Summary of the following reading about International Monetary Fund's Board of Governors
In good times and in bad, the world is interconnected. Upticks in European markets affect traders in North America. Downturns on one side of the globe are felt within hours in all parts of the planet. The Russian bear growls, and far away, markets tremble. The countries which inhabit the globe are becoming one world, one economy. At the millennium, The IMF is evolving to meet these and the challenges to come.
This is a time not for celebration but for action, to move the world economy from its present recovery to a path of high-quality, sustainable growth, and through that, through all our techniques and thoughts, as Pierre Teilhard de Chardin used to say, "to full humanization of the world." The need is there. The agenda is defined. The pledges have been made. Targets have been set. It is time for action. Let's go forward.
These are just some of the challenges which are before the International Monetary Fund, a forum where the nations of the world work together to promote stable currencies, international trade, and economic growth. The ultimate goals, as envisaged by the Fund's founders, are global prosperity and peace.
Once a year, members of the IMF Board of Governors convene to set the guiding policies for the Fund. They represent nearly every country in the world. So They are the heads of central banks or ministers of finance, the leaders of the world's economy.
On a day-to-day basis, the Executive Board of the IMF decides policy and practice. Their decisions are within the framework of the IMF's Articles of Agreement, essentially, the Fund's constitution. The board is composed of 24 directors who represent all member countries, either individually or in blocs.
I represent an important part of Africa, West Africa, Central Africa, and some countries in the Indian Ocean, like Madagascar, Mauritius, and all the west part of Africa. This represents 23 countries.
I have 12 countries under my constituency. They are Indonesia, Thailand, Malaysia, Singapore, Brunei, some of the Indochinese countries, like Vietnam, Cambodia, Myanmar, Laos. Also, I have Nepal and two islands, Fiji and Tonga.
Onno Wijnholds represents his country, The Netherlands, as well as Israel, Cyprus, and 10 Central and Eastern European countries.
I come from an industrial country, but I represent a group of countries that are developing or transition economies, mainly. Also, I think in terms of policies, I feel a kinship not only with industrial country views but also very much with other countries in various stages of development. So it also helps, I guess in my case, that I come from a smaller country which doesn't really have a political agenda.
The executive directors are appointed by their countries or regions. As such, they have dual responsibilities to represent their geographic areas and to act in the interest of the Fund.
At least 60% of my time will be in the board meeting, trying to have this decision making of Fund policies and the programs of the countries. Other than that, I have to try to get the basis for the consideration and contacting my authorities to get their viewpoints on the decisions.
While the board does much of its work at IMF headquarters in Washington, the staff spend a lot of time in member countries monitoring their economic activity. Economists, statisticians, lawyers, and other professionals all play important roles in advising on macroeconomic reform and related issues as diverse as privatization and banking reform.
The staff track the economic pulse of each member country by collecting and evaluating data. Their reports and guidance from the managing director and deputies are the basis of board decisions, decisions on new or renewed lending to a country, as well as the terms and conditions of such loans.
The staff knows very well our article of agreement, our guidelines, so that they can prepare their reports in a way that are consistent with our conception of the work to try to promote the expansion of the country, to have in mind the need to have financial stability and monetary stability in the system, and to have right exchange rate policy for the country and for all the membership.
Decisions taken by the executive board are arrived at by consensus.
We have to try to think of the principle what is right and what policy we should follow first. And then we try to compromise so that it will be in between so that the countries will feel at ease for the policy that we decide.
Of course, there is something like an implicit voting. You would also notice in a board meeting that the secretary will tally positions as executive directors speak. And if you're a little experienced, you will notice, well, this is roughly where we stand. And therefore, it's often not necessary to go for an actual vote. And of course, we try to convince each other, and sometimes we succeed. So I think it's a very good way of doing business, normally speaking, and it's less confrontational than this outright voting.
In recent years, the world monetary system has been hit by turbulence, which is necessitating change in the IMF. But before looking at the IMF plans for the future, we look at the past.
The Allies had barely landed at Normandy when the idea of a monetary fund began to move rapidly from concept to reality. The idea was that by working together to increase world economic welfare, nations would also increase the chance of political peace. With war still raging, the foundation was laid for the International Monetary Fund.
In the summer of 1944, in the remote mountains of New Hampshire, the staff of the re-opened Mount Washington Hotel was preparing for the gathering officially known as the United Nations Monetary and Financial Conference. One of the intellectual godfathers of the IMF was Harry Dexter White, who was already anticipating the Allies' victory.
The site was chosen because Henry Morgenthau, the US Treasury Secretary, wanted the conference held in a remote location. Today, a diesel chugs into the station, depositing tourists who come to enjoy the spectacular White Mountains, On July 1, 1944, the visitors who arrived were intent on structuring the economic outlines of the post-war world. The delegates had come by overnight train directly from a preliminary conference in New Jersey.
Henry Morgenthau was the official host. He told the delegates that prosperity, like peace, is indivisible. Poverty, wherever it exists, is menacing to us all and undermines the well being of each of us. It can be no more localized than war.
The conference was guided by British economist John Maynard Keynes and Harry Dexter White, a US Treasury official. Both Keynes and White wanted to structure a way to avoid repeating the mistakes which led to the Great Depression, when world trade collapsed and commodity prices were shattered.
Each man had ideas for institutions that would help bring about prosperity and peace in the post-war world.
White knew that the United States was going to be the dominant economic power. He wanted to make sure that the US used that power for a global benefit, and he saw the IMF as an adjunct to that power that would make the world economy function better.
Keynes had a different vision, because he was worried about US dominance.
He wanted a more independent and a larger and more powerful institution, that would really be a world central bank, that would act as a counterweight to US economic power. So Keynes wanted a bigger and more independent IMF than White did, but they both wanted the IMF to be the major player in the post-war international monetary system.
White wanted an organization to promote economic growth through international trade and financial stability. Member countries would contribute to it in gold and national currencies.
The Bretton Woods delegates divided into commissions to do their work. One, headed by Keynes, worked on the World Bank.
A second commission, headed by White, worked on the Fund.
Keynes wrote of the sometimes chaotic environment at Bretton Woods, where huge committees met in rooms with bad acoustics, people shouted into microphones in imperfect English, and the Russians, Keynes noted, seemed perplexed by the goings on. Keynes said the delegates worked every waking minute, and that in there end, they were utterly exhausted.
They did what they'd come to do. On July 22, 1944, in the Gold Room of the Mount Washington Hotel, the delegates, in small groups, provisionally signed the Articles of Agreement for the IMF and the World Bank. In three weeks, the delegates had accomplished a remarkable task, a system for economic cooperation, which they hoped would result in a better, peaceful, and more prosperous world.