Information about Asia and the Pacific Asia y el Pacífico

The Framework for Policymaking in the Fund

International Monetary Fund
Published Date:
May 1999
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Information about Asia and the Pacific Asia y el Pacífico
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Leo Van Houtven

At the Bretton Woods Conference in 1944, the framework for policymaking in the International Monetary Fund was the subject of considerable debate, which reflected the importance both of the tasks that would be assigned to the new institution and of the obligations that its members would undertake. The debate also reflected substantial differences among the conference participants regarding the manner in which they believed the Fund could most effectively function. While the founding fathers could hardly have anticipated the vast changes that would take place in the international political and economic environment and in the international monetary system itself, they succeeded in creating a framework for policymaking that, nearly 40 years later, continues to serve the institution well.

With the creation of the Fund, the members of the international community took the novel and deliberate decision to introduce collective control over the international monetary system. They established for the purpose a code of conduct on international monetary affairs and endowed the institution with a wide-ranging combination of financial, supervisory, and regulatory powers. Fixed exchange rates were the linchpin of the system; they were buttressed by the undertaking of the United States freely to buy and sell gold at the established fixed price. Members subscribed to the code of conduct in the conviction that doing so was the surest way to establish a multilateral system of payments free of exchange restrictions, to facilitate the growth of world trade, and to promote high levels of economic activity and employment.

In the Fund’s first 25 years, extraordinary progress was made toward the attainment of these objectives. Sustained economic expansion with relative price stability in most of the 1950s and 1960s led to a kind of economic euphoria in which the prospect of rapid further increases in prosperity was taken for granted and the vicissitudes of the trade cycle appeared to have been brought under control. Members actively collaborated in the Fund with an emphasis on the maintenance of par values, on prompt adjustment of imbalances with Fund assistance, and on the abolition of remaining exchange restrictions.

In the late 1960s, however, the working of the gold exchange standard and the par value system showed signs of stress. In mid-1971, the United States suspended dollar convertibility, and, by early 1973, the par value regime was abandoned. International control over the creation of global liquidity became difficult to maintain, despite the establishment of the special drawing right (SDR) as a new international reserve asset. And, as Fund members became free to choose their own exchange rate regime, new ways had to be found to stabilize the system. Eventually, under the Second Amendment of the Articles of Agreement, effective in 1978, the Fund was given wide-ranging responsibilities of surveillance over members’ exchange rate policies. The full and effective exercise of these responsibilities is proving to be a daunting task, and the quest of the founding fathers at Bretton Woods for a stable exchange system thus remains a basic, albeit somewhat elusive, objective of the Fund.

While much of the Fund’s attention in the 1970s was devoted to reform of the international monetary system, the issues relating to reform were increasingly overshadowed by developments in the world economy—high and persistent inflation, slow growth and rising unemployment, and renewed pressure for protectionism—that have served as a sharp reminder that the permanence of a liberal international trade and payments regime cannot be taken for granted. Moreover, the need for balance of payments financing grew dramatically after the emergence of massive disequilibria following the rise in oil prices in 1973–74 and again in 1979-80.

The Fund owes its positive record in meeting these challenges to (1) a continuing belief by members that, in an increasingly interdependent world, the Fund is an appropriate and effective forum for reaching decisions on international monetary matters, and (2) a flexible structure and a policymaking process that have enabled the institution to adjust its priorities and activities to a rapidly evolving world economic and monetary environment.

The Structure of the Fund

The Fund consists of the Board of Governors, the Executive Board, the Managing Director, and the staff; it includes, as well, the Interim Committee of the Board of Governors on the International Monetary System, which was created in 1974.1

The Board of Governors

The highest-ranking body of the Fund is the Board of Governors, made up of one Governor—usually the minister of finance or central bank governor—and one Alternate from each member country. At the end of 1982, the institution had 146 members, nearly five times the original number in 1945. More than one half of the present members of the Fund were not yet independent nations at the time the Fund was established. Only the U.S.S.R. and a few other independent nations are at present not included in its membership.

The Board of Governors of the Fund customarily meets once a year, usually in late September—early October. Held jointly with the Annual Meeting of the Board of Governors of the World Bank under the chairmanship of a different Governor each year, this Annual Meeting lasts for approximately four days, during which Governors address agenda items in prepared statements that are delivered in open sessions. The meetings are most often convened in the United States in Washington, D.C., the seat of both the Fund and Bank, but it is the custom to change the site every third year when other member countries offer to host the gathering. The choice of site has become increasingly dependent on the host country’s ability to house and service the more than 9,000 people attending the meetings in recent years; but efforts are made to ensure geographical variety, which allows Governors and their delegations an opportunity to improve their understanding of the countries and cultures of their colleagues.

Each member of the Fund is assigned a quota, expressed in SDRs, that broadly reflects its economic size in relation to the total membership of the Fund. The member pays to the Fund a subscription equal to its quota, and, taken together, these subscriptions constitute the primary source of financing of the institution. Quotas determine members’ access to the Fund’s resources, their share in any allocation of SDRs, and their voting power.

