(as required under the International Monetary Agreements Act 1947)
Part 1: Australia's relations with the International Monetary Fund
Mandate
The International Monetary Fund (IMF) was conceived at the United Nations' Bretton Woods conference held in July 1944, where representatives of 45 countries agreed to establish institutions to govern international economic relations in the aftermath of the Second World War. The IMF came into formal existence in December 1945, when 29 members ratified its Articles of Agreement.
The IMF was established to promote growth and prosperity. The IMF's purpose (set out in Article I of its Articles of Agreement) is to promote international monetary cooperation; facilitate the expansion of trade contributing to employment growth; promote exchange rate stability to avoid competitive devaluation; assist in the establishment of a multilateral system of payments; and make resources available to members to reduce the costs of balance of payments adjustments.
The IMF achieves its mandate by: conducting surveillance over the economic policies of members, and providing policy advice to assist members in achieving key domestic objectives; providing technical assistance and training to members, enabling them to build the expertise required to implement sound economic policies; and providing temporary financing to members experiencing balance of payments difficulties to reduce the cost associated with significant economic adjustment.
Australia became a member of the IMF in 1947. The International Monetary Agreements Act 1947 formalised Australia's IMF membership. The Act contains provisions, which have been updated through time, to enable Australia to meet any obligations that may arise by virtue of its IMF membership. A brief outline of these provisions, along with an indication of whether the provision was used during 2008-09, is included in Table 2.1.
Table 2.1: Activation of International Monetary Agreements Act 1947 provisions in 2008-09
Australia's representation
Board of Governors
The Board of Governors is the highest authority within the IMF and consists of one Governor and one Alternate Governor for each member country. The Treasurer, the Hon Wayne Swan MP, has been Australia's Governor of the IMF since 3 December 2007. During 2008-09 the Alternate Governor was the Secretary to the Treasury, Dr Ken Henry AC.
Member countries cast votes as required throughout the year. The Australian Governor's votes on IMF resolutions during 2008-09 are noted in Table 2.2.
Table 2.2: Australian Governor's votes on IMF resolutions 2008-09
| Resolution title | Adoption date | Australian Governor's vote |
|---|---|---|
| Constituency Arrangements | 1 November 2008 | Supported |
| Draft Resolution on changes to Statute of IMF Administrative Tribunal | 7 April 2009 | Supported |
| Kosovo to Join IMF as the 186th Member | 8 May 2009 | Supported |
International Monetary and Financial Committee
The International Monetary and Financial Committee (IMFC) advises the Board of Governors on the functioning and performance of the international monetary and financial system. Its 24 members represent the full IMF membership under the same constituency arrangements as apply in the IMF Executive Board (see below). International institutions, including the World Bank, also participate as observers in its meetings.
The IMFC meets twice a year, usually in September or October in conjunction with the full Governors' Meeting (the 'Annual Meetings'), and in March or April (the 'Spring Meetings').
The Treasurer represented Australia at the Annual Governors' Meeting held on 13 October 2008, and represented Australia and the constituency of which Australia is a member at the IMFC meeting held on 11 October 2008 and 25 April 2009.
Executive Board
The Executive Board conducts the day-to-day business of the IMF and determines matters of policy under the overall authority of the Board of Governors. Executive Directors are appointed or elected by member countries or groups of countries.
The Board consists of 24 Executive Directors. Eight countries have single-member constituencies and appoint or elect their own Executive Director: the United States, Japan, Germany, France, the United Kingdom, China, Saudi Arabia and the Russian Federation. The remaining Executive Directors represent multi-member constituencies. During 2008-09, the constituency of which Australia is a member (the Asia and the Pacific constituency) comprised: Australia, Kiribati, the Republic of Korea, Marshall Islands, Federated States of Micronesia, Mongolia, New Zealand, Palau, Papua New Guinea, Samoa, Seychelles, Solomon Islands and Vanuatu.
In June 2009, Australia's constituency held 3.44 per cent of the voting power in the IMF, and Australia independently held 1.49 per cent.
