Select Committee on Treasury Fourth Report


FOURTH REPORT

The Treasury Committee has agreed to the following Report:

THE INTERNATIONAL MONETARY FUND: A BLUEPRINT FOR PARLIAMENTARY ACCOUNTABILITY

Summary of Conclusions and Recommendations


(a)We welcome the establishment of the Independent Evaluation Office and we look forward to reading its reports and commenting upon its work in our future reports. We recommend that the Fund continue to make its operations and policies as transparent as possible (paragraph 8).
  
(b)We recommend, in the interests of greater transparency and accountability, that the Treasury press the Fund to change its policy to allow its most senior officials to appear on the record before Parliamentary Committees of member countries (paragraph 11).
  
(c)We intend to continue to hold hearings with the UK Executive Director and to publish reports on the IMF on a regular basis and we recommend that our equivalent committees, in other member countries, play a similarly active role in holding their own representatives at the IMF to account (paragraph 13).
  
(d)We welcome the Government's acceptance of our proposal for publication of an annual report on the work of the IMF, and on other activities of the Fund, and note the improvements which have been made to this year's report. We recommend that, in the interests of transparency, such reports should continue to be published annually (paragraph 14).
  
(e)We strongly recommend that the Chancellor push for a full publication of the Executive Board meeting minutes and begin to publish the UK voting record at the IMF immediately (paragraph 18).

Introduction

1. Holding the UK representatives at the International Monetary Fund (IMF) to account for their actions has been an important role of the Treasury Committee over the course of this Parliament, and we have published a number of reports on our inquiries in this area. In our first report, in January 1999,[2] we examined how the Fund reacted to the crisis in South East Asia. In our second report, in February 2000,[3] we undertook a more in-depth inquiry into how the Fund was facing up to the new challenges of a globalised economy. In this report we have decided to narrow our focus and concentrate solely on the issue of IMF accountability. It is within this area that we can play our most active role. Nevertheless, we recognise that the issues facing the IMF, many of which we addressed during our recent hearing with the UK's Executive Director, go beyond the scope of this report. We would therefore anticipate that our successors in the next Parliament might wish to return to this area.

2. It is notable that throughout the course of this Parliament unease amongst certain sections of the public at the actions of the IMF, World Bank and World Trade Organisation has grown. Part of this unease may be explained by a perceived lack of accountability of these international institutions. This report sets out why such accountability is necessary and what arrangements need to be in place to ensure it can be fully exercised. In addition it summarises what the Treasury Committee has been doing to bring about more accountability, how the Government and the IMF can contribute to greater accountability and our plans for the future in this area.

3. This report follows the Committee's visit to the IMF and World Bank in October 2000 and our recent hearing with Mr Gus O'Donnell, Managing Director, Macroeconomic Policy and International Finance, HM Treasury, and Mr Stephen Pickford, UK Executive Director at the IMF and World Bank. In addition we have received a number of written submissions from Non-Governmental Organisations (NGOs). We are grateful to the staff of the World Bank and the Fund, and the representatives of the NGOs, who spared the time to meet us in Washington, and to everybody who submitted evidence to the inquiry.

The need for accountability

4. There are three key reasons why we, as UK parliamentarians, should be concerned about the accountability of the IMF. Firstly, as the Treasury's second annual report on UK operations at the IMF notes, "the IMF plays a key role in promoting a sound world financial system and broad based economic growth through assistance to countries experiencing unsustainable external imbalances and related economic difficulties."[4] As a result, decisions taken by the IMF play a key factor in the economic well-being of all the countries around the world, both developed and developing.

5. Secondly, the IMF is now putting a much greater emphasis on standards of accountability when putting together programmes for governments around the world. Therefore, if the IMF is to retain credibility, it must ensure that it is itself subject to the same standards of accountability that it expects of its "customers".

6. Finally, the UK is the fifth largest shareholder in the Fund, and it is this country's quota[5] which will, in part, be used to support IMF packages in times of crisis. In addition the cost to the UK of membership of the Fund was estimated, by the Treasury, at £69 million in 1999-2000. Hence it is important that our own representatives at the IMF are accountable to Parliament both for how the IMF is using the UK quota and for the annual cost of membership.

Requirements for Parliamentary accountability

7. For Parliamentary accountability to be properly exercised the Treasury Committee—and our counterparts in other countries—needs to have access to a wide range of information on the activities of the Fund. In addition, it must be clear who has taken decisions about IMF policies and programmes and for what reasons. Finally the Committee needs to be able to have access to those who are ultimately responsible for the actions of the Fund so that they can be held directly to account.