Decision making in the Board of Governors is based on the principle of weighted voting power in relation to quotas.2 Each member has one vote per SDR 100,000 of its quota; in addition, each member is allotted 250 basic votes. The system of basic votes was devised to raise the share in decision making of the smaller member countries; however, successive general increases in Fund quotas have sharply reduced the share of basic votes. Unless the Articles of Agreement specify a special majority, all decisions of the Board of Governors are taken on the basis of a simple majority of the votes cast. Whatever the required majority, however, the total must include replies from a majority of Governors exercising at least two thirds of the total voting power in the Fund, which is required for a quorum of the Board of Governors.

In the early years of the institution, the Board of Governors was a relatively compact group and was very active in decision making and policy discussions. Because of the dramatic growth in membership and the formal and public character of the meetings, however, it has become increasingly difficult for the Board of Governors to engage in detailed discussion or negotiation of the matters on its agenda. This is left largely to smaller groups meeting in closed session, in particular, the Interim Committee and the Executive Board.

The Executive Board

Consisting at present of 22 Executive Directors meeting under the chairmanship of the Managing Director, the Executive Board is the central organ of the Fund and is responsible for conducting the business of the institution on a daily basis. The five members with the largest quotas—since 1970, the United States, the United Kingdom, the Federal Republic of Germany, France, and Japan—are each entitled to appoint an Executive Director to serve on the Board, as are the two members whose currencies have been most used in Fund financial transactions in the two-year period preceding the regular election of Executive Directors. These two members are frequently, but not always, among the five with the largest quotas.

Member countries not entitled to appoint an Executive Director form constituencies to elect Directors to the remaining seats on the Board. This process is a political matter left to the members themselves, and, while geographical proximity of countries often facilitates the formation of constituencies, it is by no means the sole consideration. A glance at the various constituencies formed over the years shows that members with very different economic and political structures and levels of development have frequently joined forces to elect a Director to the Board.

An Executive Director who is appointed to the Board serves at the pleasure of the government that appoints him; an elected Director serves for a two-year term, although there is no limit on the number of times he may be re-elected. Each Director appoints an Alternate and selects assistants to help him deal with the tasks of the office.

The first Executive Board included 12 Directors, with 5 appointed and 7 elected by the 38 members at the Inaugural Meeting in 1946. As the membership of the institution grew, the size of the Executive Board was gradually increased to 20 in 1964, when the Fund had 93 members. This development led to rising concern about the appropriate size and structure of the Executive Board and the maintenance of a reasonable geographical balance in its composition. Because of this concern, the size of the Board was held to 20 Directors between 1964 and 1978—although the membership of the institution increased by 37 countries during that period—and major shifts in geographical composition of the Board were avoided.

The size of the Board was increased to 21 in 1978, when Saudi Arabia became entitled to appoint an Executive Director because the Saudi Arabian riyal was one of the two currencies that had been most used in Fund transactions in the preceding two years. Under the same provision, Saudi Arabia also appointed an Executive Director in 1980 and in 1982. Another seat was added to the Executive Board in 1980 when the Government of the People’s Republic of China assumed the representation of China with a quota that made it possible for China to elect an Executive Director by itself without forming a constituency with other members. At present, 7 Directors on the Executive Board are from Western Europe, 5 from Asia and Australia, 3 from Latin America, 3 from the Middle East, 2 from North America, and 2 from sub-Saharan Africa.3

The principle of weighted voting applicable to the Board of Governors also applies to the Executive Board. An elected Executive Director, however, may not split his vote, even if the members of the constituency that have elected him hold differing views on a particular issue. An elected Director may place those differing views on the record, but he may cast his vote only as a unit.

The nature of the body that would be charged with the conduct of the day-to-day operations of the Fund was an issue of some controversy at the time of the negotiation of the Agreement in 1944. Some participants, like the United Kingdom, held the view that the Executive Board should be composed of top-ranking officials—including perhaps governors with political responsibility—who would continue to function in national capitals and travel to headquarters to attend meetings of the Executive Board as and when the business of the Fund required. Others, like the United States, argued that the Executive Board should be a body of experts that would be available at headquarters to meet in continuous session. Those favoring the former approach perceived a need for political control by national capitals over Fund policies and operations; those preferring the latter approach considered that the tasks of the Board would be so wide-ranging and complex that its Directors should devote their full time to them. While it was finally agreed that the Board would be a body of experts meeting in continuous session, the question of political control of the institution by its member governments has arisen time and again and was certainly one reason behind the formation of certain groups of Fund members as well as the establishment of the Committee of Twenty and the Interim Committee, developments that are dealt with later in this paper.

