identifiedas theG7,5hasexer-
cised a controlling influence on the institu-
tion.Yettheeconomicbalancehasshiftedand
evolved, and demands for better governance
haveemerged,particularlyfromthekeyminor-
ityshareholders,whoexpresstheviewthatthe
Fund’s current decision-making process lacks
appropriate political and economic legitimacy.
Ofcourse,itisdifficulttodemandattentionto
therecommendationsofaninstitutionthatlacks
legitimacyintheeyesofitsownmembers.Even
whentheFund’sanalysisisonpointandahead
ofthecurve,itrunstheriskofbeingdismissed
bybothconstituencies.Thecontrollingmember
countriesmaydisregarditsadvice,astheyhave
in the past. The emerging creditor nations of
theworldwithburgeoningsurplusesmaycon-
tinuetobelievethattheirvoicesarenotheard
clearly enough in the International Monetary
and Financial Committee (IMFC) and in the
ExecutiveBoard.
To address the matter of legitimacy and to
buildpoliticalsupportbehindthedecisionsand
adviceoftheFund,webelievethattherelevant
emerging countries must be given a greater
senseofresponsibilityforthefunctioningofthe
internationaleconomicsystem.Toachievethis
purpose,theemergingcountriesmustbegivena
largerroleinthegovernanceofthesystem.
Thishasbeenincreasinglyrecognizedbythe
internationalcommunity. In fact,duringtheir
April2009meeting,G-20leaderscommittedto
reformthemandates,scope,andgovernanceof
theIMFandotherinternationalfinancialinsti-
tutions, to reflect changes in the world econ-
omyandthenewchallengesofglobalization.6
Greater voice and representation of emerg-
ing and developing countries, and increased
credibility and accountability of the institu-
tions,wereconsideredtobeanessentialcom-
ponentoftheseefforts.G-20leadersproposed,
among other things, to move forward with
the reform of IMF quotas and representa-
tionagreed sinceApril2008and to complete
the 14th general review of quotas by January
2011.TheG-20alsocalledforconsiderationof
greaterinvolvementofofficialsattheministe-
riallevelinprovidingstrategicdirectiontothe
IMF.Finally,thegroupsupportedtheviewthat
the leadership of the IMF (and in general of
international financial institutions) should be
electedthroughamoreopen,merit-based,and
transparentprocess.
These are, indeed, steps in the right direc-
tion. However, we are concerned by the fact
that governance reform at the IMF is lagging
behindeffortsinotherareas.Furthermore,we
believe that reformof IMFgovernance should
gobeyondthemeasuresconsideredbytheG-20
leadersandthatthesechangesshouldbeimple-
mentedassoonaspossible.Consequently,this
Report formulates a series of recommenda-
tionsaimedatcorrectingimbalancesinquotas,
improvingdecisionmakingattheIMF,empow-
eringtheFundatthepoliticallevel,andachiev-
ing a more efficient division of labor between
theExecutiveBoardandManagement.
.....................................
5 ThemembersoftheG7areCanada,France,Germany,Italy,Japan,theUnitedKingdom,andtheUnitedStates.
6 TheG-20communiquéisavailableat:http://www.g20.org/pub_communiques.aspx.
Webelieve that theprocessofquotareview is
too slowand the resultingadjustments invot-
ing power are marginal, given the increased
economic significance of emerging countries
inrecentyears.7 It is therefore fundamental to
acceleratethe14thgeneralquotareviewandto
completeit inearly2011.Wealsobelievethat
fromthispointforwardamechanismofauto-
maticquotaadjustmentseveryfouryearsshould
beintroduced,sothatanychangesintheglobal
economyare reflected rapidly inquota shares.
Similarly,thequotaformulashouldbereviewed
ifnecessaryeveryeightyears.8
Tohaveanadequateimpactondecisionmak-
ingattheFund,thereviewofquotasharesmust
becomplementedwitheffortsinotherareas.
First, the authors support the view that the
Articles of Agreement of the Fund should be
amended to achieve a new and more balanced
compositionoftheExecutiveBoard.Atpresent,
European countries have eight of the 24 seats
availableontheFund’sExecutiveBoard.Wecall
for thereductionof this shareandsuggest that
Europeancountrieshave fourseatsatmost.9A
salutarysideeffectofanysensiblesolutionwould
beareductioninthesizeoftheExecutiveBoard,
althoughsomeoftheseatsvacatedcouldbetrans-
ferred toemerginganddevelopingcountries. In
additiontothereductionofthenumberofseats
on theBoard, thecombinedquota shareof the
EuropeanUnion(EU)countriesmustbeadjusted.
Moreover, a consolidation of the EU/euro-area
seatsontheFund’sBoardwouldbeusefulandin
theinterestofEuropeancountriesbecausesucha
stepwouldhelpstrengthentheirvoice.
Second,theauthorsbelievethatinthefuture,
decision making in the reformed Fund should
notbeblockedbythevetovoteofasinglecoun-
try.10Thisshouldbeafundamentalpartofthe
widerreformdesignedtomaketheFundbetter
reflect theglobalpoliticalandeconomic reali-
tiesofthe21stcentury.
Recently, two documents—the Manuel Report11
(see Box 1) and the report of the Fund’s
IndependentEvaluationOfficeonGovernance
oftheIMF12—havecalledforthecreationofa
ministerial-level governing body, a “Council,”
with a formal role within the IMF structure.
Wefullyagreethatastrongcasecanbemade
in support of the creation of such a Council.
.....................................
7 Forinstance,evenafterconsideringapprovaloftheApril2008quotaadjustments,BelgiumwouldhavealargerquotasharethanBrazilandMexico.Inthesamevein,France,Germany,andtheUnitedKingdomwouldhavelargerquotasharesthanChina,despitethefactthatChina’sshareinworldgrossdomesticproduct(GDP)onapurchasingpowerparity(PPP)basisisequivalenttotwoandahalftimesthatofGermanyandoverthreetimesthoseofFranceandtheUnitedKingdom.
8 Atpresent,quotasarereviewedatleasteveryfiveyears.AreviewtookplaceinJanuary2003.InJanuary2008,noadjustmentsweremade.Adhocquotaincreasestookplacein2006and2008.See:www.imf.org/external/np/exr/facts/quotas.htm.
9 TheHighLevelGrouponFinancialSupervisionintheEuropeanUnion,chairedbyJacquesdeLarosière,alsoprovidesitsownboldideasforreform.
10TheauthorsrecognizethatthiswouldrequireamendingtheArticlesofAgreementtoreducethevotingthresholdforcriticaldecisions,eliminatingvetopowerbyanysinglecountry.Currently,theUnitedStateshasabout16percentofthetotalvotingpowerintheExecutiveBoardandcanthusblockanydecisionrequiringan85percentmajority.WerecognizethatareductionoftheU.S.shareisdifficultsinceitwouldrequiretheassentoftheU.S.Congress,becausetheUnitedStates’participationintheIMFisgovernedbytheBrettonWoodsAgreementAct,notbyatreaty,andwouldthereforerequireactionbybothhousesoftheU.S.Congress.
11TheserecommendationsdrawheavilyontheReportbytheCommitteeonIMFGovernanceReformchairedbyTrevorManuelandwhichincludedGuillermoOrtiz,amemberoftheSteeringCommitteeforthisreport.Thereportisavailableat:http://www.imf.org/external/np/omd/2009/govref/032409.pdf.
12ForthetextoftheIEOreport,see:http://www.ieo-imf.org/eval/complete/eval_05212008.html.
R e fo Rm o f t h e
TheIMFCisanadvisorybodyoftheBoardof
Governorsandhasnolegalweight.Thisunder-
minesitslegitimacyandadverselyaffectsFund
Management’saccountability.Furthermore,the
participation of Fund Governors in the insti-
tution’s affairs is generally modest, except in
timesofsystemiccrisisoronissuesconsidered
of interest for particular reasons. As a result,
thetwice-a-yearmeetingsoftheIMFCdonot
live up to their potential, and therefore their
roleinpromotinginternationalcooperationand
internationalfinancial stability ismodest.Not
surprisingly then, ithasbeen in theG-20and
notintheIMFCwherethemostrelevantrecent
decisionsonconfrontingthecurrentcrisishave
takenplace.
