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Analysis

G20 Finance Conclusions on the
Reform of the International Monetary Fund, 1999-2009

Drawn from G20 finance communiqués
Jenilee Guebert and Anton Malkin, G20 Research Group, August 2009

Summary of Conclusions on IMF Reform in G20 Finance Communiqués

Notes: *emergency meetings

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Definition

Reform of the International Monetary Fund (IMF) includes those features that pertain to its governance structure, including IMF voice and vote reform (chairs and shares, as it is commonly referred to) and also mentions of reforming the IMF's executive board. Voice and vote reform includes the voting power allocated to each IMF member, as well as the financial quota shares (input) that each member contributes. This issue area also includes any mentions of the selection of the executive direction. It does not include parallel reforms suggested for the World Bank (or broad governance reform references either to the IMF or the World Bank), nor does it refer to any other features of the IMF’s international role such as loans (output) or surveillance activities.

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Criteria

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Summary of Conclusions on IMF Reform in G20 Finance Communiqués

Notes: *emergency meetings

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Conclusions on IMF Reform in G20 Finance Communiqués

Xianghe, China, October 15-16, 2005
Communiqué

5. We acknowledge the Bretton Woods Institutions (BWIs) have made significant contributions to growth and development, and the improved functioning of the international monetary systems. However, the evolution of the international economy and global financial markets requires a continuing review of the representation, operations, and strategies of the BWIs. We have discussed the necessity for, and committed our strong support to, reforming the BWIs. We have issued a “G20 Statement on Reforming the Bretton Woods Institutions”, which underlines the importance of improving governance, management and operational strategies of these institutions, and aims at providing support to the reform of the BWIs.

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Xianghe, China, October 15-16, 2005
Reforming the Bretton Woods Institutions

1. We, the Finance Ministers and Central Bank Governors of the G20, highlight the vital role the Bretton Woods Institutions (BWIs) should play in promoting macroeconomic and financial stability, economic growth, and poverty reduction. We recognize the need for the BWIs to be effective in delivering these objectives and believe that high standards of governance and internal management are critical. We welcome the IMF Managing Director’s Strategic Review. More work is needed to develop a ‘roadmap’ for the future strategic reform of the BWIs, and we look forward to the work underway at the IMF to develop further details of the Strategic Review.

2. It is our shared view that more innovative approaches and renewed commitments are needed to cope with dynamic issues, such as growing international interdependence and interactions through trade and financial integration, uneven progress toward alleviating poverty and achieving the development goals of UN Millennium Declaration, prevention and resolution of international financial crises, and external shocks. Within this context, we agree upon the strategic importance for the BWIs to reinvigorate their fundamental missions and roles in meeting new challenges in a globalized world economy.

Mission of BWIs

3. We reaffirm the complementary roles that the BWIs are called to play, and recognize that promoting macroeconomic and financial stability and development continue to be of critical importance. Likewise, we believe there is a need to ensure effective pursuit of, and tangible progress towards, these objectives to further strengthen efficient cooperation between the two institutions. The IMF should primarily focus on national and international macroeconomic and financial stability, exercising enhanced surveillance of the global economy, international capital markets and strengthening crisis prevention and resolution. The World Bank should keep its focus on development, sharpening its financial and technical assistance roles for both least-developed countries and emerging markets. We welcome the review of the division of responsibilities launched by the two managements, taking into account external expertise, as part of the strategic review and look forward to their report to the International Monetary and Financial Committee (IMFC) and the Development Committee (DC) at the Spring Meetings in 2006.

Governance of the BWIs

4. The world economy has evolved considerably since the founding of the BWIs, with fast growth in many emerging markets and deepened integration in industrialized countries. We reaffirm the principle that the governance structure of the BWIs – both quotas and representation – should reflect such changes in economic weight. The G20 underscores the critical importance of achieving concrete progress on quota reform by the next International Monetary Fund (IMF) and World Bank Annual Meetings in Singapore. The G20 will seek to identify principles for quota reform which could be an important input into the IMF’s Thirteenth General Review of Quotas, scheduled to be completed by January 2008.

Management and Operational Strategies of the BWIs

5. We believe the IMF and the World Bank should work to enhance their institutional effectiveness, and that the strategic review needs to consider how to improve internal governance. The selection of senior management should be based on merit and ensure broad representation of all member countries.

6. We believe the BWIs should adjust their operations in a timely manner so as to meet the changing needs of their members, while maintaining their high quality standards and results-orientation. The BWIs should continue improving their lending frameworks, and consider ways to best meet their members’ needs for financial assistance, while ensuring continued financial strength and minimizing moral hazard.

7. All G20 members are committed to ensuring the continued role of the BWIs and will focus their efforts on strategic reform measures in the coming years. We will revisit these issues at our next meeting in Australia in 2006.

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Melbourne, Australia, November 18-19, 2006
Communiqué

Reform of the Bretton Woods Institutions

The G20 believes that the effectiveness and legitimacy of the IMF and World Bank must be enhanced through comprehensive governance reform and strategic policy review.

A strong, credible IMF that reflects today’s global economic realities is in our shared interest. As such, we welcomed the support given by IMF Governors in Singapore for reform of quota and governance aimed at reflecting members’ relative positions in the world economy and enhancing the voice of low-income countries in the Fund. We are pleased that the G20 has been able to make a contribution to this historic outcome.

We are committed to the successful completion of a comprehensive set of reforms under the second stage of this process, delivered within the timeframes agreed by IMF Governors. To this end, we identified key issues on which agreement needs to be achieved in order to implement second-stage reforms, including: the main considerations underlying a new, transparent and simple quota formula which captures IMF members’ relative economic positions; how to implement the new quota formula; and agreement on the increase in basic votes and how the share of basic votes can be protected over time.

