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

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.