Mr Richard Murray of Australia was the Executive Director for the constituency from 1 November 2006 until 31 October 2008. Dr Hi-Su Lee of Korea succeeded Mr Murray as Executive Director on 1 November 2008.
The Executive Director is supported by an Alternate Executive Director and a number of senior advisors/advisors from various countries represented in the constituency. Whi
le the Executive Director may speak on behalf of individual members of the constituency, in the event of a formal vote in the Executive Board, all votes of the constituency must be cast as a bloc.
The Treasury, with input from the Reserve Bank of Australia (RBA) and other agencies as appropriate, provides briefing to the Executive Director on key issues being discussed by the Board.
Australia's Article IV consultation
In accordance with Article IV of its Articles of Agreement, the IMF conducts regular discussions with the authorities of member countries on economic policies and conditions.
Australia's 2009 Article IV consultation included a visit by IMF staff from 12 June to 23 June. During their visit they met with the Treasurer, senior Treasury officials, the Governor of the RBA and senior RBA officials. They also met with officials from other agencies in the Treasury portfolio including the Productivity Commission and the Australian Prudential Regulation Authority, and representatives from the business community and unions.
The staff report on the consultation is available at on the IMF website.
IMF Institute courses
The IMF Institute is a specialised department of the IMF that provides training in economic analysis and policy and related subjects for officials of member countries. During 2008-09, one Australian official attended an Institute course.
Table 2.3: Australian attendance at IMF Institute courses 2008-09
| Name | Department | Course | Date |
|---|---|---|---|
| Rose Verspaandonk | Treasury | HQ 09.04 Macroeconomic Diagnostics | 9 March -- 3 April 2009 |
Meetings and visits
During the IMF/World Bank Annual Meetings in Washington in October 2008, the Treasurer met with IMF First Deputy Managing Director, Dr John Lipsky. The Treasurer met with the IMF Managing Director, Mr Dominique Strauss-Kahn, at the G20 Finance Ministers' and Central Bank Governors' Meeting in Sao Paulo, Brazil in November 2008, and Washington in April 2009.
Part 2: Australia's shareholding in the International Monetary Fund and financial transactions
A member's shareholding in the IMF is determined by its allocated quota which broadly reflects its weight in the global economy. Australia's quota as at 30 June 2009 was SDR 3,236 million. A member's voting power in IMF decisions is also largely determined by its quota, with one vote allocated for each SDR 100,000 of quota. In addition, each IMF member has 250 basic votes. During 2008-09, Australia held 1.49 per cent of total IMF voting power.
Australia's financial transactions with the International Monetary Fund
Australia's financial transactions with the IMF in 2008-09 comprised:
- of Special Drawing Rights (SDR) charges and an annual assessment fee for Australia's allocation of SDRs;
- of interest on Australia's SDR holdings;
- of remuneration for Australia's contribution to IMF reserves; and
- and receipts to facilitate Australia's contribution to the IMF's financial transaction plan, reflecting the borrowing and repayments of other members.
These transactions are described in the following sections.
Special Drawing Rights charges, interest and assessment fee
The SDR is an international reserve asset created by the IMF to supplement the existing official reserves of member countries. The SDR also serves as the unit of account of the IMF. Its value is based on a basket of key international currencies (the US dollar, euro, Japanese yen and pound sterling).
SDRs are allocated to member countries in proportion to their IMF quotas. Each member country may choose to hold more or fewer SDRs than its net cumulative allocation.
Australia's allocation of SDRs remained at SDR 471 million throughout 2008-09 while its actual SDR holdings at 30 June 2009 were SDR 112 million. Australia's SDR allocation is held by the Reserve Bank of Australia (RBA), having been sold to the RBA by the Commonwealth in exchange for Australian dollars.
The IMF levies charges on the SDRs that have been allocated to each member and pays interest on the SDRs that are held by each member. Charges and interest payments are accrued daily at the same rate of interest and paid quarterly. The rate of interest on SDR holdings is calculated weekly and is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket of currencies.