TheIMFArticlesofAgreementalreadypro-
videfortheestablishmentofaCouncilcomposed
of ministers, governors, or persons of compa-
rable rank.TheCouncilwouldprovidestrate-
gic and policy direction to the Fund, discuss
macroeconomicandfinancialpolicycoordina-
tionneeds,andexercisepowersconferredupon
itby theBoardofGovernors.EachCouncilor
wouldbeentitledtocastvotesequalinnumber
to those of the corresponding member of the
ExecutiveBoard.However,aCouncilorrepre-
sentingamulti-countryconstituencywouldbe
free tocast separatevotes for eachcountryof
the constituency—something that cannot be
doneintheBoard.
The Council would establish a continuous
dialoguewithbothFundManagementandthe
Board.ManagementandtheBoardwouldassist
the Council in the definition of the agenda,
whiletheBoardcouldsupportthedefinitionof
prioritiesderivedfromresearchandframepoli-
cydiscussionsintoanactionableformatforthe
Council’sdeliberations.
We strongly believe that for the Council
to be effective and legitimate, its membership
shouldreflectglobaleconomicrealitiesfromthe
momentof its inception.Thus,we fully agree
with theviewexpressed in theTrevorManuel
Reportthat“…wearecallingforafundamen-
tal reform of the IMF’s governance structure,
notamererelabelingofexistingones.Changing
thenameoftheIMFCtotheIMFCounciland
giving it de jure decision making authority is
unlikelytoaccomplishmuch.”13
According to the Fund’s Articles of
Agreement, the size and composition of the
CouncilandBoardneedtomirroreachother.
Therefore, the activation of the Council can
beeffectiveonlyafterstepshavebeentakento
allow an adequate representation of emerging
and developing economies on the Board. We
alsobelieve that representation in theCouncil
shouldbeadjustableovertimeinordertoadapt
toshiftsintherelativeeconomicsignificanceof
theFund’smembers.
Someconcernhasbeenexpressedregarding
theextenttowhichMinistersandGovernorswill
beableand/orwillingtoparticipateinCouncil
meetingsand involve themselves inFundmat-
ters. In our view the logic is totally different.
The creation of the Council would strengthen
the commitment of high-level authorities to
international cooperation. This would banish
theinertiadominatingcurrentIMFCmeetings,
andwhich engenders, as a result, onlyamar-
ginalinvolvementattheministeriallevel.
ActivationoftheIMFCouncilwouldengage
awiderconstituencyatthehighestlevel,involv-
ingalargernumberoftheFund’skeymembers
inthedecision-makingprocessandintheiden-
tification of emerging risks in a timely man-
ner.ItwouldstrengthentheFund’slegitimacy,
.....................................
13Seefootnote11.
25Group oF thirt y
{
{
{
{
R e fo Rm o f t h e
broadensupportfortheFund’smissionamong
itsmembercountries,anddeliverpoliticalcapi-
taltotheFund,enhancingitscapacitytotake
tough positions in its dealings with member
countries when their actions or failure to act
poserisksfortheglobaleconomy.Indeed,this
wouldbeamajorcontributiontotheobjective
ofplacingtheFundatthecenteroftheinterna-
tionalfinancialsystem.
WeareconvincedthatareformofIMFgover-
nanceshouldincludeareviewoftherolesand
responsibilitiesoftheBoardandManagement.
The existing framework, based on a resident
Boardthatisheavilyinvolvedintheday-to-day
runningoftheinstitution,givesrisetooverlaps
infunctionsandprocedures,highcosts linked
totheneedtomaintainalargesupportstafffor
theBoard,politicalconstraintsonstaff’stech-
nical analysis, reduced accountability, and a
slowerdecision-makingprocess.
WesharetheviewthatManagement’sdeci-
sion-making responsibilities in the areas of
surveillanceand resourceallocation shouldbe
strengthened.This implies, in essence,provid-
ingManagementwiththeauthoritytoconduct
surveillance under Article IV of the Articles
ofAgreement,and todevelopandexecute the
annualbudgetsthatallowfortheachievement
of the surveillance mandate, within a medi-
um-term frameworkestablishedby theBoard.
Otheractivities,suchastheappointment,orga-
nization,anddismissalof staff,wouldremain
withFund’sManagement.
Under this arrangement—which should
be implemented only after quotas have been
realigned to reflect current economic realities
and thecompositionof theBoardmodifiedas
suggested above—the Board would serve as
advisor to the Council and formulate propos-
als that could be transformed into decisions
bythelatter.Takingadvantageofthefindings
fromArticleIVconsultations,theBoardcould
deliverregularreportstotheCouncilonissues
deemed important while retaining the right
to ask for discussions of country economies
whenever requestedunder apre-agreedproce-
dure. The Board would continue to decide on
financingarrangementsanddealwithnoncriti-
calactivities,suchasordinaryreviewsofFund
policiesandlendinginstruments.
Theseadjustmentswouldallowa reduction
inthesizeofBoardoffices,withtheconsequent
savings,andevenmoreimportant,theywould
improve accountability at the Fund. As the
IndependentEvaluationOffice(IEO)reporthas
noted,thereisaneedforgreateraccountability
attheIMF:
Accountability is probably the weakest
aspectof IMFgovernance.Thereareno
agreedstandardsagainstwhichtoassess
theactionsof the IMFandnoadequate
mechanisms for the organization to be
held accountable by the membership or
byappropriatestakeholders.14
Indeed, under a more rational division of
responsibilities between Management and the
Board, the latter could devote more energy to
supervise Management’s performance without
the conflict of interest that emanates from the
current delineation of functions. In turn, the
BoardwouldbeheldaccountablebytheCouncil.
.....................................
14Pleasesee:http://www.ieo-imf.org/eval/complete/eval_05212008.html.
The authors of this report are clear that
the interface between the Fund and the pri-
vate sector, in particular the financial sector,
is an important part of the drive to enhance
the accountability of the Fund. We urge the
Managing Director to ensure that a dialogue
between theFund leadershipand thefinancial
sector takes place on a semi-regular basis to
complementtheexistingprocessinvolvingnon-
governmentalorganizations(NGOs).Suchdia-
loguesareadditiveandhelpincreasethegeneral
levelofunderstandingof theFund’sgoalsand
operations, while also providing forums for a
frankexchangeofviews.
ItisalsoimportantfortheFundtostrength-
en its outreach to NGOs. We welcome the
ManagingDirector’sinvitationtoNGOstopres-
entsubmissionsontheworkandreformofthe
IMFattheFund’sIstanbulmeetinginOctober
2009andtrustthatthiswillmarkthebeginning
ofcloserengagementwiththoseorganizations.
We believe the Fund should conduct an open,
merit-based, and transparent process for the
selection of the Managing Director, with the
finaldecisiontakenbytheCouncil.Thisrequires
achangeintheArticlesofAgreement,sincethis
selection is currently the responsibility of the
ExecutiveBoard.TheManagingDirectorwould
continue to chair the Board and would main-
taintheprerogativetoappointthethreeDeputy
Managing Directors. However, this process
should be based on the above-mentioned gen-
eralprinciplesfortheselectionoftheManaging
Director. Inparticular,noneof thesepositions
shouldbeallocatedonthebasisofnationality.
The Fund must have the financial resources
necessary to achieve its short-, medium-, and
long-termgoals.Wenotethatmuchhasalready
beendonetoaddresspreviouslyidentifiedshort-
comings in the levelof resourcesand typesof
facilities available to member countries when
faced with capital flight, balance-of-payment,
orotherfinancialcrises.
The authors acknowledge the timely emer-
gence of close cooperation among the central
banksof themajor industrial countriesduring
therecentfinancialcrisis,andwewelcomethe
supportfortheFunddisplayedbytheG-20coun-
triesattheApril2009LondonSummit,andthe
stepstheytookthereaftertoincreasetheFund’s
financial resources.At that time,G-20 leaders
committedtoincreaseFundlendingresourcesby
approximately US$750 billion. This comprised
US$250 billion in contributions from some
membercountriesthatweretobeaddedtothe
New Arrangements to Borrow (NAB), further
additionsofUS$250billiontotheNABindue
course,ageneralallocation increaseofSpecial
DrawingRights(SDRs)byUS$250billion,and
US$6billion ingold salesby theFund.Many,
butnotall,oftheG-20countrieshavedelivered
onthepledgestheymadeinApril2009.15
It ishardtoimagineafinancialcrisisworse
thantheonethroughwhichtheworldeconomy
is passing, but it could have been worse with-
out thecooperative responseof themajorcen-
tralbanks.TheFundhasalsomadeasignificant
contributiontotheresolutionoftheglobalfinan-
cialcrisisbyoverhaulingitslendingframework,
including the creation of the Flexible Credit
Line, which provides unconditional short-term
financingtocountrieswithwell-managedecon-
omiesthathavesufferedsharpreductionsinthe.....................................
