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Governance of International Financial Institutions Mrs. Chantavarn Sucharitakul Senior Executive International Economi

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Governance of International Financial Institutions Mrs. Chantavarn Sucharitakul Senior Executive International Economi

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    1. Governance of International Financial Institutions Mrs. Chantavarn Sucharitakul Senior Executive International Economics Department Bank of Thailand

    2. What is Governance? Governance encompasses all aspects of the way a country or entity (institution) is governed and the policies it observes.

    3. Governance and International Financial Institutions (IFI)

    4. Case Study: International Monetary Fund (IMF) The IMF is one of the three most important IFIs in the world, along with the World Bank and WTO Founded in 1944, its mission is to promote international monetary cooperation by providing surveillance, financial assistance and technical assistance to its 184 member countries.

    5. Role of IMF in Promoting Governance I

    6. Role of IMF in Promoting Governance II

    7. IMF: Internal Governance Structure

    8. Voting in the IMF

    9. Voting Groups in the Executive Board

    10. Composition of Votes in the IMF

    11. Critiques of the IMF’s Governance I Undemocratic Voting Structure: Developing and transition countries (who are the IMF’s borrowers), are minority shareholders and under domination of a small number of industrial countries in policy-making. There is no counterbalance of the influence of major industrial countries.

    12. Reform Proposals I Democratisation of Governance Structure: More equitable quotas using alternative variables such as population Question the rationale of the linkage between quotas and voting Predetermination of voting power for developing countries Full democratisation: adoption of the “one man one vote” system

    13. Critiques of the IMF’s Governance II De facto Veto Power of a Member Country Important decisions of the IMF, like amendments in its charter or changes in its quota allocation, require an 85% “supermajority”. Therefore, the only member which has over 15% voting power has the sole de facto veto power. In comparison, the UN’s Security Council gives the prerogative of veto powers to its “Big 5” members.

    14. Reform Proposals II Restricting Veto Power Restricting the maximum share of a member country to, say, 10% Eliminating or reducing the threshold of the 85% supermajority clause for important decisions Following examples in other IFIs by eliminating veto power: Even in the World Bank and the Inter-American Development Bank, the member country with the largest quota does not have the right to veto.

    15. Critiques of the IMF’s Governance III Executive Board Dominated by Developed Countries Number of members: 39 in 1944 ? 184 today Number of Executive Directors: 12 in 1944 ? 24 today Constituencies range from single-country constituencies of the 8 largest members to 8 multi-country constituency led by a developed country, and 8 multi-country constituency of developing countries. Sub-Saharan Africa: 43 countries represented by 2 EDs Larger countries tend to dominate smaller ones in a constituency Board meetings dominated by developed countries

    16. Reform Proposals III

    17. Critiques of the IMF’s Governance IV Selection Process of the Managing Director Through a historical “gentlemen’s agreement”, the MD of the IMF has always been a Western European, while the President of the World Bank has always been an American. In contrast, the head of other international organisations is chosen from any member country (UN’s Sec-Gen is Ghanaian, WTO’s DG is Thai)

    18. Reform Proposals IV

    19. Critiques of the IMF’s Governance V Former executives of the IMF entering the private sector Despite the IMF’s championing of high ethical standards, there are many cases in which former executives of the IMF, with their vast and profound knowledge of international finance and country-specific issues, join the corporate world—mostly private financial institutions—immediately after their term at the IMF.

    20. Reform Proposals V

    21. Reforms Urged by the UN Financing for Development Conference

    22. IMF’s Implementation of the Monterrey Consensus

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