Examination of Witnesses (Questions 20
TUESDAY 23 JANUARY 2001
20. You have already covered a large part of
the evaluation office with my colleague but do I understand that
the evaluation office will now come into being in the next 12
(Mr Pickford) We hope that it will be up and running
by the spring meetings which is at the end of April this year.
That might slip by a month or so but essentially we have the processes
in place. We have to get a director first because he will have
to choose his staff and set up the work programme for the office.
As I said, we are in the midst of an international recruitment
process at the moment. I would hope that we would have the director
in place within the next couple of months and he can then very
quickly appoint staff so that in effect it is up and running by
the spring meeting.
21. To whom will the director report?
(Mr Pickford) He will make his reports to the Executive
Board and also to the IMFC but we have tried to set it up in such
a way that, as we have put it in the terms of reference, the office
will operate at arm's length from the Board which means, as far
as I am concerned, that the Director himself will have the final
say on who he hires, what programmes he evaluates and what reports
he makes and he will essentially have total operational independence.
(Mr O'Donnell) Can I just add that the Chancellor,
as Chairman of the IMFC Committee at the moment, will obviously
take a very great interest in how the office operates and will
ask the Director, he or she, to keep the IMFC well informed about
what is happening.
22. Just on that one point, for how long is
the Chancellor in office?
(Mr O'Donnell) There is not a fixed term for these
23. The picture that has earlier been drawn
is one of quite substantial autonomy from the mainstream of the
IMF; is that justified?
(Mr Pickford) Independence in its thinking. It will
probably draw some of its staff from the Fund. This worked very
successfully in the bank equivalent because I think you need a
mix of people who know intimately how the Fund actually operates
on the ground because I think otherwise the learning process for
people coming into the office would be really quite large, but
also outsiders. We expect the majority of the staff will be drawn
from outside but there will be internal Fund people seconded to
the office as well. So, yes, a high degree of autonomy but with
a base of understanding about the Fund's operation so that they
are not starting from scratch.
24. Just as an illustration for instance, if
there were an argument over one of the Article IV rules between
the country involved and the IMF and the evaluation office looked
at this and came down on the part of the country, would that be
(Mr Pickford) Certainly; I can see no reason why the
office should not investigate something like that and produce
its report, and its conclusions will be out there for the public
to see and to draw conclusions from.
25. So the evaluation office can publish whatever
conclusion it arrives at even if they are not entirely concurrent
with the IMF policy?
(Mr Pickford) Absolutely. We have hedged our bets
slightly by saying that there is a strong presumption that the
reports will be published. In practice, I think the motivation
for putting it in that way was to ensure that market sensitive
information was not released, for instance, but there is no intention
of trying to censor the reports. If they are critical of the Fund,
my expectation is that they will still be published.
26. Were the United Kingdom Government satisfied
with the processes that went before the appointment of Horst Köhler
as the Managing Director of the Fund?
(Mr O'Donnell) The appointment of the Managing Director,
as you know, has gone back a long way and there has always been
a kind of implicit presumption that the Managing Director of the
Fund would be European and the President of the World Bank would
be an American. What we said on the White Paper on globalisation
is that we actually favour more open processes which will help
ensure that the best people get these jobs. Obviously it is a
political process; we will have to work with G7 and with EU partners
etc to understand where they are coming from on this process and
to try and come up with what we regard as the best candidates
for these jobs, but certainly this time round it was not ideal.
27. What, more particularly, have the Government
in mind for improving the process in the future?
(Mr O'Donnell) Already some processes have been set
up and, since Stephen is on one of the committees, I will let
(Mr Pickford) After the Managing Director was appointed,
we set up, in both the Fund and Bank, board/committees/working
groups to look at ways in which the selection process might be
improved on both sides of the street.
28. Both sides of the street?
(Mr Pickford) 19th Street is the street which divides
the two institutions. The reason why we obviously want to consider
both those together is that the two institutions work very closely
together as do the selection processes, and the articles of agreement
and so on mirror each other pretty closely, so there would be
implications for changing the process in one institution for the
other. What the IMFC said in its communique in September was that
it expected that the two groups would report together and indeed
the work process for those two groups is converging now. I am
actually a member of the Bank working group and not the Fund working
group, nevertheless we do try to keep the two processes on a convergent
track. We have been considering all sorts of options including
setting up search committees and having executive search firms
and trying to integrate the sort of approach that Gus has outlined
the UK favours in terms of setting in place open and competitive
processes while recognising that there will be some political
input at some point in the process and it is trying to marry those
two aspects which is proving a difficult process but that is what
we are aiming towards.