15SeetheIMFwebsite,http://www.imf.org/external/np/exr/faq/sdrfaqs.htm,foranoverviewofthestatusofG-20pledgesregardingIMFresources.
R e fo Rm o f t h e
availability of foreign currency financing from
other sources, such as banks that have sought
toreducetheirexternalexposure.TheFundhas
alsodoubledthenormalaccesslimitsfordraw-
ings on its nonconcessional facilities, modern-
izedconditionalityforallborrowers,enhanced
theflexibilityofitstraditionalstand-byarrange-
ments,andeliminatedcertainseldom-usedfacil-
ities.ItisclearthattheFundhasshownconsid-
erableflexibilityinrespondingtothecrisis.
Thus, member countries and the Fund have
dealtwiththeresourcesandfacilitiesissuesquite
effectively in response to the recent crisis and
should be commended for their action.
Policymakerswillrecallthatpriortotheautumn
of2007,therelevanceof theFundanditsvery
existencewerebeingcalledintoquestion,onthe
spuriousgroundsthatriskwassowellcontained,
was so well managed by private sector actors,
and was so well underpinned by central bank
reservesthattherewasnolongerarelevantmis-
sionfortheFund.Recenteventshaveprovedhow
wrongheadedsuchassessmentsturnedouttobe.
Giventheaboveactions,theauthorsdonot
believethereiscurrentlyaneedtoincreasethe
availabilityoffinancingfortheFund’s lending
facilities,providedthattherecentcommitments
arehonored.Nonetheless,webelievethesetem-
porarymeasuresintroducedtoboosttheFund’s
lending capacity should not undermine the
much-neededincreaseinIMFquotaresources.
FortheIMFtobetrulyregardedasthecentral
institution of the international monetary sys-
tem, itneedsapermanent strengtheningof its
resource base. Therefore, it is fundamental to
ensureaverysignificantincreaseofFundquo-
tasisagreedtoatthe14thquotareview.
Looking still further ahead, an assessment
byanappropriategroupofthefuture,perhaps
broader,roleofSDRscouldalsoproveuseful.16
.....................................
16LeadersofanumberofFundmembercountrieshaveraisedthematterofthefutureroleofSDRs.Today,SDRsperformonlyalimitedroleinglobalreserves.Theirpresentuseisconfinedchieflytotransactionsbetweenthecentralbanksofmembercountries.Theearlyattempts tocreate functioningmarkets forSDR-denominatedclaimswerenot successful.Their future role,however, isamatterofconsiderableinterestamongeconomistsandsomecountries’officials,anditmaybetimetoconsidertheregularresumptionofSDRallocations.Clearly,manystepswouldhavetobetakenforSDRstobecomeawidelyacceptedmediumofexchangeandstoreofvalueintheofficialandprivatesectors.Thissubject,however,canbeconsideredonlyinthecontextofacomprehensivestudyconcernedwiththelong-termevolutionoftheinternationalmonetarysystem,amatterthatliesbeyondthescopeofthisreport.
29
R e fo Rm o f t h e
Thefinancialcrisisanddeeprecessionthatgrippedtheglobaleconomyin2009tes-
tifytotheneedforchangesinmacroeconomicpoliciesandfinancialsectorsupervi-
sioninindividualcountriesandfortheintensificationofsurveillancebytheIMF.
thestafffromvisitingindividualcountriesoften
enoughtodetectemergingeconomicproblems
orweaknessesinthefinancialsector.
Second, the Fund’s Executive Board cannot
review the staff reports with adequate knowl-
edge of the country under consideration—
knowledgesufficienttojudgethequalityofthe
staff report. For this reason, the attendance
at Board meetings devoted to the discussion
of the staff reportshasbeenabysmally low.A
recentreviewofIMFSurveillancebytheFund’s
Independent Evaluation Office notes that, on
average,onlynineofthe24ExecutiveDirectors
or theirAlternatesattendBoarddiscussionsof
individualsurveillancereports;therestarerep-
resentedbymembersoftheExecutiveDirector’s
staff.Thiscontrastswithanaverageattendance
of15DirectorsorAlternatesatmeetingsdevot-
edtobroadpolicyissues.
Third,theFund’sbilateralsurveillance,ascon-
ductedthroughtheFinancialSectorAssessment
Program (FSAP) process, has focused on the
architecturalstructureofsupervisionandover-
sight and not on current developments in the
financialmarkets thatmayposemajorsystem-
ic risks and threaten economic stability in the
future.Thisweaknessmustbeaddressed.
While the FSAP process should continue,
regular surveillance reports shoulddevote less
attentiontothestructureofsupervisionanda
review of past problems and policies. Instead,
theyshouldfocussharplyoncurrentandpro-
spectiveproblemsandon thepolicies adopted
orproposedtodealwiththem,includingfinan-
cialsectorissues.Thesemattersshouldreceive
closeattentionbytheFund’scommitteecharged
Put simply, it is not enough for effective sur-
veillance by the Fund to identify potential
risks,asithasdoneinsomecases,eitherinits
Global Financial Stability ReportsoritsWorld
Economic Outlook, its two flagship publica-
tions.TheFundmustbeabletomovefromsur-
veillancetoactionwhenevereconomicorfinan-
cialstabilityaredeemedtobeatrisk.
TheauthorsbelievethatmoresupportofFund
managementbyitsmembershipisrequired,both
toexertpeerpressurewheneveracountry’spoli-
ciesbegintofollowariskypath,andtofosterthe
conduct of national economic policies with
greaterawarenessoftheneedforinternational
cooperation. If these conditionsweremet,use
ofexistingsupplementaryproceduresthatopen
thedoor for informal and confidentialdiscus-
sions,orevenforadhocArticleIVConsultations,
wouldbecomemorefeasible.
In the past, IMF staff teams have visited
each member country periodically and issued
adetailedreporttobeexaminedbytheFund’s
Executive Board. This process is perhaps suf-
ficient to identifyweaknesses in theconductof
nationaleconomicpolicies,includingthoseper-
tainingtothesupervisionofthefinancialsector.
AtarecentG30meeting,onememberfamiliar
withhiscountry’ssurveillancereportsaidthatit
was“undoubtedlythebestexternalreportweget
onoureconomy.”Yetthequalityofthereports,
bythemselves,doesnottellthewholestory.
There are three serious weaknesses in the
surveillance process that must be addressed.
First,thehugemembershipoftheFundprevents
withreviewingsurveillancereportsandbythe
management.
A thorough and timely form of oversight is
required for systemically important countries,
including,mostimportantly,surveillanceoftheir
financialsectors,andtheirinstitutionalarrange-
ments for theconductoffinancial supervision.
Tothisend,theFund’sManagingDirectorpro-
posed a streamlined approach to country sur-
veillance,andtheproposalwasadoptedbythe
ExecutiveBoard.TheFundnolongerundertakes
annualsurveillanceofmanymembercountries,
especially small, stablecountries; ithasmoved
insteadtobiennialsurveillanceoverthosecoun-
tries’ economies and policies. Furthermore, it
hasreducedthecoverageofsurveillancetofocus
onmattersofcentralconcern to theFundand
pays closer attention to financial and balance-
sheetvulnerabilities,whichhaveplayedamajor
roleinmostemerging-marketcrises,andinthe
current global crisis, which originated in the
UnitedStates,anadvancedindustrialcountry.
