IMF attempts to fix its problems through ambitious work program for early 2008

4 February 2008

Managing Director Dominique Strauss-Kahn attempts to fix the IMF’s fractured legitimacy and financial fiasco through an ambitious, opaque, and inaccessible "Interim Work Program."

The International Monetary Fund’s Interim Work Program for 2008, discussed by the Board in December 2007, aims to swiftly overhaul the institution. Managing Director Dominique Strauss-Kahn, has taken significant strides to address, in his words, “the twin issues of the Fund’s relevance and legitimacy, and the Fund’s financial soundness.” The ambitious Interim Work Program, leading up to the Spring Meetings in mid-April 2008, is structured through five working groups and ten task forces that "will aim to set out proposals for a coherent framework for institutional change..."

The five working groups are organized around the most important, and often contentious, reform agendas that the IMF has addressed (often unsuccessfully) over the last few years: quota and voice reform, budget and human resources, surveillance, low-income country work, and capacity building. Task forces address topics ranging from the policy review process to modernizing document publication and distribution.

The output of these groups will likely shape the future direction of the Fund's work in areas that are of critical importance to its external stakeholders--such as governance and the role of the Fund in low-income countries. It is thus vital that stakeholders have the opportunity to convey their opinions on proposed changes to their own governments before Executive Board concludes its decision. However, the work program makes no mention of publicly disclosing the reports and documents issued by the groups or holding open consultations with external stakeholders on changes that will be proposed by the groups. Indeed, the non-transparent nature of the Interim Work Program's process demonstrates why the IMF needs to dramatically improve the way it communicates with stakeholders, particularly on consultations when addressing major policy shifts that will impact its stakeholders.

The most immediate changes in the institution include firm reductions in the institution’s overall budget of approximately $1 billion and its total staff size of more than 2,600 people. In early December 2007, Strauss-Kahn disclosed to the Wall Street Journal that he intends to cut staff by 15 percent; and later that month, he stated that the IMF strives to trim its expenses by approximately $100 million.  

To accomplish his ambitious goal of restructuring the IMF in 2008, Strauss-Kahn has also pulled together an “external advisory group” comprised of international finance luminaries such as Stanley Fischer (Governor of the Israeli central bank and former First Deputy Managing Director of the IMF); Alassane Ouattara (former Prime Minister of Cote d’Ivoire and former IMF Deputy Managing Director); and Tim Adams (former Under Secretary for International Affairs at the U.S. Treasury).

The IMF’s interim work program outlines six key areas in which the institution’s leadership aims to refocus the work agenda to where the IMF has “a comparative advantage”:

• Economic and financial market surveillance -- The Fund’s surveillance programs, currently involved with the ongoing financial turbulence stemming from the subprime crisis in the U.S., will be paying attention to sovereign wealth funds, financial oversight, and the Triennial Surveillance Review, an IMF evaluation of surveillance effectiveness.
• IMF income and expenditure -- Besides expenditure and staff cuts, the IMF is currently working on developing proposals for “sustainable sources of income,” to be approved in the first half of 2008.
• IMF governance reform -- The Fund will continue to work on its 2-year governance reform agenda, which began in September 2006, and is aimed on reformulating “the system of quota shares to reflect members’ evolving weight in the global economy.” The final proposals are due by the Annual Meetings in October 2008.
• Low-income countries -- In January 2008, the Executive Board of the IMF discussed the institution’s role in post-conflict countries and fragile states, paying special attention to “the scope for more flexible and longer-term support with greater emphasis on capacity-building.” Later in 2008, an in-depth evaluation will be produced of the Fund’s role in low-income countries.
• Capacity building -- In direct connection to the Board’s discussion on low-income countries, capacity building will be addressed through a technical assistance strategy the Fund is working on in early 2008. The Board will also consider the Fund’s “training program for member country officials.”
• Crisis prevention -- IMF management are to conduct analyses of possible future financial crises and the “implications for the Fund’s role in crisis prevention and resolution.” This entails further development on a new liquidity instrument, termed the Reserve Augmentation Line, for emerging market countries.

The International Monetary and Financial Committee (IMFC)--the body of G9 country finance ministers and Central Bank governors who constitute the Fund's policy guidance body--has requested that the IMF submit concrete proposals for a “new income model” by the time of the Spring Meetings, to be held from 11-14 April 2008. These proposals would continue the discussion on creating new income sources for the IMF--which faces an annual deficit of $400 million in 2010--initiated in January 2007 by the Committee of Eminent Persons, led by Andrew Crockett, President of JPMorgan Chase International. The Crockett report emphasized that funds from loan programs were not sustainable for the institution, and recommended to the IMF that it invest portions of its quota resources and sell some of its 103.4 million ounces of gold reserves.

However, gold sales require not only 85% of the Executive Board's votes but also the explicit approval of the U.S. Congress, which requires that the administration present a proposal supporting gold sales by the Fund.  Given that these seals-of-approval will take time to materialize, Strauss-Kahn is for the time being acting on a much efficient approach of staff cuts and budget trims.

On January 24, the IMF released a press release on Strauss-Kahn’s meeting with Crockett to discuss progress made by the institution on a “new income model.” Strauss-Kahn stated his “vision for an integrated approach to income and expenditure” and they reviewed the specific measures that the Committee to Study Sustainable Long-Term Financing had proposed in January 2007. Besides the more well-known recommendations of selling some of the IMF’s gold reserves or investing some of its funds from member country quota contributions, a key measure includes charging member countries for the IMF’s services, such as technical assistance. Another measure is to have the IMF reimbursed “for the administrative costs of managing the program of financial assistance to low-income countries.”

The proposal that the IMF charge fees for delivering technical assistance or seek reimbursement for administrative costs of program management in low-income countries might meet resistance in global civil society forums. Rather, it can be argued that IMF recipient countries across the Global South already pay enough through implementing the Fund's economic and financial policy recommendations, many of which restrict and undermine national policy space for pro-poor and developmental policy measures.

Resources

• IMF Interim Work Program, IMF, December 14, 2007 (IMF website)
• IMF Interim Work Program builds on reform progress, focuses on global financial stability, IMF, December 19, 2007 (IMF website)
• Strauss-Kahn seeks to quickly refocus IMF, IMF Survey Online, December 7, 2007 (IMF website)
• Statement by Andrew Crockett, Chair of the Committee to Study Sustainable Long-Term Financing of the IMF, January 24, 2008 (IMF Website)
• Report of the Committee to Study Sustainable Long-Term Financing of the IMF, January 31, 2007 (IMF website)