29. Why does the IMF process and the World Bank
process have to be considered together? Is this because there
is going to continue to be some divvying up between Europe and
the United States in this respect?
(Mr Pickford) I think it is the sheer politics, to
be honest. You can imagine from a European point of view, if in
general the IMF has had a European candidate, let us say that
the Committee came out and said OK, let us open it up to the world
including a US candidate, yet the situation with the World Bank
is that the World Bank would only be a US candidate, so you can
see why it makes sense for a number of us to consider the two
30. The Fund's review of the quota system recently,
somewhat perversely I should have thought, came up with the idea
that the US quota should increase and those of the United Kingdom
and developing countries should decrease. Is that thought to be
a satisfactory exercise?
(Mr O'Donnell) No, most certainly not and it just
illustrates the difficulty of trying to come up with a solution
to the quotas problem. I have been through a number of quota reviews
and, believe me, they are the most complex negotiations imaginable.
The problem really is that quotas were set a long time ago, post
Second World War, reflecting international conditions at the time
and have changed somewhat since then. The principle we would like
to get established is that quotas should reflect economic weight
in the world but also ability to contribute at times of crisis
to the Fund to helping the Fund resolve crisis.
31. Do you mean contribute in the sense of providing
solutions or contributing money?
(Mr O'Donnell) Money, to be brutally frank. That is
an important issue and that has been very important in crisis
handling during the Asian crisis where a number of the richer
countries in the world had to actually stand ready to provide
extra funds through the GAB. I think those quota issues are important.
The Cooper Report, which I think is the one you are referring
to, basically did a mechanistic exercise of saying, let us update
it for economic formula and it produced the rather bizarre result
that developing countries ended up with less and we ended up giving
more to the US, Japan and Germany, and slightly less to the UK.
Not big changes but these were not the kinds of changes you could
see leading to a consensus which would be needed to get agreement.
32. They were not in the expected direction?
(Mr O'Donnell) Absolutely not and indeed there are
issues about quotas which generally relate to the fact that you
are trying to give developing countries a bigger say but it is
quite obvious that, if you go down a mechanistic route of using
the Cooper formula, you will come up with an answer which I think
none of us found particularly attractive. Therefore, we need to
consider it again and that is the work that is actually ongoing
33. What has been done?
(Mr Pickford) The Board has had one discussion of
the Cooper Report, the formal title is "The Quota Formulae
Review Committee", and has asked the staff to provide more
information and do more work basically to try and explore changes
to these formulae to see whether there is a more systematic process
that produces results that are more attractive. Strictly speaking,
that report has no status anyway.
34. You mean the Cooper Report?
(Mr Pickford) That is correct. It is an external advisory
report. The Board has to decide whether it wants to change the
formulae and even when the formulae are agreed, the final decision
on quotas themselves will be taken again by the Board and that
is when this political process will be brought fully into play.
I do not regard this as an issue which is going to be solved quickly.
We have to have a review of quotas I think by 2003, but I do not
expect a quick resolution of this issue because, as Gus says,
it is one of the most difficult issues that face the Board.
35. Is it the United Kingdom's view that the
developing countries ought to have greater representation on the
(Mr O'Donnell) There are two issues here, one about
quotas and one about representation. The quotas give you the voting
share. The point about representation is how many seats they have
round the Board. If you looked round the IMF Executive Board there
are two representatives from Africa.
(Mr Pickford) Three.
(Mr O'Donnell) North Africa as well, that is right.
In terms of representation at Board level, although their quotas
are quite small, the number of people around the table is not
that out of line. The main thing you would find is a very large
number of EU countries represented round the Board, rather more
than you would expect given their quota percentage. So I think
when we come to representation at Board level that will raise
issues where certainly we are very keen to make sure that the
developing countries have an important voice there. I think Board
representation is not too bad. Quite often the problem is the
constituency system which means that there is a constituency represented
but they are not actually the person at the Board, and that can
create some problems. In particular, the issue I would say is
a problem in terms of important emerging market countries that
are not there that perhaps one would like to be there, and I think
that is one of the reasons, for example, why groupings like the
G20 have some advantages in that they do have countries like South
Africa and Mexico represented there.