Most important, the Managing Director
has proposed that more emphasis be given to
theoriginalaimofsurveillance—assessingthe
consistency of a country’s exchange rate and
macroeconomic policies with national and
international stability. We would add that the
Fund should pay closer attention to the con-
sistency between its members’ exchange rate
regimesandtheirobservableexchangeratepoli-
cies.UnderArticleIVoftheFund’sArticlesof
Agreement,eachmembercountryhastheright
tochooseitsownexchangerateregime,butthe
Fund is required to exercise firm surveillance
overitsmembers’exchangeratepolicies.Thisis
thelegalbasisfortheFund’ssurveillanceofits
membercountries.17
At this juncture,moreover,whenmanygov-
ernments are running very large fiscal deficits
andincurringhugeamountsofdebt, including,
insomecases,foreigncurrencydebt,theFund’s
surveillance of those members must assess the
sustainabilityoftheirfiscalsituationsand,where
appropriate, theirmedium-termplans tomain-
tain or restore debt sustainability. The Fund
should provide reassurance where appropriate
butofferfrankexpressionsofconcernwhenever
a country’s fiscal situation raises doubts about
debt sustainability. If Fund surveillance is not
forwardlooking,itisoflittleusetothegovern-
mentofthecountryinvolvedortotheFunditself.
Inadditiontoexercisingregularsurveillanceof
itsmembers’economiesandeconomicpolicies,
theFund,togetherwiththeWorldBank,admin-
istersanFSAP,inwhichFundandBankstaffs,
joinedbyoutsideexperts,undertakeacompre-
hensivereviewofamembercountry’sfinancial
system.Theresultsareconveyedtothecountry’s
government, along with a report on the coun-
try’sobservanceoftherelevantfinancial-sector
standardsandcodes(ReportontheObservance
ofStandardsandCodes,ROSC),andaFinancial
Sector Stability Assessment (FSSA), in which
Fundstaffaddressissuesofparticularrelevance
to IMF surveillance, including risks to macro-
economic stability stemming from a member’s
financial sector, and the sector’s capacity to
absorbmacroeconomicshocks.
We underscore the general usefulness of
theFSAPprogram,theROSCreview,andthe
.....................................
17Theactualexchangeratepoliciesofsomemembers,includingsystemicallyimportantcountries,candiffersubstantiallyfromthoseonewouldassociatewiththeirdeclaredexchangerateregimes.TheManagingDirectorandstaffmustbepreparedtoaddresscasesinwhichacountry’sstatedexchangerateregimedifferssubstantiallyfromitsactualpractice.TheFund’sstaffanditsmembercountriesshouldbewillingtodiscussthesemattersfranklyandaddresstheproblemstheyraiseratherthanengageincircuitousdebatesthatavoidthefundamentalissues.
R e fo Rm o f t h e
FSSAs,butwealsorecognizecertainareasfor
improvement. Given the tumultuous events
that have gripped national and international
financialmarketsduringthe last twoyears, it
has become clear that the FSAP, ROSC, and
FSSAreviewsmustendeavortoidentifyweak-
nesses in the oversight of national financial
sectors, and the Fund should strengthen the
reviews, and member countries should pay
closeattentiontotheirconclusionsandacton
theirrecommendations.
More than half of the Fund’s members
have participated in the FSAP program. We
note with concern, however, that as of the
end of August 2009, a number of significant
G-20 countries have yet to complete an FSAP
(including Argentina, China, Indonesia, and
the United States). The failure of countries to
participatefullyintheFSAPprocessisperhaps
symptomaticofatendencybymajorstakehold-
erstoavoidFundsurveillance.Inthecaseofthe
United States’ historic refusal to submit to an
FSAP,observerslongsuspectedthatthiswasin
partbecausetheyknewwhattheFSAPreport
wouldsay:thattheAmericansystemoffinan-
cial supervision was not coherent and had to
befixed.Forinstance,thereareatleast54dif-
ferent supervisorsofbanks,50of themat the
state level, fourat the federal level.Eachstate
hasitsowninsuranceregulatorandthereisno
national regulator. The supervisory overlaps,
gaps, and failings have been recognized for
sometimeandareaddresseddirectlybyaG30
report.18Wethereforewelcomethedecisionto
participate in theFSAPprogramand theU.S.
government’splantoreformtheU.S.systemof
prudentialsupervision.
We note that many financial sector assess-
mentsweremadeseveralyearsago.Sincethere
mayhavebeensignificantchangesinthefinan-
cial sectors of the countries concerned, in the
waytheyaresupervised,andintheregulatory
frameworks, those countries should be the
objectofnewassessments.TheFundisurgedto
conductnewFSAPsandFSSAswherenecessary
andappropriate.
Theauthorsbelievethatthebilateralsurveil-
lanceundertakenasArticleIVreviewsandvia
the FSAP are essential tools, but they are not
sufficient to get the surveillance job done. As
we have noted, FSAPs address structural and
institutionalmattersandtakeplaceveryinfre-
quently.TheArticleIVmissionsareingeneral
morefocusedonvulnerabilitiesand,therefore,
onwhatmaygowrong,butthesemissionstake
place at most once a year. When appropriate,
thetwoprocessesoffinancialsystemreviewand
analysisshouldbelinked.IfanFSAPidentifies
weaknessesintheapplicationormaintenanceof
internationalstandardsandcodes,theseshould
betackledinasubsequentArticleIVreviewand
addressedviacorrectiveactionsundertakenby
themembercountry’sauthorities.
Tobemoreeffective,theFundmustequipitself
toconductassessmentstodetectvulnerabilities
and the build-up of risk on a near-continuous
basis, in the financial sector or elsewhere. At
thisjuncturenooneknowsjustwherethenext
crisiswilldeveloporwhatmighttriggerit.We
cannotjudgewhetherthecrisiswillemergefrom
the core of the financial system, from a fiscal
or debt crisis, from an old-fashioned balance-
of-payments and inflation crisis, or from some
othersource.
The authors are clear that the Fund must
be constantly vigilant in performing this sur-
veillance role. Part of the Fund’s real ana-
lytical value shouldbemeasuredby its ability
.....................................
18SeeThe Structure of Financial Supervision: Approaches and Challenges in a Global Marketplace,GroupofThirty,2008.
to identify future systemic risks in financial
markets, nationally, regionally, and globally.
Havingshedlightontherisks,theFundought
tobesupportedinthecrucialtaskofwarning
membercountriesofthedangersaheadandin
theequallyimportantbutverydifficulttaskof
pressingmemberstopayattentiontothemes-
sageandactontheconsideredadviceofferedin
goodfaith.
Whateverthecasemaybeforeachindividual
membercountryorgroupofcountries,theFund
mustenhanceitscapabilityanddowhateverit
takes togetaheadof thecurveona real-time
basis, includingretainingadditional staffwith
thedesiredmixofskillsandabilitiesspecificto
thecomplextaskofreal-timeanalysesofemerg-
ingrisks.
Tothatend,theauthorsbelieveitisimpor-
tantfortheFundtostrengthenthecapacityofits
stafftoaddressaspectsofsurveillancerelatedto
thefunctioningofcomplexandrapidlyevolving
financialmarketsandinstruments.Suchworkis
insomedegreeseparatefromandcomplementa-
rytoothersurveillancerolesandmayrequirea
focusedriskassessmentprocess,usingdifferent
methodsandapproachesandnecessitating the
developmentofafinancialintelligencenetwork
thatcandealwithrapidlychanginginformation
onacontinuousbasis.Toofewmembersofits
staffmaybethoroughlycompetenttomonitor
the functioningof countries’ financial systems
or their institutional arrangements for finan-
cial supervision. Many of the Fund’s staff are
macroeconomistswhosetrainingmaynotfully
equip them to assess the quality of financial
supervision in member countries. Those who
havetherequiredskills,moreover,typicallyseek
employmentinthefinancialsectoritself,notin
institutions such as the Fund, concerned with
oversightof the sector.Given thecentralityof
surveillanceforthefunctioningoftheFund,the
necessaryresourcesandeffortmustbedevoted
totherecruitmentofstaffthatcanaddressany
suchlackintheFund’sinstitutionalcapacityto
continuously assess financial markets and the
systemicrisksthatmaygerminatefromwithin
majoreconomiesandfinancialmarkets.
In2006,theFundexpandeditssurveillancein-
struments and launched a new supplementary
consultationprocedureinamultilateralformat.
This so-called multilateral consultation would
bringtogetherrepresentativesofkeycountries’
governments toagreeoncommonordifferen-
tiated actions aimed at resolving a major in-
ternational economic problem. There is much
need foraprocessof this sort, exemplifiedby
the problem of global imbalances, which re-
quired—andstillrequires—mutualadjustments
intheeconomicpoliciesofthesystemicallyim-
portantcountriesdirectlyinvolved.
