A Checklist for IMF Reform

The House of Representatives soon is likely to consider the Clinton Administration’s request for $17.9 billion in additional funding for the International Monetary Fund (IMF). 2 The Senate approved this request on March 26, 1998; and even though it expressed support for requiring some reform by the IMF in return for the new appropriation, it neglected the most basic and harmful problems of the IMF and failed to provide any teeth to force either the IMF or the Administration to comply with its reforms. 3

4 Requests for additional funding for the IMF generally occur every several years and rarely receive the attention given the current request. Policymakers thus have the important opportunity to force the IMF to make significant reforms in the way it does business.

Although there will be extensive debate in Congress over specific IMF reform proposals, there is general agreement among most policymakers that the IMF needs to be reformed. Thus, there is a growing consensus that the IMF no longer can conduct business as usual–a consensus that has not existed to this extent in previous IMF funding debates. Moreover, there also is a nearly unanimous belief that the IMF and the Clinton Administration should be required specifically to implement congressionally mandated reforms. This means that reform legislation must avoid loopholes that would allow the IMF and the Administration to ignore Congress’s intent and contain enforcement language and consequences if they fail to abide by the legislation. To achieve this, Congress is considering a host of proposals. Maybe you would like to read a post about the international monetary fund purpose.


Three reform proposals are essential to solve the systemic problems with the IMF or are necessary to allow other reform proposals to be effective. These proposals are:

  • No U.S. agency, official, or agent should be allowed to transfer any money to the IMF until the reforms specified by Congress are enacted. Although existing legislation demanding IMF reform should be made more effective and more clearly defined, the primary problem is not a paucity of instruction; it is a lack of enforcement. Over the past two decades, Congress passed over 30 different requirements on IMF activities as well as instructions to the U.S. Executive Director to the IMF on how to use his “voice and vote” to advance reforms. 5 These laws have had little impact because of a lack of any meaningful enforcement measures or consequences for non-compliance. If Congress is serious about reforming the IMF, it should attach palpable and effective enforcement mechanisms to its requirements. Congress, of course, has no direct authority over the IMF, and U.S. calls for reform are drowned out by the IMF bureaucracy and the many other countries that benefit from and support the status quo. Regardless of what reform Congress wishes to impose on the IMF, none will be implemented unless Congress forces the organization to comply by withholding the only thing the IMF needs–U.S. funding. Such an enforcement mechanism is contained in only one existing piece of legislation: the IMF Transparency and Efficiency Act of 1998 (H.R. 3331), sponsored by Representatives Jim Saxton (R-NJ), Richard K. Armey (R-TX), and Tom Campbell (R-CA). Senator Ben Nighthorse Campbell (R-CO) has introduced a companion bill, S. 1979.

  • The IMF must adopt mandatory voting on all financial and procedural decisions and make the voting record available to the legislative branch of its member countries and the public at large. Like most international organizations, the IMF has two major methods of enacting decisions: consensus and procedural voting. The consensus procedure does not require a vote for or against an issue; a recorded vote, however, shows where the voting parties stood on specific issues. This is particularly important for an organization like the IMF, which approves billions of dollars in loans to its members each year. Past congressional legislation to reform the IMF generally relied on the U.S. Executive Director to the IMF to use his “voice and vote” to implement reforms. As U.S. Executive Director Karin Lissakers recently testified before Congress, however, the IMF voted on only about a dozen of over 2,000 financial and procedural decisions during her four-year tenure. 6 Congressional mandates on how the U.S. Executive Director was to vote thus were circumvented 99.4 percent of the time because the IMF almost never votes. Simply requiring the Clinton Administration to instruct U.S. representatives at the IMF to demand recorded votes would increase the impact of past legislation. Requiring these votes to be public information would increase Congress’s ability to determine whether the Administration representative is voting in concordance with congressional mandates.