The Managing Director and the staff

The Managing Director is the Chairman of the Executive Board and the head of the staff. Appointed by the Executive Board for a five-year term that can be extended or renewed, the Managing Director must, upon his appointment, resign from other positions he may be holding because, like all members of the staff, he owes his allegiance entirely to the Fund.

As head of the institution, the Managing Director often presents his views on international monetary affairs and issues of interest to the Fund. The public addresses by the Managing Director have evolved into an important channel for communicating to the international financial community the Fund’s position on current policy issues with which the institution is concerned. In addition, in private meetings, the Managing Director has an opportunity to hold frank and authoritative exchanges of view with heads of state, governors, and ministers of member countries.

As head of the staff, the Managing Director is assisted by a Deputy Managing Director and by the department heads, who at present number 15. Most departments in the Fund fall into one of three categories: area departments, which are concerned mainly with relations with member countries; functional departments, which are concerned primarily with the institution’s policies and operations; or service departments, including those which provide technical assistance to members. Over the years, a high-quality staff has been recruited from as wide a geographical basis as possible, and considerable efforts have been made to limit the overall size of the staff (approximately 1,600 at present) and to maintain a short chain of command in order to promote operational efficiency.

The Interim Committee

The Interim Committee of the Board of Governors on the International Monetary System is a forum in which issues concerning the management and adaptation of the system can be discussed on a more political level than in the Executive Board and more efficiently than in the Board of Governors. Established in 1974, the Interim Committee duplicates the structure of the Executive Board, except that its 22 members are governors, ministers, or others of comparable rank and it acts in an advisory rather than a decision-making capacity. Each member of the Interim Committee may be assisted by a number of associates, plus the relevant Executive Director.

The Interim Committee selects its chairman. Thus far, all chairmen have been selected for no fixed term from among the members of the Committee, although each has taken the initiative of resigning from the chairmanship when he ceased to be a member. The Managing Director is a participant in the meetings of the Committee. Based on the preparatory work of the Executive Board, the agenda of the Interim Committee is prepared by the Chairman in consultation with the Managing Director; reports by the Executive Board or the Managing Director usually serve as the basis for discussion of agenda items.

In recent years, the Interim Committee has met twice a year, usually once in the spring and again in the fall, immediately prior to the Annual Meeting of the Board of Governors.4 The meetings, which usually last one to one and a half days, are not open to the public; nevertheless, taking into account associates, observers, and senior staff of the Fund, total attendance at these meetings often exceeds 250. Despite the size of the meetings and the complexity or political nature of many agenda items, the Committee has not resorted to working parties or subgroups. The 22 members of the Committee, however, may meet with the Chairman and the Managing Director in restricted session—sometimes informally over lunch or dinner—in order to resolve particularly difficult issues and to prepare their guidance for the Executive Board. Still, all agenda items, including the preparation of the press communiqué, are concluded formally in regular sessions.

The Policymaking Process

The functioning of the Board of Governors

The power of the Fund flows from the Board of Governors, and that body has delegated to the Executive Board all decision-making powers except those expressly reserved for itself in the Articles of Agreement, such as the admittance of new members, changes in quotas, allocations of SDRs and certain other matters relating to SDRs, amendment of the Articles, and, if necessary, the review of decisions of the Executive Board.

Any matter, however, can be placed on the agenda of the Board of Governors at the request of a Governor, the Managing Director, or the Executive Board. When such matters require a decision, proposed resolutions are submitted for a formal vote by Governors. The resolutions are usually adopted without objection, a consensus on the issues having been reached at the level of the Interim Committee or the Executive Board. Between meetings, any matter requiring a vote by the Board of Governors is handled by mail.

In the 1960s and early 1970s, a number of major proposals on the issues of international liquidity, the working of the exchange system, and other aspects of monetary reform were put forward at the Annual Meetings. In more recent years, the Governors have focused their attention on the world economic outlook, the adjustment process, and the financing of payments imbalances. Also, a number of Governors—particularly those from the developing countries—have used the Annual Meetings to highlight the special problems of their countries and to press their call for a new international economic order.

Delegations from member countries prepare for the Annual Meetings of the Board of Governors (as well as for meetings of the Interim Committee) in a number of regional and group meetings and caucuses of constituencies. The regional meetings include those of the finance ministers and central bank governors of the European Community, the Commonwealth countries, Latin America, the French franc area, Africa, and Asia. The industrial countries coordinate their views in the Group of Ten or in smaller groups, and the developing countries prepare their position in the Group of Twenty-Four.

The joint Annual Meetings of the Fund and the World Bank are the largest periodic gathering of finance ministers, central bank governors, and other senior economic policymakers in the world. Today, they attract great interest from the press—which gives them worldwide coverage—and from the international banking and financial community, whose representatives are invited to attend the meetings. Other international organizations often take advantage of the presence of officials at the Annual Meetings to call working sessions of their own. The number of people in attendance at the meetings and the variety of financial business conducted during the week may, on occasion, even appear to detract from the deliberations of the Boards of Governors. In that respect, the Annual Meetings should be seen in a wider context than in the past: they provide a unique forum in which worldwide monetary cooperation—a fundamental goal of the Fund—can be fostered.