In 2008-09, the Australian Government paid charges of SDR 8.42 million (A$17.47 million) on net cumulative allocations, and the RBA received SDR 2.06 million (A$4.28 million) interest on its holdings (Table 2.4).
In addition, the IMF levies an annual assessment fee to cover the cost of operating the SDR Department. The fee is determined according to participants' net cumulative SDR allocations. Australia's annual assessment fee for the IMF's financial year ending 30 April 2009 was SDR 35,148 (A$71,049) (Table 2.4).
Remuneration
Remuneration is interest paid by the IMF to Australia for the use of its funds. It includes the proportion of the member currencies (quota) that was paid in SDRs and held by the IMF, and money lent out under the Financial Transactions Plan. The amount of a member's reserves held by the IMF can change frequently through the year. It increases when the IMF calls on the member to contribute some of its currency to lend to other members, and decreases when borrowing members make repayments to the IMF that are then returned to the member.
Remuneration is accrued daily and paid quarterly, and the rate of remuneration is equal to the SDR interest rate minus an adjustment for burden sharing. When receiving the remuneration, the Government instructs the RBA to exchange the SDR amounts for Australian dollars at the prevailing exchange rate. Australia received remuneration payments in 2008-09 totalling SDR 1.81 million (A$3.81 million) (Table 2.4).
The IMF's burden-sharing mechanism makes up for the loss of income from unpaid charges. Resources collected from members under the burden-sharing mechanism are refundable to them as arrears cases are resolved, or as may be decided by the IMF. Thus, resources collected for unpaid charges are refunded when these charges are eventually settled.
Maintenance of value of IMF quota
During 2008-09, Australia's quota remained at SDR 3,236 million. Part of this is held in reserve by the IMF in SDRs (this part is relevant for remuneration purposes) and part is held in Australia -- a combination of promissory notes and cash amounts held at the RBA -- in Australian dollars.
The exchange rate for the transactions between the Australian dollar and SDR amounts changes frequently. Consequently, the SDR value of the part of Australia's IMF quota held in Australian dollars is subject to change. Under the IMF's Articles of Agreement, members are required to maintain the value of their quota in terms of SDRs. The adjustment required to maintain the SDR value of the quota is called the maintenance of value adjustment, and is settled annually following the close of the IMF's financial year on 30 April.
During the IMF's financial year from 1 May 2008 to 30 April 2009, the value of the Australian dollar in terms of the SDR depreciated by 16 per cent. This meant that more Australian dollars were required to meet Australia's obligation to maintain the value of its quota in terms of SDRs. Australia had a maintenance of value obligation of A$996.2 million for the IMF's 2008-09 financial year. This financial transaction was settled in late 2009.
Table 2.4: Australia's transactions with the IMF in 2008-09 (cash basis)(a)
| Amount in SDRs | Amount in A$ | |
|---|---|---|
| Interest on RBA SDR holdings | ||
| For 3 months ending 31 July 2008 | 874,690 | 1,599,653 |
| For 3 months ending 31 October 2008 | 764,372 | 1,743,947 |
| For 3 months ending 31 January 2009 | 286,231 | 654,991 |
| For 3 months ending 30 April 2009 | 139,423 | 281,833 |
| Total interest received | 2,064,716 | 4,280,424 |
| Charges on SDR allocation | ||
| For 3 months ending 31 July 2008 | 3,515,588 | 6,429,386 |
| For 3 months ending 31 October 2008 | 3,128,741 | 7,138,355 |
| For 3 months ending 31 January 2009 | 1,191,695 | 2,726,991 |
| For 3 months ending 30 April 2009 | 582,316 | 1,177,109 |
| Total charges paid | 8,418,340 | 17,471,841 |
| Annual assessment fee paid to SDR Department | 35,148 | 71,049 |
| Remuneration for Australian holdings at the IMF | ||
| For 3 months ending 31 July 2008 | 525,123 | 960,357 |
| For 3 months ending 31 October 2008 | 426,786 | 973,730 |
| For 3 months ending 31 January 2009 | 546,529 | 1,250,638 |
| For 3 months ending 30 April 2009 | 309,853 | 626,345 |
| Total remuneration received | 1,808,291 | 3,811,071 |
| Maintenance of Value transaction for 2008-2009 | n/a |
(a) The totals may differ from the sum of the amounts shown due to rounding.
