Examination of Witnesses(Questions 40-59)|
TUESDAY 21 MAY 2002
40. Should it be on the table?
(Mr Scholar) What we are trying to do is strengthen
the voice of developing countries and we need to look at ways
in which we can do that. There is a serious problem in the IMF
and World Bank Boards where you have two directors representing
the whole of Sub-Saharan Africa which is 42 countries; and those
are countries with very substantial involvement with the Fund
and the Bank, so the director representing them has not just the
responsibilities of engaging in policy discussions at Board level,
but he or she has also got to deal with the programmes and operations
in the countries they represent, and that is an extremely heavy
workload. One thing we could do in the short term to address that
is to help them carry out their duties more effectively.
41. It sounds like you might agree with War
on Want and their views on the IMF. They say they do not believe
that "the IMF is a qualified organisation to serve the interests
of the world's poor. We believe they would be better served by
an organisation that more fully represents them and that takes
policy eradication as its starting point." You were saying
earlier on that you did not feel the IMF had done that enough
in the past. You have got quite a lot of sympathy with the War
on Want view, have you not, this is not entirely an organisation
where the representation is fair and it has concentrated in the
past too much on things other than poverty reduction.
(Mr Scholar) Certainly there needs to be a continued
and strengthened focus on poverty reduction. The Fund has moved
but it has some way to go. Certainly in the case of representation,
we think there is a need to strengthen the voice of the poorest
42. Is it true that at the moment that the largest
country within the IMF, the United States, is able to block and
essentially veto some decisions because they require a majority
which their own share of the votes can block?
(Mr Scholar) Most decisions are taken by majority.
There are some decisions, and these tend to be decisions on the
structure of the organisation or large financial decisions, that
do require a super-majority of 85 per cent. The United States
has 17 per cent, so that is correct.
43. So on those really huge decisions one country
out of the 182 can block the decision of the other 181?
(Mr Scholar) Where a super-majority is required that
is the case.
44. Do you think that is right?
(Mr Scholar) Again it goes back to the nature of the
organisation. The USA is the largest shareholder and its voting
weight reflects its share.
45. Are you suggesting to the US that they should
take a more charitable big picture view and give up their blocking
(Mr Scholar) I think that is a matter for them. I
do not think I should comment on that.
46. You do not have a view on it?
(Mr Scholar) It is a matter for them.
47. I certainly expected for you to come here
and say how misunderstood the IMF was and that the people in the
world outsideAndrew's people, pelting your board meetingshave
got that all wrong, but you have not said that at all. You have
admitted to the chair and to others that not enough attention
was given to poverty reduction in the past. In answer to Andrew
you said the voting arrangements are all wrong and you have implied
you do not think it is right that the US has this veto. You do
not seem to have a very high degree of confidence in the organisation
as it is.
(Mr Scholar) I have said it is an organisation doing
a lot of things right. Like any organisation it has to learn from
its experience and it has to continually find ways to improve
its performance. There is a reform agenda under way which has
been going for the last three years. There have been some good
results from that but there is further to go.
48. Would you describe the United Kingdom as
radical modernisers within the IMF?
(Mr Scholar) We tend to be in the forefront in pushing
(Mr Pickford) I think that is right. If you take a
number of the changes that have occurred to the IMF over the last
few yearsthe PRGF, the Independent Evaluation Office, the
enhanced HIPC initiative, moves towards greater transparency,
attempts to improve surveillance, attempts to improve the efficiency
of crisis resolution mechanisms, the contingent credit lineall
of those were issues that the United Kingdom has pushed for and
pushed hard. I think to some extent the time was right and the
circumstances were favourable for our views to have some weight,
but I certainly think what you suggest is true.
49. How much of the project is completed?
(Mr Pickford) The Chancellor has announced further
measures that I think will be desirable, for instance, as Tom
said earlier, in terms of making the surveillance process more
independent from programme decisions. We have concerns about the
way in which the HIPC initiative is delivering sustainable exits
from debt problems. So there are continuing efforts and things
that we would like to push and will continue to push.
50. I do not think the rest of the Committee
can imagine Andrew Tyrie as a good Conservative pelting your windows
with rotten apples! Has the US ever been on the losing side of
any board in the past number of years?
(Mr Pickford) As Tom said, most decisions in the Board
are taken by simple majority, so even if the votes were countedand
they very very rarely arethe United States will sometimes
not see the decision going the way it would like. And on some
occasions it asks to be recorded as voting against.
51. On the point David Laws made about Sub-Saharan
Africa with two representatives representing over 40 countriesand
these are debt ridden countries, war torn countries, countries
that are just making their way democratically, in fact the poorest
countries in the world almostthe need for us to do something
in that area is urgent. So it certainly does not seem adequate
that there is that level of representation. Again I think it is
something that would help the IMF if moves were made to ensure
that there were more executive directors in that Continent.
(Mr Scholar) That is a proposal that has been put
recently by both the directors representing Sub-Saharan Africa.
It is something we will discuss during the course of the year
and we have an open mind on that. We are looking at it. It is
not something we have reached a view on yet. There are various
ways in which you could strengthen representation. There is the
possibility of an extra chair or chairs, as you say, there is
the possibility of changing the voting shares, and there is the
possibility of strengthening the capacity of the countries themselves
to engage in IMF work through their representatives in Washington.
These are all things we are looking at.