  • All IMF documents are made available to the public. The IMF refuses to release the vast majority of its information on economic policies, past performance, and internal meetings to the press, public, or Congress. Although the lack of public transparency is disturbing, the IMF’s refusal to grant congressional offices access to its records is unacceptable. The IMF essentially is demanding that the United States contribute billions of dollars to its coffers while denying Congress the information necessary to conduct an informed debate on the necessity and benefits of those contributions. For example, reports charging that the IMF exacerbated the crisis in Indonesia were leaked to the press in January 1998. When Congress requested these reports in order to consider President Bill Clinton’s request for increased funding, it was denied. Eventually, the U.S. Department of the Treasury, under pressure from members of the Joint Economic Committee (JEC), agreed to release the reports, but only to the JEC, not the entire Congress. This secrecy is unacceptable. No U.S. funds should be appropriated to the IMF until these reports are made public, as well as all the information necessary to conduct an open and informed debate on the IMF. 7

Targeted Proposals for Reform

Policymakers also are advancing a number of more targeted proposals that would build on these fundamental reforms. The list that follows is far from a comprehensive guide to IMF reform proposals. It does, however, show the kinds of specific IMF deficiencies that Congress is seeking to remedy. Under these proposals, no funds should be appropriated to the IMF until:

  1. The Clinton Administration agrees to ensure that the U.S. Executive Director to the IMF testifies before Congress biannually to provide documentation and answer congressional queries on his performance and IMF actions. The IMF lends vast amounts of U.S. taxpayer dollars to the majority of the world’s countries. The conditions attached to these loans have significant influence on investment flows to and economic and social policies in recipient countries. Congress has the obligation to determine whether these loans are having a beneficial or detrimental impact on the U.S. economy and citizens. As the representative of the United States in the IMF who oversees the organization’s daily affairs, the U.S. Executive Director should testify biannually before the relevant congressional committees. This would perform a necessary and, heretofore, unmet function of congressional oversight.8 Congressional testimony provides the important opportunity for lawmakers to pose questions on the actions of the IMF, clarify discrepancies or ill-defined information in materials provided by the IMF, and assess the effectiveness of legislation addressing the IMF. As a part of this testimony, the U.S. Executive Director also should be required to provide comprehensive information on the annual and cumulative financial cost to the U.S. taxpayer of U.S. membership in the IMF. 9

  2. The IMF eliminates subsidized interest rates on loans. The IMF extends loans at conditional, or below-market, rates. These range from the roughly 4.5 percent charged on what are called Stand-by Arrangements to nearly zero, as with the Enhanced Structural Adjustment Facility loans that charge annual interest of only 0.5 percent. 10 These subsidized interest rates are far below what developed countries in general would be able to secure in private markets and much less than those available to developing countries in financial crisis with poor credit records. Requiring the IMF to charge market-determined interest rates on its loans would minimize market distortions; ensure that IMF loan recipients are held to the same standards for its loans as are private individuals, private companies, and countries not eligible for IMF subsidies; reinforce market perceptions of risk; and eliminate the backdoor transfer of wealth from Americans to the governments of countries that made unwise economic decisions. 11 A provision requiring the IMF to eliminate subsidized interest rates on its loans is included in the IMF Transparency and Efficiency Act of 1998.

  3. The IMF requires that private investors and institutions–not taxpayers–bear the primary cost of financial crises. IMF bailouts enable investors and financial institutions to escape financial crises with little hardship, while the citizens in crisis-ridden countries bear the expense of the bailout. 12 An amendment by Representatives Bernard Sanders and Spencer Bachus (R-AL) would withhold authorization of U.S. contributions to the IMF until the U.S. Secretary of the Treasury certified that the IMF had amended its bylaws to require that investors and banks made a significant prior contribution, such as debt relief, rolling over existing debt, or providing new credit, before U.S. taxpayer dollars are used to bail out countries through multilateral organizations such as the IMF or domestic funds like the Exchange Stabilization Fund (ESF). 13

  4. The IMF agrees to allow an independent advisory board to review IMF policies and recommendations. One of the more common reform proposals is to establish an independent review board to examine and evaluate IMF policies and loan conditions. One example of this is contained in the IMF Transparency and Efficiency Act, which directs the IMF to establish a 24-member independent advisory board, appointed by the legislatures of the members of the IMF Executive Board, to “review the research, operations, and loan programs of the [IMF].” The advisory board would release public reports annually on its activities and conclusions.

  5. IMF member countries agree to convene a second Bretton Woods. Since 1944, when the IMF, the World Bank, and the General Agreement on Tariffs and Trade were founded by 44 countries at Bretton Woods, New Hampshire, the international financial system has changed dramatically. These changes, including the abandonment of the gold standard, raise questions about whether the IMF is correctly structured for the modern global economy–or even necessary. 14 This reform would express the sense of the Congress that the Clinton Administration should actively pursue a second meeting to examine whether the organizations established at Bretton Woods remain relevant 50 years after their creation and, if so, what role they should play in the global economy.