(Mr Pickford) Perhaps I could just add a little to
that. If you take, for instance, the two sub-Saharan African constituencies,
one Francophone and one Anglophone, you have two directors there
who are representing 20 plus countries each, and the issue there
is in large part how we can help him or her be more effective
in the way that he represents those countries. Often they are
countries that have programmes and therefore there is a lot of
work involved in that respect as well. And what we have done to
try and help that is to increase the number of staff that they
can have so that they will have many more advisers and assistants
than we do, for instance. That helps. The United Kingdom has been
talking with the Anglophone office recently through DFID to try
and see whether there are ways we can provide concrete assistance,
for example, in terms of perhaps funding visiting assistants from
the constituent countries who will spend a few months in the office
which will help the director to do his work but it will also have,
we think, good spin-off effects in terms of sending people back
to the countries who have the experience of institutions and therefore
can be more effective in their own administrations. So we are
taking some rather detailed practical steps, but I hope that we
will be able to help make those constituencies be more effective.
36. Is it possible to change the structure of
the Board or the distribution of seats on the Board without considering
the distribution of votes at the same time?
(Mr Pickford) In theory it is possible to. In practice
I suspect that the number of seats round the table is going to
be even more of a political process than the votes involved. The
number of seats actually specified in the Articles is 18 or 20
and the fact that there are now 24 has to be ratified every few
years, and that requires an 85 per cent vote.
(Mr O'Donnell) The United States is in a position
(because they have a block 17 per cent) that they could block
that. If the US wanted to force a realignment of representation
they are technically in a position to do so. The issue really
for them is what that would do and they weigh up whether they
think using that blocking portion would result in a better result.
Again, that is an issue that we will need to consider with the
new US administration. I should stress that not all of the people
we would normally speak to in the US are yet in place and there
is some uncertainty about what their position will be on issues
37. So the issue of quotas and this issue are
(Mr Pickford) Yes, I think they are very much linked.
38. Moving to codes and standards against which
countries have got a benchmark of behaviour, how successful has
implementation of these codes and standards been so far?
(Mr Pickford) I think they have been very successful.
We have now got 11 core codes and standards which are seen as
relevant to the institutions. The FSF put out their Compendium
of Codes and Standards and the IMFC has agreed that the primary
way in which we will assess countries against those codes is through
the Article IV process because the Article IV process in the IMF
is a universal process, it applies to every country. We think
that that is a very good mechanism to try to assess how countries
are performing against those standards. As Gus said in his opening
remarks, we have completed a large number, if you will forgive
the terminology, of ROSC models. ROSCs are Reports on the Observance
of Standards and Codes. They are our mechanism for seeing how
countries measure up against these codes and standards and we
have different modules for the different codes. That process has
only really been going for about a year or 18 months and we have
had 83 modules produced covering 32 countries. Not all of the
modules have been published but about 80 per cent of them have
been. Then when those ROSCs have been produced they feed into
the Article IV process so they get summarised in the Article IV
(Mr O'Donnell) And the UK has taken a lead. Our view
is that if we are trying to get other countries to do these we
should go through them ourselves, so we have been assessed on
data dissemination, fiscal transparency, monetary and financial
policy, banking supervision, and we are going to do another one
on the financial sector this year, or early next year.
39. How well have these codes and standards
gone down with the developing countries? Have they welcomed them
or is there an adverse reaction?
(Mr O'Donnell) It is mixed to be honest. For a large
number of countries they see them as helping to give them a good
benchmark review of how well they are doing in areas. It is not
a pass/fail thing and you would not expect exactly the same standards
of different countries because it depends on their level of development.
We really regard them as a tool to show them how well they are
doing in certain areas. They are very useful. South Africa has
gone through some of the transparency ones to show to the market,
the private sector investors, that this country is confident of
its position and has the procedures in place, and the IMF accepts
that, and that is quite useful to reassure private sector investors.
The area where it gets difficult, to be honest, is where we get
into the area of whether they are imposing an extra level of conditionality.
We have been at pains to get the best of both worlds really by
encouraging countries to go down these routes but, where assessments
show there are failings against benchmarks, trying to encourage
them to improve in those areas. Really we have got to try and
get this sufficient carrot from saying, "If you do these,
they are good for you and the IMF will respond better to you at
times of crisis if it has gone through this process and knows
exactly where you are, and so will the private sector feel more
confident about your basic position." On the other hand,
where they show up deficiencies, in areas like financial sector
regulation, these are things which countries should work on and
we are trying to encourage them to do that. That is where some
of the tensions arise.