Financial transactions plan and Australia's reserve position in the International Monetary Fund
The IMF manages its lending resources through a financial transactions plan (FTP). This is the mechanism through which the IMF selects the members whose currencies are to be used in IMF lending transactions and allocates the financing of those lending transactions among members included in the plan. Currencies of members included in the FTP can be used both for transfers (loans) from the IMF to borrowing members and for receipts (repayments) from borrowing members. Only currencies of IMF members with sufficiently strong balance of payments and reserve positions -- such as Australia -- are selected for use in the FTP.
In 2008-09, Australia was involved in both the transfer and receipts sides of the FTP. Australia conducted two transactions totalling A$36.9 million to facilitate transactions on the receipts side of the FTP and two transactions, of A$748.2 million, on the transfer side.
Australian dollars can also be used by the IMF to settle minor $A-denominated administrative expenses incurred by the Fund. Australia transferred A$250,000 to the IMF for this purpose in 2008-09. Australia receives ongoing interest on such transfers through the IMF's quarterly payment of remuneration.
As noted earlier, FTP transactions (and any transfers for administrative purposes) directly impact on Australia's reserve position at the IMF. With the value of transfers outweighing the value of receipts during 2008-09, the amount of Australia's reserves held by the IMF rose during the year, from SDR 239 million to SDR 572 million. This reserve position forms part of Australia's liquid international reserves because, subject to the representation of a balance of payments need, Australia can convert its SDR-denominated reserve asset into useable currency by drawing on the IMF.
Table 2.5 provides details of individual FTP transactions.
Table 2.5: Australia's reserve position in the IMF 2008-09(a)
| Date | Description | Debit (SDRs) |
Debit (A$) |
Credit (SDRs) |
Credit (A$) |
|---|---|---|---|---|---|
|
Reserve position as at 30 June 2008 |
239,406,045 | 409,399,264 | |||
| 11 Aug 2008 | FTP with Turkey (Receipt) | 8,500,000 | 15,251,151 | ||
| 7 Nov 2008 | FTP with Hungary (Loan) | 200,000,000 | 442,056,358 | ||
| 25 Nov 2008 | FTP with Ukraine (Receipt) | 9,350,000 | 21,627,398 | ||
| 15 Dec 2008 | Administrative transfer | 43,232 | 100,000 | ||
| 24 Dec 2008 | Administrative transfer | 64,848 | 150,000 | ||
| 6 May 2009 | FTP with Romania (Loan) | 150,000,000 | 306,142,442 | ||
|
Reserve position as at 30 June 2009 |
571,664,125 | 1,178,603,864 | |||
(a) Because Australia's reserve position is denominated in SDRs and AUD/SDR exchange rates vary during the year, when expressed in Australian dollars, the 30 June 2009 reserve position does not exactly reflect summation of the opening position and transactions during the year.
Part 3: Key activities of the International Monetary Fund
During 2008-09, the IMF responded to G20 calls for immediate action to strengthen IMF surveillance, increase IMF resources, conclude the Fourth Amendment process and expand its support for low-income countries. In parallel to these events, the IMF reformed its lending and conditionality framework, enhancing its role in emerging and low-income countries.
As part of ongoing governance, and quota and voice reform, in 2008-09, Australia co-chaired, with South Africa, a Working Group on reform of the IMF and influenced the call for the next review of IMF quotas to be completed two years earlier than scheduled.
Further information on these reforms is provided below.
Surveillance
Effective IMF surveillance should enable the Fund to provide independent, objective and persuasive assessments and advice to policy makers at the national and international levels. The global financial crisis has highlighted the importance of the Fund's role in helping to identify key risks and vulnerabilities.
Consistent with the 2007 Decision on Bilateral Surveillance over Members' Policies, adopted by the Fund in June 2007, bilateral surveillance remains at the core of the Fund's work and an essential input into its multilateral and regional surveillance activities.