The first round of these new consultations,
however, disappointed those who held high
hopes for theprocess.After the IMF’s recom-
mendationsdescribedonpage19ofthisreport
were made, each participating country listed
thepolicychanges itwaspreparedtomake in
ordertoreduceglobalimbalances,butmostof
those changes reflecteddecisions the countries
hadalreadytakenunilaterallyorwerecommit-
ted to take, rather than new commitments to
oneanother.Thusweagainseethetendencyof
membercountriestoavoidfrankexchangesand
instead toprovide formulaicanswers topress-
ingissuesrequiringnewpolicymeasures.
This experience suggests that multilateral
consultationisunlikelytobeproductiveunless
theFundtakestheinitiative.TheFundshould
propose specific policy recommendations to
R e fo Rm o f t h e
each participating country in advance of the
actual consultations.Thiswouldcompel them
tofocusonapackageofmutuallyconsistentpol-
icyadjustmentsthattheymightbereluctantto
proposeontheirown.Furthermore,theFund’s
subsequentreportontheconsultations,includ-
ing the participants’ responses to the Fund’s
proposals,shouldbediscussedbytheExecutive
Board and the International Monetary and
FinancialCommittee (IMFC),andasummary
shouldbepublishedthereafter.19
Itmustbenoted,moreover,thattheproblem
ofglobalimbalanceshasnotyetbeenresolved
and is apt to reemerge as the world economy
recoversfromthecurrenteconomiccrisis.There
willthenbeneedforanewroundofmultilat-
eral consultation involving the United States,
China, and other major countries. That new
round of consultations should be conducted
inthemannerdescribedabove,withtheFund
making explicit recommendations to the
participating governments. The particular
recommendations, whether they concern, for
example,theappreciationoftherenminbi20or
areductionintheU.S.fiscaldeficitaseconomic
recoverytakeshold,areamatterfortheFund.
The authors are clear that to be credible and
commandmorerespectandlegitimacy,themul-
tilateralsurveillancerecommendationsmustbe
direct and focused squarely on the matters of
greatestconcern.
Finally, we take this opportunity to praise
theworkoftheFund’sstaffandthepublications
forwhichitisresponsible,especiallytheGlobal
Financial Stability Reportandthesemiannual
World Economic Outlook, which are surely
among thebest sources forauthoritative com-
mentaryonthestateoftheworldeconomy.
.....................................
19Ifanotherrecommendationmadeaboveisadopted(activationoftheCouncilforwhichprovisionismadeintheFund’sArticlesofAgree-ment),theFund’sreportoneachmultilateralconsultationshouldbetransmittedtotheCouncil,sincetheIMFCwouldhaveceasedtoexist.
20TheissueofthevalueoftherenminbiisalreadybeingaddressedbilaterallyviatheU.S.-ChinaDialogue,butthisdialoguedoesnotprecludetheFundtakingarobuststanceonthematter.
35
R e fo Rm o f t h e
TheFundmustcoordinateandcollaboratewithotherinstitutionsengagedinmat-
tersoffinancialsupervisioninacloseandproductivemanner.Manyobservershave
stressedtheneedfortheFundtoworkcloselywithotherdiverseforumsandinstitu-
tions,includingtheG-20,theWorldBank,theBankforInternationalSettlements,
national governments, and central banks. We strongly encourage linkages that
enhanceinformationflowandcollectiveendeavors.Wenotethedistinctionbetween
fora (suchas theFSB),whichmeetperiodicallyanddrawgenerallyuponnational
authoritiesandoutsideresourcesintheirwork,andthoseinternationalinstitutions
(suchastheFund),withadistinctseparatemandate,legalpersonality,andpermanent
resourcebase.Webelievethatthereisaneedforacarefulbalanceintherespective
rolesofthetwotypesoforganizationsaseachhasrelativestrengthsandweaknesses.
collaboration and coordination are effective
and,insofarasworkable,inclusive.
Theauthorsof this reportbelieve theFund
must ensure a particularly close collaboration
betweenitselfandtheFinancialStabilityBoard
(FSB),aprocessthatwasbegununderitsprevi-
ousname,theFinancialStabilityForum(FSF).21
OnApril2,2009,theG-20leadersDeclaration
replacedtheFSFwiththeFSB,which,inaddi-
tiontoanexpandedmembership,wasprovided
withamuchbroadermandate.22
WewelcometheG-20’sdecisiontoenhance
theroleoftheFSB.Itistaskedtoperformakey
functionasregardstherebuildingandredesign
Going forward, the Fund must equip itself
toconductglobalfinancialsurveillanceaimed
atdetectingunsustainabledevelopmentsinthe
financialmarketsofmajoreconomiesandissu-
ing confidential warnings to financial super-
visors in those countries. Within the G-20
framework,aslaidoutintheApril2009work
program,itishopedthatforthrightearlywarn-
ings by the Fund may help to raise concern
among supervisors regarding financial devel-
opments, especially in systemically important
member countries, such as the United States
andChina.This canonlybeachieved ifpoli-
cymakers ensure that the mechanisms for
.....................................
21JointletterfromtheManagingDirectoroftheIMFandtheChairmanoftheFSBtoFinanceMinistersandCentralBankGovernormembersoftheG-20,November13,2008.ThelettersetsouttheproposeddivisionoflaborandtherolesandresponsibilitiesbetweentheFSFandtheIMF.However,thedivisionofresponsibilitiesinthejointletterisdifferentfromthatsuggestedbytheG-20DeclarationofApril2,2009(seefootnote22).TheG-20givesthemajorroleinfinancialsectorsurveillancetotheFSB,whilethejointletteragreesthatfinancialsectorsurveillanceshouldbeundertakenbytheFund.
22G-20,DeclarationonStrengtheningtheFinancialSystem,London,April2,2009.TheFSBmandateincludesthefollowingroles:toassessvulnerabilitiesaffectingthefinancialsystem;toidentifyandoverseeactionneededtoaddressthem;topromotecoordinationandinformationexchangeamongauthoritiesresponsibleforfinancialstability;tomonitorandadviseonmarketdevelopmentsandtheirimplicationsforregulatorypolicy;toadviseonandmonitorbestpracticeinmeetingregulatorystandards;toundertakejointstrategicreviewsofthepolicydevelopmentworkoftheinternationalStandardSettingBodiestoensuretheirworkistimely,coordinated,focusedonpriorities,andaddressinggaps;tosetguidelinesfor,andsupporttheestablishment,functioningofandparticipationin,supervisorycolleges,includingthroughongoingidentificationofthemostsystemicallyimportantcross-borderfirms;tosupportcontingencyplan-ningforcross-bordercrisismanagement,particularlywithrespecttosystemicallyimportantfirms;andtocollaboratewiththeIMFtoconductEarlyWarningExercisestoidentifyandreporttotheIMFCandtheG-20FinanceMinistersandCentralBankGovernorsonthebuild-upofmacroeconomicandfinancialrisksandtheactionsneededtoaddressthem.
oftheglobalsystemoffinancialstandardsand
therelatedmodesofcooperationamongnation-
alcentralbanks,supervisors,andministriesof
finance.TheauthorshopethatanenlargedFSB
willcontinuetoprovideaforuminwhichfrank
discussionsandexchangesofviewsarepossible.
Ultimate responsibility for financial stability
must,ofcourse,residewiththefinancialsuper-
visors of individual countries, but we expect
thattheenlargedBoardwillfacilitatecommu-
nicationinnormaltimesanddevelopthechan-
nelstospeedcommunicationintimesofcrisis.
TherolesoftheFundandFSBshouldbecom-
plementaryandenhanceeachinstitution’sabil-
itytoachieveitsrespectivemandate.23Withits
universalmembership,theFundhasacapacity
todrawsynergiesfromitsmultilateral,region-
al,andbilateralsurveillanceactivities;integrate
financial sector assessments with macroeco-
nomicstabilityanalyses;adaptitspolicyadvice
totheneedsandcircumstancesofeachcountry;
andcloselymonitorandevaluatepolicyimple-
mentation.24TheFSB, inturn,bringstogether
senior national policymakers and key interna-
tional supervisory and regulatory institutions
andcentralbanks,aswellasinternationalstan-
dardsetters,givingitauniquecapacitytogive
impetus to and facilitate coordination among
thesebodies,especiallyintheareaoffinancial
sectorregulation.