The functioning of the Executive Board

In dealing with the day-to-day business of the Fund, the Executive Board meets in continuous session at headquarters in Washington, D.C. The term “in continuous session” means that the members of the Executive Board must be available to meet at any time on matters of concern to the Fund. In fact, the Board holds formal meetings as and when its work requires. On average, it meets three times a week, often both morning and afternoon, with more frequent meetings in periods of intense operational activity, for example, in advance of scheduled meetings of the Board of Governors and the Interim Committee.

Under the direction of the Managing Director, the staff of the Fund prepares the documentation for the Executive Board. Although reviewed and approved by the Managing Director, papers are generally submitted to the Board as staff memoranda rather than as memoranda from the Managing Director. This practice has served to encourage a freer debate in the Executive Board and to give greater flexibility to the Managing Director in “steering” the Board toward a position that will find broad support or in formulating compromise proposals. Staff papers on substantive issues are circulated to the Executive Board three or four weeks in advance of their consideration;5 this procedure gives Directors time to study the documentation as well as an opportunity to seek comments or instructions from national capitals and to exchange views informally with other Directors, the management, and the staff.

As noted earlier, all decisions of the Fund are to be taken by a simple majority of the votes cast, unless the Articles provide for a special higher majority. An Executive Director may request a formal vote on any agenda item, but this right has seldom been exercised. Instead, since the early days of the Fund, decisions have ordinarily been adopted on the basis of the sense of the meeting as ascertained by the Chairman rather than through a formal vote. The sense of the meeting has been defined as “a position supported by Executive Directors having sufficient votes to carry the question if a vote were taken.” Thus, the Board makes a painstaking effort to find common ground, and the weight and logic of a speaker’s argument on a given issue—whatever his voting power—can be effective in swaying others to compromise. The Executive Directors are not subject to a time constraint in expressing their positions, reservations, or questions, and the Chairman normally defers ascertaining the sense of the meeting until all who wish to speak have done so, including often a second or third time in response to arguments of others. While decision making by consensus thus tends to encourage a greater number of speakers and longer and more frequent interventions, the decisions that finally result from this thorough review of the issues may well be the best possible decisions that can be taken.

The Executive Board’s effort to reach a consensus on the matters before it is clearly reflected in the minutes of Board meetings, which provide a detailed record of the policy history of the Fund and include the interventions of Directors, the Chairman, and the staff, the Chairman’s formal summing up at the conclusion of consultation discussions, discussions on important policy matters, and the texts of decisions adopted by the Board.

The Executive Board has tended to avoid extensive use of committees as an aid in the decision-making process. The feeling has always been that such an approach might lead to fractionalization of the Board, which could interfere with the taking of decisions by consensus. There are, of course, a few standing committees, which consider specific matters and submit reports and recommendations to the Executive Board; however, the meetings of these committees are open to participation by all Directors, and there is no presumption that the recommendations of the committees will necessarily be accepted by the Board.

Informal consultations among Executive Directors before agenda items are taken up in the Board have become an intrinsic part of the work methods of Directors. These consultations include, for instance, periodic meetings of Executive Directors of the European Community countries, the Group of Ten industrial countries, and the developing countries. The Managing Director and senior staff are always available for informal discussions with Executive Directors; and the Managing Director often initiates such meetings with Board members, either individuals or groups, to seek their views on confidential or particularly sensitive matters.

In any appraisal of the policymaking process in the Fund, it is crucial to recognize the Executive Board as a college of officials who devote their full time to the affairs of the institution. Free debate in the Board and continuous consultation among Board members, as well as with their authorities and with the management and staff, ensure a thorough examination of the often complex issues, thereby opening avenues toward their resolution.

While the Managing Director has no voting power in the Executive Board (except in the unlikely event of a tie), his stature as head of the institution adds weight to his interventions in meetings; and Directors look to him for guidance on the issues and for formulating acceptable compromises. Also influential in the outcome of discussions are staff members who are called on to defend staff recommendations and respond to questions. Decision making in the Fund is a complex process of interaction between the Executive Directors, the Managing Director, and the staff. And the fact that all participants “live under the same roof” at headquarters has had a most beneficial effect on policymaking by stimulating a strong sense of collegiality and promoting understanding of differing viewpoints, thus facilitating the search for consensus.

Since the mid-1960s, the work load of the Board has grown to a level that has placed increasingly heavy demands on Executive Directors attempting to do full justice to all the matters on the Board’s agenda. Issues relating to international liquidity, the creation of the SDR regime, and successive exchange rate crises commanded much of the Board’s attention in the late 1960s and early 1970s, as did the search for comprehensive monetary reform. In the mid-1970s, the Board was entrusted with the vast task of negotiating the Second Amendment of the Articles of Agreement.