The IMF released in October 2008, its first Statement of Surveillance Priorities (SSP) which provides a guide to Fund surveillance for the period 2008-2011. The SSP sets out four economic and four operational priorities. In 2008-09, economic priorities focused on resolving financial market stress and strengthening the global financial system.3 Operational priorities draw from findings of the 2008-2011 Triennial Surveillance Review and include: risk assessment; multilateral perspective; analysis of exchange rates and external stability risks; financial sector surveillance; and real financial links.
During 2008-09, the IMF continued to strengthen surveillance over member countries, including financial sector risks and its multilateral surveillance functions. Fund staff prepared papers for Board discussion on integrating financial sector surveillance, and commenced reviewing the joint IMF/World Bank Financial Sector Assessment Program (with decisions made in September 2009).
Other progress of note includes establishing a macro-financial unit in March 2009; providing a guidance note on financ
ial sector surveillance in April 2009; launching in May 2009 a vulnerability exercise for advanced economies to supplement the exercise for emerging markets; and in June 2009, revising operational guidance for implementation of the 2007 Decision on Bilateral Surveillance over Members' Policies.
In response to the G20 Leaders' Washington declaration, together with the FSB, the IMF developed a joint early warning exercise (EWE). The IMF/FSB EWE is intended to identify risks and vulnerabilities across financial institutions, markets, and countries, with particular emphasis on tail risks -- defined as low probability, high impact events -- that could lead to systemic crisis. The IMF and FSB conducted a pilot at the IMFC's April 2009 meeting. The exercise will report to the IMFC regularly with the first full exercise launched at the 2009 Annual Meetings.
The IMF also supported the G20 in 2008-09 through the provision of G20 surveillance notes and fiscal monitoring; assessing actions taken/required; together with the FSB, monitoring progress in strengthening financial supervision/regulation; and undertaking work on achieving balanced and sustainable growth.
Australia was active within the IMF, the FSB and G20 in promoting these outcomes. The value of many of these exercises however is dependent on traction of Fund advice.
IMF resourcing
In light of the ramping up of IMF lending, it was important that the Fund had sufficient resources to support the increased demand. The G20, at its London Summit in April 2009, agreed to triple the resources of the IMF to US$750 billion, initially through immediate financing of US$250 billion, to be subsequently incorporated into an expanded and more flexible New Arrangements to Borrow (NAB), increased by up to US$500 billion. Australia's commitment to this expanded arrangement will be US$7 billion.
As part of the immediate financing intended to bridge the gap until the expanded NAB comes into effect, the Fund approved bilateral borrowing agreements with its members -- the first of its kind was signed with Japan in February 2009, for US$100 billion. To further supplement the IMF's borrowed resources, Fund staff proposed a note issuance framework. The framework aimed to allow members to lend to the Fund through the purchase of IMF-issued notes. The framework was approved by the Executive Board on 1 July 2009.
In June 2009, the US Congress approved a package of legislative measures which included the provision of domestic authority to move ahead on the limited sale of IMF gold. This decision is a central element of the IMF's new income model endorsed by the IMF Executive Board in April 2008. This decision will also enable the Fund to boost its concessional lending resources for LICs under a strategy supported by G20 Leaders and endorsed by the IMF Executive Board in July 2009. The IMF Executive Board, in late-2009, approved gold sales in a volume strictly limited to 403.3 metric tons.
A general SDR Allocation equivalent to US$250 billion was proposed by G20 Leaders at the London Summit on 2 April 2009 to increase global liquidity, and was supported by the IMFC at their meeting on 25 April 2009. Work on the case for a general SDR allocation was undertaken by Fund staff following this announcement in preparation for Executive Board consideration of the issue in July 2009. The general SDR allocation was subsequently made in August 2009.
It is important that the IMF remains a quota-based institution, with quota resources being the Fund's primary source of financing. The next review of quotas was scheduled to be completed by January 2011.
