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Governance and the IMF: Does the Fund Follow Corporate Best Practice?

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  • Eric Santor

Abstract

The governance challenges facing the International Monetary Fund (IMF) are not simply limited to representation and voice, and the associated question of quota allocation. The author identifies governance issues that hitherto remained largely ignored by the literature and policy-makers alike. Specifically, he examines the governance issues that arise when (i) one or more shareholders hold controlling voting blocks, and (ii) principal-agent problems exist between the Executive Board and the Managing Director. Furthermore, these typical governance issues are compounded by the specific characteristics of IMF governance, such as consensus decision making, the lack of clear fiduciary duty on the part of the Executive Board, and the lack of separation between the Executive Board and the Managing Director. The author then attempts to quantify the extent to which the IMF's governance structure deviates from corporate best practice. Unsurprisingly, he finds that the IMF does not follow best practice. The author offers several proposals for governance reforms, including that the IMF should implement a form of "constrained discretion." Under this framework, the Executive Board would set the objectives and rules for the IMF on an annual basis. The Managing Director and the staff would be free to pursue these objectives, conditional on the rules. These respective reforms would improve accountability and hence the legitimacy of the IMF.

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Bibliographic Info

Paper provided by Bank of Canada in its series Working Papers with number 06-32.

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Length: 35 pages
Date of creation: 2006
Date of revision:
Handle: RePEc:bca:bocawp:06-32

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Keywords: International topics;

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References

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  1. Edwin M. Truman, 2006. "Strategy for IMF Reform, A," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa77, July.
  2. Paul A. Gompers & Joy L. Ishii & Andrew Metrick, 2002. "Corporate Governance and Equity Prices," Center for Financial Institutions Working Papers 02-32, Wharton School Center for Financial Institutions, University of Pennsylvania.
  3. Ryan Felushko & Eric Santor, 2006. "The International Monetary Fund's Balance-Sheet and Credit Risk," Working Papers 06-21, Bank of Canada.
  4. Randall Morck, 2004. "Behavioral Finance in Corporate Governance - Independent Directors, Non-Executive Chairs, and the Importance of the Devil’s Advocate," NBER Working Papers 10644, National Bureau of Economic Research, Inc.
  5. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 97-116, Spring.
  6. Marc-André Gosselin & Nicolas Parent, 2005. "An Empirical Analysis of Foreign Exchange Reserves in Emerging Asia," Working Papers 05-38, Bank of Canada.
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Cited by:
  1. Daouda Sembene, 2007. "Give Trust a Chance," IMF Working Papers 07/42, International Monetary Fund.
  2. Philipp Maier & Eirc Santor, 2008. "Reforming the IMF: Lessons from Modern Central Banking," Discussion Papers 08-6, Bank of Canada.
  3. Robert Lavigne & Lawrence Schembri, 2009. "Strengthening IMF Surveillance: An Assessment of Recent Reforms," Discussion Papers 09-10, Bank of Canada.

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