At the same time, following the first round of oil price increases in late 1973, dramatic changes in the structure of imbalances in international payments and increased calls by members for the use of Fund resources created additional work for the Board as part of the effort to expand the scope of existing facilities or create new ones to meet the needs of members. The agenda of the Executive Board has continued to expand as the worldwide recession of recent years has exacerbated the balance of payments problems of members and as more adjustment programs have had to be negotiated. Another major task of the Executive Board is the need to hold periodic consultations with member countries. These have become an important element in the exercise by the Fund of its surveillance function. In order to deal with this extraordinary expansion of the agenda, more systematic programming of the Board’s work has been initiated with periodic forecasting of the work schedule, often for several months ahead, which allows the Board to determine its priorities and set appropriate deadlines for the discussion or resolution of issues.

The Influence of Groups of Members in the Policymaking Process

Since the establishment of the Fund, members have searched for ways of enhancing their influence in the policymaking process or of ensuring that their needs and concerns would be met by the policies and decisions of the institution. One successful approach has been the formation of groups of members. During the 1960s and 1970s, two such groups were formed that have had a profound impact on policymaking in the Fund.

The Group of Ten

The Group of Ten came into being as a result of the Fund’s initiative in the early 1960s to supplement its liquidity by borrowing from members in strong external positions. The participants in the so-called General Arrangements to Borrow were the Fund’s main industrial member countries or their central banks.6 Commanding a voting majority in the Fund, the Group of Ten aroused particular concern in the following decade by attempting through its activities to shift decision-making responsibility, particularly in the areas of international liquidity and of exchange rates, away from the Fund and its Executive Board. The Group of Ten members believed that they—or a similar small group of strong currency members—should assume responsibility for creating and managing reserve currencies.

The Fund, on the other hand, stressed that questions of the adequacy and creation of international liquidity should be matters for the collective judgment of the international community and should not be determined only by a group of industrial countries, particularly when it was mainly the developing countries that needed both increased transfers of real resources and additional international liquidity. Fund Governors thoroughly discussed both sides of the issue at the Annual Meetings, and among the various speakers, the Managing Director himself made it clear that he was opposed to anything but a universal approach through the Fund.

In late 1967 and early 1968, an unprecedented set of four joint meetings were held between the Deputies of the Group of Ten and the Executive Board; these meetings gave both sides the opportunity to explain and clarify their thinking. The universal approach to the creation of international liquidity through the Fund was gradually accepted because it was deemed more “legitimate” (a frequently used term in the discussions) and because it was realized that the strains on international relations resulting from a more limited approach would outweigh its possible advantages. Subsequently, the Group of Ten’s lack of success in the late 1960s and early 1970s in dealing with the successive exchange rate crises among the major currencies further strengthened the view that the management and reform of the international monetary system should be carried out within the Fund.

The Group of Twenty-Four

At the time of the first meeting of the United Nations Conference on Trade and Development in 1964, the Group of Seventy-Seven was established to provide a forum on international monetary affairs in which the economic interests of the developing countries could be represented. In 1971, the Group of Seventy-Seven itself set up an Intergovernmental Group of Twenty-Four on International Monetary Affairs, with the African, Asian, and Latin American regions each appointing eight members of the Group at the ministerial and deputy level. The work of the Group of Twenty-Four was originally geared toward ensuring a systematic consideration of the interests and concerns of the developing countries by the Committee of Twenty; when the Committee of Twenty concluded its work in 1974, the Group of Twenty-Four directed its attention to the activities of the Interim Committee.

In 1979, the Group of Twenty-Four prepared an “Outline for a Program of Action on International Monetary Reform,” which was submitted to the Interim and Development Committees and to the Boards of Governors of the Fund and the World Bank. Several of the recommendations contained therein have since been implemented and others are pending. The Program of Action of the Group of Twenty-Four has thus, to a considerable extent, become part of the work program of the Fund, which is indicative of the recognition and influence of the Group as the voice of the developing countries in international monetary affairs.

Adaptations in the Structure of the Institution

In forming high-level groups, members of the Fund were attempting to fulfill what many of them had long perceived to be a need to deal effectively on a high-ranking and political level with certain important policy issues facing the institution. In the early years of the Fund, when the total membership had been small, the Board of Governors might have been able to discuss and resolve such matters on a ministerial level. But the membership of the Fund increased dramatically, as did the attendance at the Annual Meetings of the Board of Governors, and it gradually became evident to some members that a more restricted high-level forum was needed, particularly for the conduct of negotiations toward comprehensive monetary reform that was called for in the wake of the breakdown of the Bretton Woods system. This belief rekindled the 1944 debate on the appropriate framework for dealing with international monetary matters and again raised questions about whether the Executive Board or a more political body should be mainly responsible for decision making. Following long and arduous discussions of the issue, it was finally agreed (1) that international monetary matters should continue to be resolved within the Fund and (2) that it would be counterproductive to create an advisory committee or decision-making body of governors that would weaken the authority of the Executive Board.