Fourth Amendment
At the April London Summit, G20 Leaders called for urgent ratification of the Fourth Amendment. The Fourth Amendment of the IMF's Articles of Agreement provided for a special one-time allocation of 21.5 billion SDRs. It was approved by the IMF Board of Governors in September 1997 and was designed to allow members to participate equitably in the SDR system.
Ratification required three-fifths of IMF members (112 members) having 85 per cent of total voting power to accept the Amendment to the Articles.
As at 31 March 2009 (latest update prior to 30 June 2009), 131 members representing 77.68 per cent voting power accepted the Amendments. The United States (holding 16.73 per cent of total voting power) were yet to formally notify their acceptance following Congressional approval and President Obama signing related legislation into law on 24 June.
Australia notified the IMF of our acceptance by an instrument signed 20 June 2001 and the International Monetary Agreements Amendment Act (No. 1) 2001, with Royal Assent on 20 March 2001, provided for the agreed changes in domestic legislation.
The Fourth Amendment entered into force in August 2009, and the SDR allocation was disbursed to members in September 2009.
IMF lending and conditionality framework
The Fund's lending framework has undergone major reform in 2008-09 aimed at better meeting members' needs, strengthening crisis prevention/resolution, and encouraging an early approach to the Fund. This covered all aspects of instruments and policies: conditionality framework; facilities; access levels; charges and fees; and maturities.
A key development was the establishment of a Flexible Credit Line (FCL) in March 2009. This new instrument provides large upfront financing to emerging market economies with a strong track record of economic policy and performance. Qualification is based on ex-ante conditionality. With uncapped access limits, availability on a precautionary basis, long repayment terms (3 ¼-5 years) and unrestricted renewals, the FCL strengthens Fund crisis prevention and response. As at 30 June 2009, three precautionary FCLs were in place with Mexico, Poland and Colombia totalling SDR 52.2 billion. (The FCL replaced the Short Term Liquidity Facility established in October 2008, but not utilised.)
Greater flexibility has also been provided for the IMF's Stand-by Arrangement instrument -- high access precautionary instruments (and front loading of access) will be made available for use on a more regular basis -- providing an alternate crisis prevention instrument for countries.
In March 2009, access limits were doubled -- to 200 per cent of quota on an annual limit and 600 per cent of quota on a cumulative basis. The exceptional access framework was also reformed. The Fund revised its surcharge and commitment fee schedules. Structures for high access and precautionary lending across facilities were also simplified.
The conditionality framework has been modernised to focus on review-based conditionality, with structural performance criteria to be discontinued. This move aims to ensure conditions are sufficiently focused and tailored, and reduce stigma. There has also been a move to greater reliance on ex-ante conditionality through the establishment of the FCL, and precautionary stand-by facilities.
IMF role in low-income countries
In October 2008, the IMF Managing Director released a mission statement for the Fund's work in low-income countries (LICs): 'the IMF's mission with regard to low-income countries is to help these countries achieve the macroeconomic and financial stability needed to raise growth and reduce poverty'.
In recognition that sound macroeconomic management is essential for LICs to achieve their policy objectives, the Fund focused in 2008-09 on better tailoring provision of advisory, financing and capacity building functions for LICs. This included ensuring its program design was sufficiently flexible to meet LIC members' requirements quickly and effectively, and addressing the demands of its more advanced low-income members. Modifications to the Exogenous Shocks Facility in September 2008 and March 2009 -- provision of rapid and high access components of up to 50 and 150 per cent of quota respectively -- was one step in addressing this policy agenda.4
During 2008-09, the IMF undertook a comprehensive review of the Fund's work in LICs, with the aim of enhancing effectiveness of their engagement. The Fund also deepened its collaboration with Civil Society Organisations in this process. A number of staff papers were considered by the Executive Board including topics of: facilities and financing framework for LICs; implications of the global financial crisis on LICs; changing patterns in LIC financing; implications for Fund policies on external financing and debt; and debt limits in Fund supported programs. Decisions taking account of all strands were scheduled for July 2009.
