The International Monetary Fund: Maintaining Global Financial Stability
The world’s foremost institution for monetary cooperation is the International Monetary Fund. There are 188 member states in it, and practically all of them cooperate to achieve that goal. The International Monetary Fund’s main responsibility is to maintain the stability of the global financial system, including the exchange rates and any international payments made for the purchase or exchange of goods and services, as doing so is crucial for achieving long-term economic growth and raising living standards (IMF, 206). Additionally, the International Monetary Fund was founded in 1944 with a membership of 44 countries, and Christine Lagarde served as its managing director and executive board chair at the time. Despite its long existence the organization is faced with a lot of challenges recently arising from globalization, world economic crisis, high level of uncertainty in the world economy and rising of new economic giants from East among other reasons (IMF, 2016). This paper will focus on governance challenges facing the International Monetary Fund:
Governance Challenges Facing the International Monetary Fund
Governance is the major challenge that is facing the International Monetary Fund whereby multiple principals controls all the activities compared to the private and public organizations which result to a lot of arguments and a long time in decision making since many governments are involved in which most of the time fail to agree on particular suggestions made (Lamdany & Martinez-Diaz, 2009). This long series of arguments among the principals involved hinder the performance of the organization leading to delay in delivery and functioning of some of the departments; therefore, goals cannot be achieved within the timeframe set. Failure in governance is evidential based on the following areas:
Effectiveness
Effectiveness, in this case, is measured in IMF based on the organization’s ability in creating appropriate goals and purposes that can be met within the set timeframe. There is governance issue regarding the firefighting informal governance effectiveness strategy embraced by the IMF management during the emergence of crisis since it is argued that the strategy encompasses a small network of G7 government senior officials that are involved in the formulation of approaches to be applied during a crisis in the private environment (Lamdany & Martinez-Diaz, 2009). In addition, the firefighter informal governance has been accused of lacking transparency as well as defects in assigning duties for the outcomes of the decisions.
Furthermore, there is ineffectiveness in the allocation of the roles between the Board, Management, and the International Monetary Fund and Financial Committee as it is not clear which role an international organization within the IMF structure has to play. Similarly, the huge influence of the superpower countries such as the United States of America and Europe in decision making among other key areas has tremendously raised the question of the effectiveness of IMF since there are countries that feel in-subordinated due to their issues becoming minor compared to the issues addressed by the superpower countries(Lamdany & Martinez-Diaz, 2009). Besides, the issue of superiority portrayed by the superpower countries results to prevailing interest whereby their issue overcomes the objectives and aims of the organization leading to delay in meeting time frame set for delivery of certain objectives agreed or raised by other member States. Ineffectiveness of the IMF is evidential in growth forecast and their effects on the condition of the world economy more so the world growth forecast that was published in autumn 2012. Which is grounded in a series of risky postulations about China predictable growth rate of 8.25% in 2013, which according to Mackenzie (2012) is key risky to the legitimacy of the IMF world forecast.
Efficiency
Efficiency in IMF governance focuses on cost factors and expenditure control. Efficiency in IMF governance has been criticized in both the countries principals and the public at large due to over-budgeting. It is estimated that the total board budget for the year 2007 was fifty-nine million dollars exclusive of the budget for Secretary of the department. Also between 1998 and 2006, the expenditure for operating the board was around 5.9 and 6.4 percent of the total net administrative figure of IMF, thus, over-spending as it is argued the board can be operated with less than the quoted amount and the rest saved for other economic growth issues (Birdsall, 2011).
Accountability
Accountability is the ability of the IMF to show evidence to the shareholders, stakeholders among other organizations investing in IMF on how the objectives were met including meeting the timeframe and how cost were incurred so that accreditation or punishment can be imposed. IMF can be identified as the worst organization when it comes to accountability regarding the performance of the organization from the assignment of duties to budget allocation since there is no tangible standard to measure IMF performance so that the people involved can be held accountable for their actions by both the member states and stakeholders of IMF. It is argued lack of accountability results from overlapping roles of the board and the management (Birdsall, 2011).
Voice
Voice refers to the opportunity granted to members of the IMF to raise their views and be taken into consideration when it comes to decision making. IMF performs the poorest when it comes accommodating other peoples’ views during decision making a situation contributed by many factors such as a large number of multicounty constituencies within the board and lack of efficiency in the present quota voting system (Birdsall, 2011).
Resolving the IMF Challenges
Reforming IMF Governance
Reforming the quota system in IMF governance. Three major reforms were made in the IMF quota system in the year 2010 in Seoul during the economic summit. The quota reforms include three areas: First, doubling the quotas in that a decrease of commitments of some countries to lend the fund as specified in New Arrangements to Borrow act and short-changing of the voting shares and quotas from the developed countries such as Europe to new emerging economic giants as well as developing countries for instance China. Second, a change in IMF article of agreement to allow executive board that is elected compared to appointed, this is to give chance to any member that qualifies to take charge of executive issues in IMF and third, development of an agreement that the super European nation will reduce their representation from 24-person executive board from the current 8 or 9 representatives (IMF Quotas, 2016).
Short-changing growth economies within the capacity of IMF despite their unending effect and importance for the world economic stability. It is argued that the present blueprint of IMF governance grounded on quotas is linked to a series of increased inadequacies (Birdsall, 2016). Thus, changes need to be made so that decision made cannot be based on the power of voting, the financial capability of a country or financial commitment of an organization but on the strength of an issue that needs the special attention of the organization towards economic growth and stability.
Elimination of appointed chairs to promote equity. Consideration of elected members of the board in comparison to appointed will result in a reduction in inequity between the two class systems. Also, the elected board members will affect the foundation of constituencies beyond any European alliance resulting to the accommodation of any new member from other countries as well as enhancing the reduction in the magnitude of the board (Lamdany & Martinez-Diaz, 2009). Similarly, the reduction in the size of the board will result in a decrease in encumbrance of representation in large constituencies, progressing voice and sincerity and improving effective decision-making.
In conclusion, despite the IMF aim of maintaining economic stability and economic growth, the organization faces a lot of Governance challenges. Few reforms and consideration need to be implemented to avoid future crisis and falling of the organization due to poor decision making caused by disagreements among the two system class that has emerged. Which are the superior nations like Europe that are over-represented and inferior nations such as Asia that is under-represented and unfavorable quota voting system which majorly has more constituencies for European countries. Henceforth, more focus needs to be given to the upcoming economic superpowers such as China so that they can influence the decision of IMF that has been given to Europe and USA time.And again since the USA superiority is collapsing and their control of IMF finance has greatly decreased. Thus, a new giant in the economic market needs to be given the opportunity to bring their views towards the economic issues that can enhance global economic growth and sustainability.
References
About IMF (2016) Available at: http://www.imf.org/external/about.htm
Birdsall, N. (2011) “IMF Leadership: OK for Now, but Fixing the Process Shouldn’t Wait” Center for Global Development, Available at: http://blogs.cgdev.org/globaldevelopment/2011/09/imf-leadership-ok-for-now-but-fixing-the-process-shouldn%E2%80%99t-wait.php
IMF Quotas (2016) IMF, Available at: http://www.imf.org/external/np/exr/facts/quotas.htm
Lamdany, R., & Martinez-Diaz, L. (2009). Studies of IMF governance: a compendium. International Monetary Fund.
Mackenzie, K. (2012) “Prepare for probable disappointment, IMF” Financial Times, October 09, 2012