The Committee of Twenty

In July 1972, the Board of Governors established the Committee of Twenty, that is, the ad hoc advisory Committee of the Board of Governors on Reform of the International Monetary System and Related Issues. After further lengthy negotiations, it was decided that the membership composition of the Committee should parallel that of the Executive Board, which at that time had 20 Directors, although members would be governors, ministers, or others of comparable rank. It was also agreed that the work of the Committee would be prepared by Deputies—rather than by the Executive Board—with the assistance of the Fund staff. The Chairman of the Deputies would be assisted by four Vice-Chairmen chosen from different geographical regions; together they formed the Bureau, which managed the work of the Deputies.

The task of the Committee was to advise the Board of Governors on all aspects of the reform of the system, including proposals for amendment of the Articles of Agreement. The principal issues before the Committee were (1) balance of payments adjustment, (2) the settlement of payments imbalances, (3) global liquidity (including SDRs and consolidation), and (4) the special problems of developing countries.

Progress in the work of the Committee was slow, not only because of the complexity of the subjects to be discussed, but also because few participants had developed coherent positions on all the major issues. This situation contrasted sharply with that at the Bretton Woods Conference, which had been dominated by the comprehensive proposals of the United States and the United Kingdom, and the contrast vividly illustrates the evolution that had occurred by the early 1970s toward a multipolar world in which the developing countries were playing an increasingly influential role.

With the dramatic rise in oil prices in 1973–74, it became apparent that plans for monetary reform were being fundamentally affected by new and urgent economic problems and the vastly changed prospects for the global balance of payments structure. In its final report of June 1974, the Committee therefore withdrew its earlier objective of a “blueprint” or “grand design” for monetary reform, which it concluded would have to be an evolutionary process. The Committee nonetheless identified a number of reform proposals for “early implementation” by the Fund. In doing so, it set the stage for a four-year effort by the Executive Board to prepare for the Second Amendment of the Articles of Agreement and called for the establishment of an Interim Committee at ministerial level in the Fund.

The Interim Committee

The Interim Committee of the Board of Governors on the International Monetary System was established promptly after the dissolution of the Committee of Twenty. The principal task of the Interim Committee was—and is—to advise the Board of Governors with respect to the management and adaptation of the international monetary system, and many of the constitutional and procedural features of the Committee are similar to those of its predecessor.

In its first eight years, the Committee has reviewed (1) outstanding questions relating to the Second Amendment, including the exchange rate regime and the role of gold; (2) the Sixth, Seventh, and Eighth General Reviews of Quotas; (3) new financing facilities in the Fund and policies on the use of Fund resources; (4) a substitution account; and (5) the Fund’s liquidity and borrowing needs. Discussions on operational matters usually take place in conjunction with the Committee’s review of the world economic outlook, which has assumed increasing importance in recent years because of the Fund’s responsibility for exercising firm surveillance over exchange rates.

Under the amended Articles, the Governors can decide, by an 85 percent majority of the voting power in the institution, to replace the Interim Committee, which has an advisory function, with a decision-making Council of the Board of Governors. The terms of reference and the procedural arrangements of the Council would be basically the same as those of the Interim Committee, except that each member would be able to cast separately the votes of each country of his constituency.

There has, thus far, not been much pressure to convert the Committee into a Council. There are indications that many of the developing countries would resist any pressure toward conversion out of a concern that they would have less influence in a Council—where decisions would be taken on the basis of weighted voting—than in an advisory group such as the Interim Committee in which the members representing the developing countries number half of the total of 22 participants. Resistance would probably also be evidenced by those concerned that the creation of a Council could weaken the authority of the Executive Board. Besides, the experience with the Interim Committee, as a political body, has thus far been quite positive: its deliberations have been cordial and businesslike, and the guidance it has given to the Executive Board has reflected a continuing recognition by members of the interdependence of nations.

* * *

Because sovereignty over domestic and external monetary affairs has always been a strongly defended prerogative of national governments, the very thought of creating an institution for managing and supervising the international monetary system was innovative; the actual establishment of the Fund and the effort of members to ensure its effectiveness must be described as remarkable. The international monetary system of today differs substantially from the one that was conceived at the Bretton Woods Conference in 1944. Both the international economy and the community of nations have evolved into a multipolar interdependent world in which the developing countries are playing an increasing role. The ability of the Fund to respond to such changes and to face the challenges created by them has been due in large part to the willingness of members to exercise flexibility in working together toward common objectives within a strong but adaptable institutional framework.