WestressthattheFund’smembercountries
and G-20 policymakers must strive to avoid
institutionaloverlapandduplicationofrespon-
sibilitieswhenundertakingtheredesignof the
architecture of international coordination and
relatedstandard-settingroles.Itisofnotethat
the IMF and FSB mandates pose overlaps of
responsibilitiesthatcouldgiverisetoproblems.
Firstare thehighcostsofoperationsnotonly
fortheinstitutionsthemselves,butalsoforthe
nationalfinancialauthoritiesthatprovidetheir
inputs to both organizations. Second, having
two institutions charged with the same func-
tionscouldleadtodifferentdiagnoses(andpos-
siblypolicyrecommendations),withtheassoci-
atedproblemofmakingithardertoconvergeto
commonproposals.
Theserisksimplytheneedforacleardelinea-
tionofworkbetweentheFundandtheFSBgiv-
entheneedfortheeffectiveimplementationof
financialsurveillance,bothcurrentlyandinthe
future.Theauthorsofthisreportbelievethat,
inparticular,theIMFasaninternationalfinan-
cialorganizationwouldbebestplacedtomake
an objective assessment of countries’ finan-
cial vulnerabilities, through its surveillance of
financial conditions in member countries and
globally.Suchsurveillancecouldbeconducted
injointmissionswithFSBmembers(that isto
say,supervisorsofdifferenttypes),underFund
leadership.
Toensurecomityastorespectivecompeten-
ciesandresponsibilities,theauthorsofthisreport
urge the leadership of the G-20, the FSB, and
the IMF tonegotiate a detailedMemorandum
of Understanding (MoU) that would draw on
earlieragreementsbetweenthetwoinstitutions
andlayouteachinstitution’srole,theirrespec-
tive responsibilities, and the type of coordina-
tionmechanismproposedfornormaltimesand
duringcrises.Ifthisisnotdone,ambiguityover
thewaysinwhichtheFundandtheFSBcoor-
dinateandcollaboratemayweakenratherthan
strengthentheinternationalsystem......................................
23InEurope,thecallforeffectivecoordinationbetweentheIMFandtheFSF/FSBandtheneedforthecarefuldivisionofresponsibilitiesasregardssurveillanceandthemonitoringofsystemicriskhasbeenledbytheHighLevelGrouponFinancialSupervisionintheEU,chairedbyJacquesdeLarosière.See“ChapterIV:OnGlobalRepair,”pages59–68,at:http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf.
24IMF,TheFund’sResponsetothe2007–08FinancialCrisis—StocktakingandCollaborationwiththeFinancialStabilityForum,Sep-tember15,2008.
39
R e fo Rm o f t h e
Therevisionshouldenhancetheinfluenceof
emerginganddevelopingcountries.
In the future, amechanismof automatic
quota adjustments every four years should
be introduced, so that any changes in the
globaleconomyarereflectedrapidlyinquota
shares. Similarly, the quota formula should
bereviewedand ifnecessaryadjustedevery
eightyears.
Further,nosinglecountryshouldretaina
vetooverFunddecisions.
and
replace the International Monetary and
FinancialCommittee(IMFC).
TheCouncilmustbeempoweredtotake
strategicpolicydecisionsandtotakethenec-
essarystepstofosterpolicycoordination.
TheCouncilmustalsobe empowered to
foster and monitor the implementation of
Fund recommendations aimed at maintain-
ingeconomicandfinancialstability.
TheCouncil should exerciseoversightof
theFund’sExecutiveBoardandManagement.
The Council should initiate multilateral
consultations aimed at reaching agreement
amongtheparticipatinggovernmentsonpol-
icyresponsestomajoreconomicproblems.
In the future, the Board should focus
moreonstrategicmattersand leaveday-to-
day operational matters to the Managing
Directorandstaff.
The respective responsibilities of the
ExecutiveBoardandManagementshouldbe
reviewedwiththeaimoflimitingtheBoard’s
involvementinroutinematters,reducingthe
frequencyofBoardmeetings,andimproving
attendanceatthosemeetings.
Inparticu-
lar, none of these positions should be allo-
catedonthebasisofnationality.
Recent commitments
include the creation of the Flexible Credit
Line,thesignificantenhancementstopoten-
tial financing through the issue of Special
DrawingRights(SDRs),theexpansionofthe
New Arrangements to Borrow (NAB), and
the development of Fund borrowing agree-
mentswithindividualmembercountries.
Therefore, it
isessentialthatFundquotasincreasesignifi-
cantlyinthe14thquotareview.
Initsregularsurveillanceofitsmembers,
the Fund should give close attention to the
sustainabilityoftheirfiscalpoliciesandrisks
to economic and financial stability arising
fromthem.TheFundmustgivecandidadvice
toamembercountrywhenitdetectsserious
riskstoeconomicandfinancialstability.
Governmentsshouldbeobligedtorespond
promptly to those recommendations. Their
responses and any failure to act should be
considered by the Executive Board when it
reviewstheirsurveillancereports.
The Fund should monitor
theirprogressincomplyingwiththerecom-
mendations made in the FSAP, and related
ROSCandFSSAreports,notingtheprogress
madeintheirimplementationbutidentifying
remainingweaknesses.
The FSAP report should be made public
soon after its completion. Members whose
FSAP reports were completed several years
agoshouldinvitenewreviewoftheirfinan-
cial systems.Lackofadherence toaccepted
international financial standards should be
identified and subsequent recommendations
includedinArticleIVreports.
Thenext
crisismaytakeplaceinthecoreofthefinan-
cialsystem,butitcouldjustaswellbeafis-
calordebt crisis,orabalance-of-payments
andinflationcrisis.Whateverthecause,the
Fundmustenhanceitsabilitytodowhatever
ittakestogetaheadofthecurveonareal-
timebasis.
TheManagingDirector,advisedby
hisorherstaff,shouldbeauthorizedtoissue
suchwarningswhendeemednecessary.The
Fund must be able to act as a trusted con-
fidential adviser. However, in the interests
oftransparency,theFundmustbalancethis
rolewiththeneedtoultimatelymakeitsrec-
ommendationspublic.
Todealwithits increasedresponsibilities
relating to surveillance and the identifica-
tion of systemic risks to the global econo-
my,theFundshouldrecruitadditionalstaff
withexpertiseinthefunctioningofcomplex
financialmarketsandproducts.
R e fo Rm o f t h e
The MoU should delineate respective
responsibilitiesandrolesasregardsfinancial
stability, monitoring the global economy,
and early warning of future systemic risks.
Careshouldbetakentoavoidduplicationof
tasks or responsibilities, and to ensure that
thesurveillanceoffinancialrisksinmember
countriesandglobally ispartof theFund’s
surveillanceresponsibilities.
Jointmissionsof theFundandmembers
of theFSBcouldwellbeveryuseful in this
context.
43
R e fo Rm o f t h e
Policymakersthroughouttheworldhaverecognizedtheneedtostrengtheninter-
nationalcoordinationandthepolicyresponsesandmechanismsdesignedtounder-
pinfinancialstability.TheextensiveG-20workprogramadoptedinApril2009
makesthedegreeofconsensusabundantlyclear.Governmentshaveunderscored
the key role thatmust be playedby the InternationalMonetaryFund (IMF) in
resolvingfinancialcrisesandhelpingtoensurethemaintenanceofamoredurable
degreeoffinancialstabilityinthefuture.Toachievethatgoal,theIMFrequires
robustreform,especiallywithregardtothelevelofpoliticalleadership,itssystem
ofgovernance,andtheconductofbilateralandmultilateralsurveillance.
TheneedforgovernancereformsintheFund
iswellestablished.Thegovernancereformswe
identifymustbeundertaken to strengthen the
legitimacy of the institution and to ensure it
better reflects evolving political and economic
realities.ActiontoactivatetheCouncil,adjust
quotas, change the makeup of the Executive
Board,andstrengthentheFund’sresourcebase
allrequiretheleadershipoftheG-20andother
member countries to desist from a defense of
entrenched positions and a recognition of the
benefitstoallthatwouldaccruefromareinvig-
oratedFundwithenhancedpoliticalandinsti-
tutionalcredibility.