G20 Leaders in April agreed 'consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide US$6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years'. Between April and end June, Staff developed options for the use of resources linked to gold sales to fund concessional lending to be considered with LIC reforms in July 2009.
Also in line with G20 Leaders' calls in April,5 the IMF, together with the World Bank commenced a review of the Debt Sustainability Framework with the view of reporting outcomes before the IMF/World Bank Annual Meetings in October 2009.
Capacity building remains a core part of the Fund's work in LICs. In May 2009, the IMF added to its existing six Regional Technical Assistance Centres when it established the Central America, Panama and the Dominican Republic Technical Assistance Centre. The IMF is planning to open three new centres: two in Africa, and one in Central Asia.
Topical Trust Funds are a new form of Fund capacity building technical assistance aimed at low and lower-middle-income countries. The Fund launched its first Topical Trust Fund to support technical assistance in Anti-Money Laundering and Combating the Financing of Terrorism in May 2009. Further work was undertaken in 2008-09 to establish several other Topical Trust Funds including on Financial Sector Stability and Development and managing natural resource wealth.
Australia made the last of twelve annual A$2.5 million payments to the IMF Poverty Reduction and Growth Facility (PRGF) interest subsidy account in 2008-09. Australia's total A$30 million contribution under this facility supports interest rate subsidisation on drawings by low-income countries.
Quota and voice reform
The financial crisis gave new impetus to reforming the IFIs. Australia has been a strong proponent of quota and voice reforms that will enhance the legitimacy and effectiveness of the IMF, including in its key role in promoting global financial stability, crisis prevention and resolution. Reform of the Fund's governance structures to ensure that emerging market and developing countries' quota and voting shares better reflect their weight in the world economy is crucial to achieving this goal.
In the lead-up to the G20 Leaders' Summit in London on 2 April, Australia co-chaired, with South Africa, a Working Group on reform of the IMF. The Working Group's report,6 released on 4 March 2009, informed discussions at the Leaders' Summit and influenced their call for the next review of IMF quotas to be completed by January 2011, two years earlier than scheduled. This review will enable the size of the IMF's quota resources to be considered in light of the crisis and the IMF's ongoing need for liquidity. It will also enable further progress on aligning the quota and voting shares of dynamic emerging market economies with their growing weight in the global economy, building on the quota reforms agreed in April 2008.
The G20 called on all IMF members to swiftly implement the April 2008 reforms. These reforms, which included quota realignment using a new quota formula, an increase in basic votes benefitting small and low income developing countries and an additional Alternate Executive Directors for large IMF constituencies, will come into effect when accepted by three-fifths of members having 85 per cent of total voting power (expected to occur in 2009-10). Australia formally accepted these reforms on 7 September 2009.
Strengthening IMF corporate governance arrangements
Australia has been a strong advocate of IMF corporate governance reform to ensure the Fund can effectively respond to members, is accountable for delivering its mandate, and remains relevant and legitimate in light of changing economic realities.
The Committee of Eminent Persons on IMF Governance Reform chaired by Trevor Manuel reported in March 2009 to the IMF's Managing Director.7 The report provided a number of recommendations to strengthen the Fund's governance, including: activating a ministerial level council to take strategic decisions; expanding the Fund's surveillance mandate to provide appropriate coverage of macroeconomic policies, prudential issues and financial spillovers; elevating the Executive Board from an operational focus to a strategic and supervisory role; and introducing an open, transparent and merit-based system for the appointment of the Managing Director and Deputy Managing Directors. These recommendations have been discussed by the Fund's Executive Board and will inform the IMF's continuing reform agenda.
3 Economic priorities were revised in September 2009 to refocus priorities on implementing strategies for balanced and sustainable growth,
4 The rapid access component allows countries to access up to 50 per cent of its quota for each exogenous shock relatively quickly. The high access component provides access of up to 150 per cent of quota.
5 We have agreed to review the flexibility of the Debt Sustainability Framework and call on the IMF and World Bank to report to the IMFC and Development Committee at the Annual Meetings.
6 A copy of the working group’s final report is available on the G20’s website.
7 A copy of the report is available on the IMF’s website.