Annex I: Current Fund Quotas and Quotas Proposed Under the Eighth General Review

MemberCurrent QuotaProposed Quota
(In millions of SDRs)
Antigua and Barbuda3.65.0
Cape Verde3.04.5
Central African Republic24.030.4
Costa Rica61.584.1
(In millions of SDRs)
Dominican Republic82.5112.1
El Salvador64.589.0
Equatorial Guinea15.018.4
Gambia, The13.517.1
Germany, Federal

Republic of
Iran, Islamic Republic of660.01,117.4
Ivory Coast114.0165.5
(In millions of SDRs)
Kampuchea, Democratic25.025.0
Lao People’s Democratic Republic24.029.3
New Zealand348.0461.6
Papua New Guinea45.065.9
(In millions of SDRs)
St. Lucia5.47.5
St. Vincent and the

São Tomé and Principe3.04.0
Saudi Arabia2,100.03,202.4
Sierra Leone46.557.9
Solomon Islands3.25.0
South Africa636.0915.7
Sri Lanka178.5223.1
Syrian Arab Republic94.5139.1
Trinidad and Tobago123.0170.1
United Arab Emirates202.6385.9
United Kingdom4,387.56,194.0
United States12,607.517,918.3
Upper Volta24.031.6
(In millions of SDRs)
Viet Nam135.0176.8
Western Samoa4.56.0
Yemen Arab Republic19.543.3
Yemen, People’s Democratic Republic of61.577.2

Annex II: Executive Directors, Their Constituencies, and Voting Power in the Fund on March 21, 1983



Votes of
Votes by



Percent of

Fund Total2
Richard D. Erb

Charles H. Dallara
United States126,32519.52
John Anson

Christopher T. Taylor
United Kingdom44,1256.82
Gerhard Laske

Guenter Grosche
Germany, Fed. Rep. of32,5905.04
Bruno de Maulde

Anne Le Lorier
Teruo Hirao

Tadaie Yamashita
Yusuf A. Nimatallah

Jobarah E. Suraisry
Saudi Arabia21,2503.28
Miguel A. Senior


José L. Feito (Spain)
Costa Rica865
El Salvador895
Robert K. Joyce (Canada)

Michael Casey (Ireland)
Antigua and Barbuda286
St. Lucia304
St. Vincent and the

J J. Polak (Netherlands)

Tom de Vries

Jacques de Groote (Belgium)

Heinrich G. Schneider

Giovanni Lovato (Italy)

Costa P. Caranicas

A.R.G. Prowse

Kerry G. Morrell

(New Zealand)
New Zealand3,730
Papua New Guinea700
Solomon Islands282
Western Samoa295
Mohamed Finaish (Libya)

Tariq Alhaimus (Iraq)
Syrian Arab Republic1,195
United Arab Emirates2,276
Yemen Arab Republic445
Yemen, People’s

Democratic Rep. of
R.N. Malhotra (India)

A.S. Jayawardena (Sri Lanka)
Sri Lanka2,035
John Tvedt (Norway)

Arne Lindå

N’Faly Sangare (Guinea)

E.I.M. Mtei

The Gambia385
Sierra Leone715
A. Hasnan Habib


Jaafar Ahmad

Lao People’s Dem. Rep.490
Viet Nam1,600
Alexandre Kafka (Brazil)

César Robalino

Dominican Republic1,075
Trinidad and Tobago1,480

(CHANG Tse Chun)


WANG Enshao (China)
Ghassem Salehkhou

(Islamic Republic of Iran)

Omar Kabbaj

Iran, Islamic

Republic of
Alvaro Donoso (Chile)

Mario Teijeiro

Abderrahmane Alfidja


wa Btlenga Tshishimbi

Cape Verde280
Central African

Equatorial Guinea400
Ivory Coast1,390
São Tomé and Principe280
Upper Volta490

Voting power varies on certain matters pertaining to the General Department with use of the Fund’s resources in that Department.

This total does not include the votes of Egypt, Democratic Kampuchea, and South Africa, which did not participate in the 1982 Regular Election of Executive Directors. The combined votes of those members total 10,780, or 1.67 percent of those in the General Department and Special Drawing Rights Department.

Voting power varies on certain matters pertaining to the General Department with use of the Fund’s resources in that Department.

This total does not include the votes of Egypt, Democratic Kampuchea, and South Africa, which did not participate in the 1982 Regular Election of Executive Directors. The combined votes of those members total 10,780, or 1.67 percent of those in the General Department and Special Drawing Rights Department.

Summary of Discussion

The discussion focused on the influence of the developing countries on decision making in the Fund, on the need for, and possible effects of, an increase in the share of these countries in the total voting power of the Fund, and the prospects for the Fund’s becoming the world’s central bank.

In October 1982, the developing countries accounted for about 40 percent of voting power in the Fund; excluding the oil exporting countries, the share was about 30 percent. Decisions taken by the Fund’s governing bodies—the Board of Governors and the Executive Board—were subject to different majorities, but the minimum was 50 percent. Therefore, even if the developing countries were fully united, they would not have sufficient voting power to determine decisions taken in these bodies. Participants argued that, because the developing countries constituted 86 percent of the Fund’s membership (77 percent for the non-oil developing countries), equity called for a considerable increase in their voting power. They noted that, in the United Nations, the smallest developing country had one vote, the same as the largest industrial country.