We had candid discussion about these issues and agreed that the G-20 remain closely engaged with this work over the next year to achieve significant progress on the second stage of reform.

We progressed other issues addressed in our October 2005 Statement on Reforming the Bretton Woods Institutions. We welcomed the Development Committee’s call for the World Bank to work with its shareholders to consider voice and participation in the governance of the Bank and agreed that the G20 can play an important role in this renewed debate. We also agreed on the need for further G20 consideration of strategic and policy issues facing the IMF and World Bank. These include: IMF surveillance; the Fund’s role in emerging market economies, including a possible new liquidity instrument; the Fund’s role in low-income countries; and collaboration between the Fund and Bank.

We emphasised the importance of modernising and strengthening IMF surveillance to meet the demands of globalisation and agreed to further consider broad directions in surveillance, focusing on desirable objectives and medium-term priorities, as input to IMF discussion on a remit for surveillance in the first half of 2007. We also welcomed the IMF review with a view to updating the 1977 decision on surveillance over exchange rate policies.

We welcomed the initiative taken in March 2006 by the heads of the two institutions to establish an External Review Committee on World Bank-IMF collaboration. We were joined by the chair of the Committee, Mr Pedro Malan, in our discussion of key issues around the responsibilities of the two institutions.

We reiterated the position expressed in our October 2005 Statement that the selection of senior management of the IMF and World Bank should be based on merit and ensure broad representation of all member countries. We welcomed consideration of any steps to ensure a fully transparent process for the selection of the IMF Managing Director and the World Bank President.

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Kleinmond, South Africa, November 17-18, 2007
Communiqué

1. We, the Finance Ministers and Central Bank Governors of the G20, held our ninth meeting in Kleinmond, South Africa, under the theme of “Sharing – Influence, Responsibility, and Knowledge”. We reiterated our collective determination to achieve balanced and sustainable growth; and deliberated on the global economic and financial outlook, on fiscal elements of growth and development in G20 member countries, on policy issues pertaining to commodity cycles and financial stability, and on Bretton Woods reform. We recognized the valuable initiative made in 2007, to build an improved appreciation within the forum of some of the economic and financial policy challenges in Africa.

Bretton Woods Reform

14. Building on our statement on Reforming the Bretton Woods Institutions, issued in 2005 and following our work in 2006, we reiterated our commitment to strengthening the credibility, effectiveness and legitimacy of the International Monetary Fund (IMF) and the World Bank. The G20 has made further progress in 2007 in contributing to the IMF’s efforts to find a solution to the second stage of IMF quota and voice reform. We were pleased to note that the forum’s efforts in 2007 have contributed to a convergence of views among the IMF’s members. We reiterated that the reform should enhance the representation of dynamic economies, many of which are emerging market economies, whose weight and role in the global economy have increased. We also reiterated our commitment to continuing our discussion in order to develop a consensus within the timeframes set by the Governors in 2006. We encourage the Executive Board to continue its work in order to allow agreement on all elements of the package by Spring 2008.

15. We also noted further progress with other policy and internal governance issues raised in our statement in 2005 on Reforming the Bretton Woods Institutions, including the IMF’s adoption of the new 2007 Decision on Bilateral Surveillance over Member’s Policies, and the progress made in establishing a framework for developing a new income model for the IMF. The adoption of an income model and the further reduction in expenditure through Fund-wide priority setting, which should be pursued simultaneously, can place the Fund’s finances on a sustainable footing. We look forward to similar progress being made on the design of a new liquidity instrument. We welcomed the announcement that the IMF has secured sufficient financing pledges from member countries to allow the Fund to provide debt relief to Liberia. We welcomed the steps being taken within the World Bank to address the challenges of internal governance reform. We welcomed the early efforts of the new President to set out a comprehensive strategic policy direction for the Bank and look forward to contributing to the further development of this framework. We also welcomed the Bank’s continuing efforts to improve the voice and representation of its emerging market and developing member countries, which should be part of this strategic framework. Within this framework we encourage its role in fostering lending in local currency as a means to develop domestic capital markets which will enhance better liability management.

16. We reiterated the position expressed in our November 2006 statement, that the selection of senior management of the IMF and World Bank should be based on merit and should ensure broad representation of all member countries; and urged the improvement in the process for the selection of the IMF Managing Director and the World Bank President. We reaffirmed our strong commitment to continue contributing to the reform efforts of the two institutions.

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Sao Paulo, Brazil, November 8-9, 2008
Communiqué

12. We underscored that the Bretton Woods Institutions must be comprehensively reformed so that they can more adequately reflect changing economic weights in the world economy and be more responsive to future challenges. Emerging and developing economies should have greater voice and representation in these institutions. We welcome the progress made this year in reforming the IMF. We also noted the first step in the ongoing process of reform of the World Bank Group, which is to be followed by a wider share realignment. We emphasized our commitment to further reform the Bretton Woods Institutions in order to increase their legitimacy and effectiveness. Such reforms should also take into account the interests of the poorest countries and reflect their distinct mandates.

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Horsham, United Kingdom, March 14, 2009
Communiqué

8. To strengthen the effectiveness and legitimacy of the IFIs we must enhance their governance and ensure they fully reflect changes in the world economy. Emerging and developing economies, including the poorest, should have greater voice and representation and the next review of IMF quotas should be concluded by January 2011. The package of quota and voice measures decided in April 2008 should be swiftly implemented. World Bank reforms should be completed by the Spring Meetings 2010. The heads of the IFIs should be appointed through open, merit based selection processes.

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