  6. The IMF eliminates the tax credit for its employees. The average IMF professional staff member makes $94,341 a year and receives generous benefits and perquisites (including living allowances and compensation for educational expenses for their children at private schools and universities). Moreover, the IMF reimburses its employees for all taxes levied by their home country on their salaries. As noted by The Wall Street Journal,

If only IMF policy shapers had some of their own pocket change at risk, they just might prove a tad more cautious about pushing for things like higher taxes and bailouts. 15

One bill before Congress, H.R. 3785, introduced by Representative Ed Royce (R-CA), would require the IMF to end this program.

  1. The IMF implements a policy to end successive bailouts. Most countries being financially bailed out are not new to the IMF program–many have received dozens of previous loans and IMF guidance with little demonstrable progress. The IMF should be encouraged to end this perpetual stream of subsidized loans. Congress could accomplish this by requiring the IMF to restrict all borrowers to a one-time loan program. Thus, if a country sought a financial bailout from the IMF, one condition for the bailout should be that the recipient country no longer could qualify for any additional aid in the future.

  2. The U.S. General Accounting Office (GAO) conducts an audit of IMF lending practices. The GAO has performed intensive audits on domestic programs, such as the U.S. foreign aid program. Such studies have proved invaluable in measuring the effectiveness of specific programs and identifying instances of fraud, waste, and abuse. Congress could tap the expertise of the GAO to launch a new audit of the IMF that focuses specifically on the economic performance of IMF recipients; the effectiveness and efficiency of IMF programs in meeting the organization’s stated goals; the effectiveness of the IMF in inducing recipient countries to adopt specific economic policies; and the IMF’s financial records. Congress could demand that the IMF open its records and financial statements to GAO audits.

  3. The U.S. Department of State reports to Congress on the level of economic freedom in IMF recipient countries. There is no accounting of the economic conditions in many of the countries that receive IMF loans. Congress could require that the U.S. representatives at the IMF submit a report detailing the economic conditions that exist in all countries that receive IMF funding. Specifically, this report should include information on the level of economic freedom that exists in the following areas: trade, taxation, government intervention in the economy, monetary policy, banking, foreign investment, regulation, wage and price controls, and property rights. A bill to require this information (H.R. 3256) was introduced by Representative Gerald Solomon (R-NY).

  4. The IMF expels countries that are under international sanctions recognized by the United Nations (U.N.). Such countries as Iraq and Libya that are under U.N. economic or travel sanctions are the rogues of the international community. These countries should not receive succor through IMF assistance. H.R. 3599, sponsored by Representative Jim Saxton, would prohibit the “provision of Federal funds to the [IMF] until Iraq is expelled.” In effect, this would cut Iraq off from an external source of funding that could undermine U.N. and U.S. efforts to destroy Iraq’s weapons of mass destruction. This requirement should be expanded to include all such rogue states.

  5. The IMF publicly identifies beneficiaries of IMF assistance. Although the IMF is restricted to lending only to its member governments, such assistance often benefits private individuals, institutions, and businesses. Countries receiving IMF assistance should be required to report private beneficiaries of IMF assistance as a condition of receiving the assistance. For example, this would include all private debts assumed or guaranteed by the government and businesses supported by government subsidies. Once reported, the IMF should be required to release this information to the public in a timely fashion. On the following link you will find how does the international monetary fund work?

  6. /a>The Clinton Administration instructs U.S. representatives at the IMF to vote against any expansion of the IMF’s power or mandate. During its Board of Governors meeting in April 1998, the IMF announced its desire to amend its Articles of Agreement to grant the organization the power to force member countries to alter existing policies on land ownership and investment through loan conditionality or even economic sanction. 16 This amendment drastically and unacceptably would increase the IMF’s power and influence in the global economy. An amendment by Representatives Ron Klink (D-PA) and Ileana Ros-Lehtinen (R-FL) would require the United States to oppose the change to the IMF’s Articles of Agreement before providing the IMF with any additional funding.