Theauthorsarealsoclear in thebelief that
theFundmustcontinuetoplayacentralrolein
asystemofenhancedbilateralandmultilateral
surveillance of member countries’ policies and
actionsthatisdesignedtoidentifytrends,risks,
weaknesses,andstrainsinthenationalandglob-
alfinancialsystem.TheFundmustbesupported
bymembercountries in these surveillanceand
earlywarning tasks.When required, countries
shouldbepressedbytheCouncilandleadership
Themembers of theG30’sWorkingGroup
onIMFreformareconvincedthatthereforms
recommendedareessentialtoaddresstheprob-
lems revealed by the recent global financial
crisis,theeffectsofwhichcontinuetoreverber-
ate, damaging thefinancial systemandglobal
economicperformance.Weregardthereforms
to be a necessary part of the global policy
response. However, we are concerned by the
factthatprogressinthedifferentareasofFund
reformisuneven.Inthisregard,weweredisap-
pointed to see that the Communiqué of G-20
FinanceMinistersandCentralBankGovernors
ofSeptember4–5,2009,doesnotexplicitlyrefer
to the need for a substantial quota increase.
Furthermore,verylittleprogresshasbeenmade
on the issueof governance reformat the IMF
and, despite G-20 leaders’ recognition of the
needforanopen,transparent,andmerit-based
processfortheselectionofFund’smanagement,
weare stillwaiting for theconcrete rules that
will guide thisprocess.The taskof reforming
theFundisnoteasy,itwillnotbesimple,and
therearemanybarrierstoreform,butthework
mustbedone.
oftheFundtotakeremedialmeasurestocorrect
problemsthathavebeenidentified.
Finally, the Fund must coordinate closely
andeffectivelywithotherinternationalinstitu-
tions,inparticularwiththeFinancialStability
Board. This key relationship must be formal-
izedandclarifiedthroughthenegotiationofa
Memorandum of Understanding. Roles must
beclearandrespectiveresponsibilitiesmustbe
appropriatetoeachactor’scapabilitiesandhis-
toricstrengths.
TheGroupofThirty’srecommendationsfor
reform of the IMF are being conveyed to the
membersoftheFund,theleadershipoftheG-20,
andotherinterestedparties.Wecalluponthem
toimplementtherecommendationsasamatter
ofurgencyandurgethattherecommendations
be considered by the Fund’s membership and
underpinarenewedcommitmenttoact.Wecall
onmembersof theFund to adopt a timetable
fortheimplementationofthenecessaryreforms
atits2010springmeetinginWashington,D.C.
A final word: the Fund is not an organiza-
tionseparatefromitsmembers.Ifthemembers,
especially the leading countries in the global
economy, are not willing to take the Fund’s
surveillance seriously, no amount of improve-
mentinthequalityofsurveillancewillmakea
majordifferencetothefunctioningoftheglobal
economy.ItisuptothemembershipoftheFund
to ensure that the Fund can play the role in
theglobaleconomythatithasrepeatedlybeen
asked toplay—arole that this report strongly
supports.
47
GeneralManager,BankforInternational
Settlements
FormerCounsellor,InternationalMonetary
Fund
FormerGovernor,BancodeEspaña
FormerChairman,BaselCommittee
onBankingSupervision
ChairmanandCEO,DFCAssociates,LLC
FormerMinisterofEconomy,Argentina
ManagingDirector,GoldmanSachsGroup,
Inc.
FormerPresident,FederalReserveBank
ofNewYork
DirectorandMemberoftheExecutive
Committee,GrupoSantander
FormerDeputyManagingDirector,
BancodeEspaña
FormerSecretaryofState,Ministry
ofEconomyandFinance,Spain
Governor,Bancad’Italia
Chairman,FinancialStabilityBoard
MemberoftheGoverningandGeneral
Councils,EuropeanCentralBank
FormerViceChairmanandManaging
Director,GoldmanSachsInternational
ChairmanoftheBoardofTrustees,
GroupofThirty
Chairman,PresidentBarackObama’s
EconomicRecoveryAdvisoryBoard
FormerChairman,BoardofGovernors
oftheFederalReserveSystem
ChairmanandCEO,GroupofThirty
FormerGovernor,BankofIsrael
FormerCounselor,DirectorofResearch,
InternationalMonetaryFund
ExecutiveSecretary,GroupofThirty
President,GeoffreyBell&Company,Inc.
DeputyChairman,PlanningCommission
ofIndia
FormerDirector,IndependentEvaluation
Office,InternationalMonetaryFund
Chairman,ArabFundforEconomic
andSocialDevelopment
FormerMinisterofFinanceandMinister
ofPlanning,Kuwait
Professor,WarsawSchoolofEconomics
ChairmanoftheBoard,Bruegel
FormerPresident,NationalBankofPoland
FormerDeputyPrimeMinisterandMinister
ofFinance,Poland
*MembersasofAugust31,2009.
R e fo Rm o f t h e
ProfessorofEconomics,HarvardUniversity
PresidentEmeritus,NationalBureauof
EconomicResearch
FormerChairman,CouncilofEconomic
Advisers
PresidentandCEO,TIAA-CREF
FormerChairman,SwissReAmericaHolding
Corporation
FormerViceChairman,BoardofGovernors
oftheFederalReserveSystem
Governor,BankofIsrael
FormerFirstManagingDirector,International
MonetaryFund
FoundingPartner,GáveaInvestimentos
ChairmanoftheBoard,BM&F-Bovespa
FormerGovernor,BancoCentraldoBrasil
MemberoftheBoardofDirectorsandSenior
Advisor,RHJInternational
FormerManagingDirectorandMemberofthe
AdvisoryBoard,Lazard&Co
FormerCounsellorandDirector,International
MonetaryFund
FormerManagingDirector,DresdnerBank
ViceChairmanoftheGoverningBoard,Swiss
NationalBank
FormerPartner,MooreCapitalManagement
Governor,BankofEngland
FormerProfessorofEconomics,London
SchoolofEconomics
ProfessorofEconomics,WoodrowWilson
School,PrincetonUniversity
FormerMember,CouncilofEconomic
Advisors
Governor,BancodeMexico
ChairmanoftheBoard,BankforInternational
Settlements
FormerSecretaryofFinanceandPublicCredit,
Mexico
Chairman,PromontoryEurope
FormerMinisterofEconomyandFinance,
Italy
FormerChairman,InternationalAccounting
StandardsCommittee
FormerMemberoftheExecutiveBoard,
EuropeanCentralBank
FormerChairman,CONSOB
ThomasD.CabotProfessorofPublicPolicy
andEconomics,HarvardUniversity
FormerChiefEconomistandDirectorof
Research,IMF
MinisterofFinance,Singapore
FormerManagingDirector,Monetary
AuthorityofSingapore
Director,NationalEconomicCouncil
FormerCharlesW.EliotUniversityProfessor,
HarvardUniversity
FormerPresident,HarvardUniversity
FormerU.S.SecretaryoftheTreasury
President,EuropeanCentralBank
FormerGovernor,BanquedeFrance
SeniorAdvisor,MorganStanley
International,Inc.
FormerChairman,MorganStanley
International,Inc.