8. It is vitally important that sufficient information is made available to ourselves, and to other interested organisations, if accountability is to be properly exercised. As the Treasury explain in their Annual Report "greater information on the activities of the IMF contributes to greater public understanding of the institution."[6] It is therefore to the Fund's credit that over the past year it has "taken significant steps to increase its institutional transparency and accountability through wider dissemination of information about its policies and operations and increasing contacts with outside groups."[7] In particular we welcome the establishment of the Independent Evaluation Office and we look forward to reading its reports and commenting upon its work in our future reports. We recommend that the Fund continue to make its operations and policies as transparent as possible.

9. The management structure of the Fund was outlined to us by Mr Pickford. He explained that the chain of command, in reverse order, was "... from the Fund staff to the Managing Director; the Managing Director is appointed by the Board ... but the Executive Board only has its responsibility devolved to it from the Board of Governors ... the Chancellor is the UK's governor ... I am accountable to the Chancellor and the Chancellor is accountable to Parliament."[8] However, despite this clearly defined structure of responsibility, it appears likely that, in practice, the staff of the Fund will exercise a degree of autonomy.

10. We take the role of holding our own representatives at the IMF to account seriously and, as we discuss in the next section, have held several hearings with them during the course of this Parliament. However, as we note above, it is inevitable—as witnessed by the new direction the Fund is heading under Herr Köhler—that officials at the top of the Fund will have an influence above and beyond the guidance given them by the Board of Governors. It is therefore necessary, if the Fund is to be truly accountable, that senior staff at the Fund should also be held to account for their actions in an open and transparent manner. Hence we welcome the comment in the Treasury Annual Report that there has been "increasing staff communication with parliamentarians representing a wide range of member countries."[9] (We have ourselves been conducting regular visits to the Fund for talks with staff during the course of this Parliament.) However, we note the guidance the Treasury have given us that, at present, "it has been the long-standing practice of both institutions [the IMF and the World Bank] that their officials and staff will not normally appear before formal sessions of parliaments of member countries or their committees." On occasions, however, "... the IMF Managing Director and Deputy Managing Directors have appeared on a voluntary basis ... in closed session ... on the understanding that the officials may not be compelled to disclose confidential information, are not under oath and no record is made."[10]

11. If the Fund is to be truly accountable we do not think that such a position is acceptable. As a UK Parliamentary Committee we are not in a position either to compel foreign nationals (as the majority of staff at the Fund will be) to appear before us or to force them to disclose confidential information. In addition it would be highly unusual for us to take evidence under oath. However, we have never previously encountered any difficulties in taking evidence, on the record, from foreign nationals. We recommend, in the interests of greater transparency and accountability, that the Treasury press the Fund to change its policy to allow its most senior officials to appear on the record before Parliamentary Committees of member countries.

Parliamentary accountability of the IMF

12. The Chancellor of the Exchequer is the UK's Governor at the IMF and is responsible for UK interests at the Fund. He is also Chairman of the International Monetary and Financial Committee (IMFC), the main advisory committee to the Board of Governors. The Chancellor represents the UK at the annual meetings of the Fund. However, on a day to day basis, the UK's Executive Director, Mr Pickford, takes responsibility for UK interests.

13. As we noted in paragraph 1, the Treasury Committee has the responsibility of holding the Chancellor and the Executive Director, the UK representatives at the IMF, to account. We take this role very seriously and, during the course of this Parliament, we have taken evidence on IMF issues twice from Mr Pickford and once from the Chancellor. We have also visited the Fund headquarters in Washington, and have held talks there with both Mr Pickford and senior Fund officials. As a result of these visits and hearings we have published three reports on the IMF (including this one) during this Parliament. We intend to continue to hold hearings with the UK Executive Director and to publish reports on the IMF on a regular basis and we recommend that our equivalent committees, in other member countries, play a similarly active role in holding their own representatives at the IMF to account.