52. Could I just ask has the IMF discussed the
United States' proposals for increasing farm subsidies?
(Mr Scholar) Not yet, but we will do soon because
the regular annual surveillance of the US economy, the Article
IV surveillance is due to be discussed in July and I am sure that
will be part of that discussion.
53. And that will be published?
(Mr Scholar) The United States publishes its Article
IV reportthat is right.
Chairman: On surveillance and standards
and codes, Nigel?
54. The report at paragraphs 3.11 and 3.12 says:
"The Government welcomes the steps taken by the Fund to strengthen
their surveillance of the financial sectors", and goes on
later to say an important step was the establishment of the new
International Capital Markets Department. Could you say how that
new department and the Financial Stability Forum, which is also
reflected in that part of the report, are working together to
carry out regulation and publish international comparisons?
(Mr Scholar) The Capital Markets Department was established
last autumn and it is doing a number of things. It is producing
its own surveillance of the global capital markets and it publishes
every quarter a global financial stability report. Another thing
it does is work with other departments in the IMF, in particular
the country departments to add a greater degree of capital markets
focus into the regular surveillance work and programme work of
the Fund. On the question how does it relate to the work of the
Financial Stability Forum, the director of the capital markets
group sits on the Financial Stability Forum and is able to give
that group the benefit of the surveillance work that the Fund
has carried out in these areas and, equally, is able to report
back to the Fund on discussions; so there is a direct link there.
55. What are the main means of surveillance?
Are they still the Article IV reports from different countries?
(Mr Scholar) Yes, there are three levels to it really.
There is the Article IV report which focuses on individual countries.
There are then occasional looks at regional surveillance, but
most importantly I would say, apart from the Article IV, is the
global surveillance twice a year on the world economic outlook,
and that is a very substantial piece of work which surveys economies
across the world, both recent development and prospects. We also
have the new quarterly report on financial markets.
(Mr Pickford) If I could add specifically on the financial
sector, of course the Fund also has a very extensive financial
sector assessment programme where it supplements the Article IV
surveillance for individual countries by looking in depth at the
health of that sector, the regulatory regime and so on. Indeed,
the United Kingdom is in the process of having one of these assessments
done to its financial sector. I think there are 20-odd financial
sector assessments complete and another 40 or so planned. So this
is a very, very extensive programme coming out of the lessons
we learned from the Asian crisis which is that the health of the
financial sector is very important.
56. How do you overcome the problems you have
of Article IV reports with certain countries not wanting information
on their financial sector economy published?
(Mr Scholar) The IMF's surveillance applies to both
the Article IV reports and financial sector assessments. The basis
of it is that while having the surveillance done is a condition
of membership of the IMF, the decision on whether to publish or
not is voluntary. There has been quite a change in the last few
years in that until 1999 none of these documents were published.
There was a pilot in 1999 to allow some to be published, and the
United Kingdom was one of the first countries to volunteer for
that. That policy was confirmed in 2000 and now the IMF encourages
countries to publish and we at the Board, and those of other countries
too, encourage countries to publish. It is something though that
can only move forward by consensus with the agreement of the country
concerned, because the IMF relies on the co-operation of countries
and it is their right to have the decision whether or not to publish.
We are very keen to push it forward and what we and others do
is to explain to countries the benefits of greater transparency
and greater publication.
57. How many countries at present will not allow
publication and which are the main ones of them?
(Mr Scholar) I think the current figures are that
roughly two-thirds (6065 per cent) of Article IVs are published.
58. Would it be a fair assumption that amongst
the other third who do not there are likely to be some of the
(Mr Scholar) No one knows where the future crises
are but of the countries that do publish and the countries that
do not there are some in each category. For example, one country
that has had a very serious crisis recently is Turkey and Turkey
is one of the countries that is very transparent in the publication
of its documents. One thing we are trying to persuade people of
is that greater publication is itself a very effective crisis
prevention tool. This applies to surveillance documents and also
to reports on standards and codes that look at the policy frameworks
in place in countries. What we say to countries is, first of all,
having these reports on codes and standards done is a very useful
way of guiding them towards best practice but, secondly, publishing
the results does a great deal to strengthen market confidence.
For example, countries that subscribe to the special data dissemination
standard, which sets out quite high standards of requirements
for the publication of financial and other information, tend to
find on average their borrowing costs are 200 to 300 basis points
lower than those that do not subscribe. There are clear benefits
and we are looking all the time to encourage countries to participate
59. Are you satisfied that had these arrangements
been in place at the appropriate time you would have been able
to identify the emerging crises in Asia or Russia or do you not
(Mr Scholar) There are two elements to spotting crises
through surveillance. First of all, there is the work of the Fund
itself in its dialogue with the membership and it is the responsibility
of the Fund to spot emerging problems and to provide advice to
countries on how to deal with them. So that is one thing. Secondly,
the greater the degree of transparency the stronger the crisis
(Mr Pickford) If I could give you just one example.
Thailand went into crisis in 1997. It was the first country that
led the Asian crisis and with the benefit of hindsight one of
the problems in Thailand was that the true position of the Central
Bank's foreign exchange reserves was not obvious either in public
or indeed to the Fund with sufficient frequency, and that is one
reason why we have put a lot of weight in terms of trying to encourage
countries to sign up for better data standards to produce more,
and more timely, information. It may not have averted the crisis
but we certainly would have known earlier what the scale of problems
facing that country were.