FormerChairman,Securitiesand
InvestmentsBoard,UK
Governor,People’sBankofChina
FormerPresident,ChinaConstructionBank
FormerAssistantMinisterofForeignTrade
FormerDeputyGovernor,BankofJapan
FormerChairman,EuroCurrencyStanding
Commission
Director,YaleCenterfortheStudy
ofGlobalization,YaleUniversity
FormerPresidentofMexico
ViceChairman,BankofAmerica/
MerrillLynch
FormerChairman,PublicCompany
AccountingOversightBoard
FormerPresident,FederalReserveBank
ofNewYork
SeniorViceChairman,CitigroupandCitibank
PartnerandSeniorAdvisor,TheRohatyn
Group
FormerManagingDirector,JPMorganChase
FormerManagingDirector,WorldBank
ProfessorofBusinessAdministration
&PublicPolicy,UniversityofMichigan
FormerMember,CouncilofEconomic
Advisors
emerItus members
HonoraryChairman,GroupofThirty
FormerGovernor,BankofEngland
AdvisoryDirector,MorganStanley
FormerPresident,MorganStanley
International
FormerCOO,FederalReserveBank
ofNewYork
FormerDirector,Institutderdeutschen
Wirtschaft
President,InstituteforInternational
MonetaryAffairs
FormerChairman,BankofTokyo
SeniorAdvisor,FinancialStabilityInstitute
FormerU.S.ComptrolleroftheCurrency
FormerChairman,DanmarksNationalbank
R e fo Rm o f t h e
WalkerProfessorofEconomics&
InternationalFinanceEmeritus,
PrincetonUniversity
FormerSeniorFellowinInternational
Economics,CouncilonForeignRelations
Conseiller,BNPParibas
FormerPresident,EuropeanBankfor
ReconstructionandDevelopment
FormerGovernor,BanquedeFrance
FormerManagingDirector,International
MonetaryFund
DeputyChairman,PacificAsiaRegion,
theTrilateralCommission
FormerDeputyGovernor,BankofJapan
FormerDeputyGovernor,JapanDevelopment
Bank
DistinguishedResearchFellowMunkCentre
forInternationalStudies,Toronto
FormerAmbassadorforTradeNegotiations,
Canada
FormerHead,OECDEconomicsandStatistics
Department
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FinancingEasternEurope
Richard A. Debs, Harvey Shapiro and Charles Taylor. 1991
TheRisksFacingtheWorldEconomy
The Risks Facing the World Economy Study Group. 1991
TheCreditCrisis:TheQuestforStabilityandReform
E. Gerald Corrigan. 2008
LessonsLearnedfromthe2008FinancialCrisis
Eugene A. Ludwig. 2008
TwoCheersforFinancialStability
Howard Davies. 2006
ImplicationsofBaselIIforEmergingMarketCountries
Stanley Fischer. 2003
IssuesinCorporateGovernance
William J. McDonough. 2003
PostCrisisAsia:TheWayForward
Lee Hsien Loong. 2001
LicensingBanks:StillNecessary?
Tommaso Padoa-Schioppa. 2000
BankingSupervisionandFinancialStability
Andrew Crockett. 1998
GlobalRiskManagement
Ulrich Cartellieri and Alan Greenspan. 1996
TheFinancialDisruptionsofthe1980s:ACentralBankerLooksBack
E. Gerald Corrigan. 1993
79.LessonsLearnedfromPreviousBankingCrises:Sweden,Japan,Spain,andMexico
Stefan Ingves, Goran Lind, Masaaki Shirakawa, Jaime Caruana, Guillermo Ortiz. 2009
78.TheG30atThirty
Peter B. Kenen. 2008
77.DistortingtheMicrotoEmbellishtheMacro:TheCaseofArgentina
Domingo Cavallo, Joaquín Cottani. 2008
76.CreditCrunch:WhereDoWeStand?
Thomas A. Russo. 2008
75.Banking,Financial,andRegulatoryReform
Liu Mingkang, Roger Ferguson, Guillermo Ortiz. 2007
74.TheAchievementsandChallengesofEuropeanUnionFinancialIntegrationandItsImplicationsfortheUnitedStates
Jacques de Larosière. 2007
73.NineCommonMisconceptionsAboutCompetitivenessandGlobalization
Guillermo de la Dehesa. 2007
72.InternationalCurrenciesandNationalMonetaryPolicies
Barry Eichengreen. 2006
71.TheInternationalRoleoftheDollarandTradeBalanceAdjustment
Linda Goldberg and Cédric Tille. 2006
70.TheCriticalMissionoftheEuropeanStabilityandGrowthPact
Jacques de Larosière. 2004
69.IsItPossibletoPreservetheEuropeanSocialModel?
Guillermo de la Dehesa. 2004
R e fo Rm o f t h e
68.ExternalTransparencyinTradePolicy
Sylvia Ostry. 2004
67.AmericanCapitalismandGlobalConvergence
Marina v. N. Whitman. 2003
66.Enronetal.:MarketForcesinDisarray
Jaime Caruana, Andrew Crockett, Douglas Flint, Trevor Harris, Tom Jones. 2002
65.VentureCapitalintheUnitedStatesandEurope
Guillermo de la Dehesa. 2002
64.ExplainingtheEurotoaWashingtonAudience
Tommaso Padoa-Schioppa. 2001
63.ExchangeRateRegimes:SomeLessonsfromPostwarEurope
Charles Wyplosz. 2000
62.DecisionMakingforEuropeanEconomicandMonetaryUnion
Erik Hoffmeyer. 2000
61.ChartingaCoursefortheMultilateralTradingSystem:TheSeattleMinisterialMeetingandBeyond
Ernest Preeg. 1999
60.ExchangeRateArrangementsfortheEmergingMarketEconomies
Felipe Larraín and Andrés Velasco. 1999
59.G3ExchangeRateRelationships:ARecapoftheRecordandaReviewofProposalsforChange
Richard Clarida. 1999
58.RealEstateBoomsandBankingBusts:AnInternationalPerspective
Richard Herring and Susan Wachter. 1999
57.TheFutureofGlobalFinancialRegulation
Sir Andrew Large. 1998
56.ReinforcingtheWTO
Sylvia Ostry. 1998
55.Japan:TheRoadtoRecovery
Akio Mikuni. 1998
54.FinancialServicesintheUruguayRoundandtheWTO
Sydney J. Key. 1997
53.ANewRegimeforForeignDirectInvestment
Sylvia Ostry. 1997
52.DerivativesandMonetaryPolicy
Gerd Hausler. 1996
51.TheReformofWholesalePaymentSystemsandImpactonFinancialMarkets
David Folkerts-Landau, Peter Garber, and Dirk Schoenmaker. 1996
50.EMUProspects
Guillermo de la Dehesa and Peter B. Kenen. 1995
49.NewDimensionsofMarketAccess
Sylvia Ostry. 1995
48.ThirtyYearsinCentralBanking
Erik Hoffmeyer. 1994
47.Capital,AssetRiskandBankFailure
Linda M. Hooks. 1994
46.InSearchofaLevelPlayingField:TheImplementationoftheBasleCapitalAccordinJapanandtheUnitedStates
Hal S. Scott and Shinsaku Iwahara. 1994
45.TheImpactofTradeonOECDLaborMarkets
Robert Z. Lawrence. 1994
44.GlobalDerivatives:PublicSectorResponses
James A. Leach, William J. McDonough, David W. Mullins, Brian Quinn. 1993
43.TheTenCommandmentsofSystemicReform
Vaclav Klaus. 1993
42.Tripolarism:RegionalandGlobalEconomicCooperation
Tommaso Padoa-Schioppa. 1993
41.TheThreatofManagedTradetoTransformingEconomies
Sylvia Ostry. 1993
40.TheNewTradeAgenda
Geza Feketekuty. 1992
39.EMUandtheRegions
Guillermo de la Dehesa and Paul Krugman. 1992
38.WhyNow?ChangeandTurmoilinU.S.Banking
Lawrence J. White. 1992
37.AreForeign-ownedSubsidiariesGoodfortheUnitedStates?
Raymond Vernon. 1992
36.TheEconomicTransformationofEastGermany:SomePreliminaryLessons
Gerhard Fels and Claus Schnabel. 1991
35.InternationalTradeinBankingServices:AConceptualFramework
Sydney J. Key and Hal S. Scott. 1991
34.PrivatizationinEasternandCentralEurope
Guillermo de la Dehesa. 1991
33.ForeignDirectInvestment:TheNeglectedTwinofTrade
DeAnne Julius. 1991
32.InterdependenceofCapitalMarketsandPolicyImplications
Stephen H. Axilrod. 1990
31.TwoViewsofGermanReunification
Hans Tietmeyer and Wilfried Guth. 1990
R e fo Rm o f t h e
30.EuropeintheNineties:ProblemsandAspirations
Wilfried Guth. 1990
29.ImplicationsofIncreasingCorporateIndebtednessforMonetaryPolicy
Benjamin M. Friedman. 1990
28.FinancialandMonetaryIntegrationinEurope:1990,1992andBeyond
Tommaso Padoa-Schioppa. 1990
30Group of Thirty1726 M Street, N.W., Suite 200Washington, DC 20036ISBN: I-56708-148-7