14. One of our key recommendations in enhancing the transparency and hence accountability of the IMF (originally made by our predecessor Committee and re-iterated in our second report during the 1998-99 session) was that "the Treasury should make annual reports on the work of the IMF and on other activities of the Fund."[11] The Treasury has just published the second of such reports entitled: "An Annual Report to Parliament on UK Operations at the International Monetary Fund—The UK and the IMF 1999-2000". Mr Pickford described the report as being "... an enormous step forward in terms of presenting in a relatively accessible form the operations of the Fund over the last year." He hoped that "... it has actually added to the general understanding of the public as to what the Fund is up to."[12] The second report, which is much broader and more in depth than the first, has been welcomed by NGOs. The Bretton Woods Project noted "... this year's report gives a fuller account of the key decisions taken at the IMF and the priority issues on the Executive Board's agenda. The report is a useful summary and a good resource for those who do not follow the debate on a regular basis."[13] We welcome the Government's acceptance of our proposal for publication of an annual report on the work of the IMF, and on other activities of the Fund, and note the improvements which have been made to this year's report. We recommend that, in the interests of transparency, such reports should continue to be published annually.

15. Nevertheless, there are further areas where the content of the report could be improved. In particular we share the view put forward by the Bretton Woods Project that the report should have been more forward looking and given greater detail on the UK position on each area of the IMF's work. It remains the case that even allowing for the publication of the annual report, the actions of the UK and the Executive Board as a whole remain opaque. Most notably neither the votes, nor the minutes, of the Executive Board are published. We believe that, because the Executive Board is the ultimate decision making forum of the Fund, withholding this information limits our ability to hold the Government to account for their actions at the Fund.

16. We questioned the Chancellor about the publication of the UK voting record during our inquiry last year, but he did not think that unilateral action by the UK was the best way forward. Mr Pickford repeated the Chancellor's point telling us "... what he [the Chancellor] might like to do is to try to move forward across the organisation ... how the UK votes on individual items ... does not necessarily tell you a great deal about the way the Board discussions went ... providing more information about the totality of the Board's decision making process would be more informative to you."[14] Mr O'Donnell also stressed that "... votes are incredibly rare on the Board ... quite often when the discussion is taking place, everybody is aware of where a vote would get to and therefore a vote is not taken."[15]

17. Whilst we appreciate the reasons why there are few votes taken at the Executive Board meetings, and why the IMF operates broadly on a consensus basis, this makes it all the more necessary to publish the minutes, so that the reasoning behind the decisions can be fully understood. Whilst it may be clear to "everybody" who attends the meeting "where a vote would get to", as long as no such vote is taken and no formal record of the meeting is made public, it is far from clear to "everybody" outside the meeting what position their representatives would have taken. Mr Pickford however highlighted the Fund's publication of the "Chairman's summing-up of the [Article IV] discussion" which included "... where there is a disagreement ... an indication of the balance of the argument," as evidence of the greater transparency of the Executive Board meetings. In his view the IMF "...actually do go quite a long way in terms of putting out ... anonymised minutes ... which give you the flavour of the discussion of the Board".[16]

18. We welcome the publication of summaries of Article IV discussions. However, these summaries are not made available for every issue discussed by the Board and we think there remains a case for publishing the full minutes of the Board. In addition, given that Board votes are comparatively infrequent, we believe that publication of the UK voting record would send out an important signal to other countries of the UK's intent to push hard for much greater transparency. We did not find officials' arguments against publication of the minutes or of the voting record convincing. We note that publishing the minutes and the votes of the Monetary Policy Committee meetings has proved highly beneficial in enhancing the transparency of the monetary framework. We are concerned that, without a similar clear record of the proceedings and formal votes of the Executive Board, the ability of this Committee to hold our representative at the IMF to account is much reduced. We therefore strongly recommend that the Chancellor push for a full publication of the Executive Board meeting minutes and begin to publish the UK voting record at the IMF immediately.





2  Second Report, Session 1998-99, The World Economy and the Pre-Budget Report, HC 91-I. Back

3  Third Report, Session 1999-2000, The International Monetary Fund, HC 72. Back

4  The UK and the IMF 1999-2000, HM Treasury, January 2001, para 2.1. The report is available on the Treasury website at www.hm­treasury.gov.uk/pdf/2001/imf_2201.pdf. Back

5  The member's quota is the primary means of financing the IMF. Back

6  The UK and the IMF 1999-2000, para 3.7.1. Back

7  The UK and the IMF 1999-2000, para 3.7.2. Back

8  Q 6. Back

9  The UK and the IMF 1999-2000, para 3.7.5. Back

10  Appendix 7. Back

11  Second Report, Session 1998-99, The World Economy and the Pre-Budget Report, HC 91-I, para 19. Back

12  Q 6. Back

13  Appendix 5, second para. Back

14  Q 7. Back

15  Q 8. Back

16  Q 19. Back


 
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