The Fund staff replied that the influence of the developing countries on the Fund’s decision making was probably larger than the share of these countries in total voting power might suggest. The developing countries, like the industrial countries, had veto power over proposals in many important areas. Some decisions in the Fund, such as decisions on membership, required the support of 85 percent of total voting power; others, such as decisions on charges for the use of Fund resources, required a 70 percent majority. The developing countries, when voting together, could block proposals subject to these majorities. It was noted that the 70 percent figure had been selected with the voting share of developing countries in mind. The developing countries also benefited from both the manner in which decisions were taken by the Executive Board and the composition of that Board. Most issues considered by the Executive Board were resolved by consensus; although it was inevitable that the Board’s resolutions strongly reflected the distribution of voting power, this procedure allowed individual Executive Directors to influence the Board’s discussions by their arguments. The practice of decision making by consensus tended to favor the developing countries, which elected half of the Fund’s 22 Executive Directors and which formed part of the constituencies of some Executive Directors elected mainly by industrial countries.

The Fund staff also suggested that a redistribution of voting power from the industrial to the developing countries would not necessarily further the interests of the developing countries. They noted that, when the creation of the International Monetary Fund was being considered during the period leading up to the Bretton Woods Conference in July 1944, it was decided that both subscriptions and voting power should reflect the relative economic importance of the countries that would be members of the organizations. One of the purposes of this decision was to assure the countries that provided the Fund with the bulk of its resources that they would have a major influence on the policies and practices affecting the use of these resources. If the voting power of the developing countries were to be increased by weakening the link between voting power and quotas, the industrial countries might become less willing to provide the Fund with the resources it needed to make loans on reasonable terms to its members, including developing country members. If, on the other hand, the voting power of developing countries were to be increased by raising the share of these countries in total quotas, the ratio of the Fund’s usable resources to its total resources would decline, again impairing the organization’s ability to lend to its members. There was a danger, therefore, that redistribution of voting power from the industrial countries to the developing countries, and thus from countries that supplied the Fund with most of its usable resources to countries that needed to borrow these resources, might reduce the total volume of resources available to the Fund.

Participants were interested in the question of whether the Fund could become the world’s central bank. The Fund staff suggested that there could only be a limited parallel between a national central bank and the Fund. A basic similarity was that, historically, central banks emerged as a result of the perceived need for a national institution to conduct monetary policy and of the political will to endow an institution with the requisite powers. Similarly, at the international level, the experience of the 1930s demonstrated that an institution to promote international monetary cooperation would be sorely needed in the postwar era, and the creation of the Fund was a conscious political act to meet that need. Also, as in the case of many central banks, the purposes of the Fund included the promotion and maintenance of high levels of employment and real income. The purposes of the Fund, however, also included the promotion of balanced international trade and orderly exchange arrangements among its members, and the amelioration of maladjustments in its members’ balance of payments. In respect of these purposes and the corresponding functions of the Fund, there could be no parallel because, unlike a central bank, the Fund was an organization of sovereign countries.

The authority that the Fund had to create special drawing rights had only a very limited similarity to the monopoly power of a central bank over the national money supply. Moreover, the Fund did not have activities comparable to, say, the rediscount window or the open market operations of a central bank. The financial resources made available by the Fund to its members were normally in support of adjustment programs designed to correct balance of payments disequilibria, and the Fund’s relationship with its member countries was fundamentally different from that of a central bank with its customers. Thus, there existed a limited parallel between the purposes and activities of the Fund and those of a central bank. But the Fund, as an organization of sovereign member countries, had and would continue to have several functions that were unique to it. Possible evolution of the Fund toward becoming the central bank of the world would seem to be closely related to the willingness of member countries to transfer their monetary and economic sovereignty to the Fund. It would have to be a political evolution shaped by international monetary developments.

1It is not intended here to appraise the activities of the Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries (Development Committee), which was created at the same time as the Interim Committee. The Development Committee concentrates on broad issues concerning the transfer of real resources and on matters within the purview of the World Bank. When the agenda has included matters within the competence of the Fund, these have generally been taken up first by the Interim Committee.
2Annex I lists the current quotas of all members as well as those proposed under the Eighth General Review of Quotas.
3Annex II lists the Executive Directors on March 21, 1983 together with the members that have appointed or elected them and their voting power.
4The Committee held its twentieth meeting in February 1983.
5Shorter periods may apply for operational reasons or for routine business. In addition, a large number of matters are dealt with on a lapse-of-time basis—that is, in the absence of objection by an Executive Director within a specified time, it being understood that any Director may request that a matter be placed on the agenda.
6Belgium, Canada, France, the Deutsche Bundesbank (Federal Republic of Germany), Italy, Japan, the Netherlands, the Sveriges Riksbank (Sweden), the United Kingdom, and the United States. Subsequently, Switzerland was associated with the General Arrangements to Borrow.

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