  7. The Clinton Administration agrees to seek congressional approval prior to the extension of any loans from the Exchange Stabilization Fund. The Administration increasingly has utilized the ESF to supplement international bailouts. The ESF was the main source of funding for the U.S. supplement to the IMF bailout of Mexico in 1995. 17 The Administration also indicated that the ESF would be the source of $8 billion in promised U.S. bilateral assistance to Indonesia and South Korea in the ongoing Asian crisis. Greater congressional oversight of the ESF would supplement restrictions on the IMF by ensuring that another avenue for international bailouts would be restricted. 18

  8. The IMF establishes a firm cap on financial assistance available for any one country. The IMF currently has a guideline, adopted in 1994, that annual access to IMF credit be restricted to 100 percent of a country’s quota (the amount of money that country is required to contribute to the IMF main account) and that cumulative access be limited to 300 percent of the quota. This means no one country is supposed to be able to borrow more from the IMF in any one year than it has contributed to the IMF and is never supposed to be in debt to the IMF for more than 300 percent of what it has contributed. The IMF has been in violation of the rule often in recent years (see Table 1), however. Congress should require the IMF to follow its own lending rules.

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  1. IMF recipients eliminate barriers to agricultural imports. One reform proposal calls on Congress to provide no funding for the IMF until the organization agreed to require every IMF loan recipient to eliminate all tariff and nontariff barriers to agricultural imports before any loan was distributed and adopt this requirement into its by-laws. This would include all tariffs, fees, charges, quotas, subsidies for domestic agricultural products, government protection of domestic market share, unequal treatment of foreign agricultural products, and any other practice that would discriminate against all foreign agricultural products or those of particular countries.

  2. Expenses incurred through IMF membership are accurately accounted for in the U.S. budget. Under the current system, U.S. funds contributed to the IMF are regarded as an exchange of assets and are not considered when calculating annual budget deficits or surpluses. Moreover, as a result of the Budget Enforcement Act of 1990 (P.L. 101-508, Title XIII; 104 Stat. 1388-573), funding for the IMF is exempt from budget caps. The fact, however, is that the U.S. participation in the IMF does have fiscal impact on the United States and has added $4.617 billion to the national debt, according to the Congressional Research Service. 19 In addition, contributions to the IMF are not an exchange of equal assets. In return for dollars, the United States receives “special drawing rights,” which are useful only in restricted circumstances. Rather than being budget-neutral, IMF funding should be viewed more accurately as a permanent transfer of resources. The United States is not likely to get its money back unless it withdraws from the organization or undergoes economic collapse–in which case the IMF hardly would have the necessary funds because most of the world would be in severe economic trouble. IMF funding should be treated like any other appropriation–subject to budget rules and calculated into the annual budget.


Most policymakers recognize that the IMF has faults and needs to be reformed. Strong disagreement exists on which policies the IMF should advocate–and even if the modern world requires an IMF. There should be little dispute in Congress, however, over establishing the structure necessary to determine whether granting the organization an additional $18 billion would be in the best interests of U.S. taxpayers. Nor should there be much dissent in creating the circumstances making it more likely that the IMF and the Clinton Administration abide by U.S. law. Congress could work toward these goals by adopting reform language and making them prerequisites to continued U.S. participation. At the very least, no funds should be appropriated to the IMF until Congress is satisfied that it has demanded the reform necessary to minimize the destructive nature of the IMF and that it is satisfied that the IMF and the Administration will abide by this reform.


— Bryan T. Johnson is Policy Analyst for International Economic Affairs in The Kathryn and Shelby Cullom Davis International Studies Center at The Heritage Foundation.


— Brett D. Schaefer is Jay Kingham Fellow in International Regulatory Affairs at The Heritage Foundation.



1. The authors would like to thank Ryan Storm, a 1998 summer intern at The Heritage Foundation from Pepperdine University, for his assistance in researching this paper.

2.This amount includes an increase in the U.S. share of IMF general account, or quota, by about 45 percent–or about $14.5 billion–and an additional $3.4 billion for an emergency credit line called the “new arrangements to borrow” (NAB).

3.For details on the Senate bill, see Brett D. Schaefer, “How Congress Should Reform the International Monetary Fund,” Heritage Foundation Backgrounder No. 1167, April 3, 1998.

4. For detailed criticism of the IMF and the detrimental effects of its policies on developing countries and the global economy, see Edwin J. Feulner, Jr., “The IMF Needs Real Reforms, Not More Money,” Heritage Foundation Backgrounder No. 1175, May 9, 1998; Bryan T. Johnson and Brett D. Schaefer, “Agricultural Exports and the IMF: Separating Myth from Reality,” Heritage Foundation Backgrounder No. 1178, May 11, 1998; Johnson and Schaefer, “Congress Should Give No More Funds to the IMF,” Heritage Foundation Backgrounder No. 1157, February 12, 1998; Johnson and Schaefer, “No New Funding for the IMF,” Heritage Foundation Backgrounder Update No. 287, September 23, 1997; Johnson and Schaefer, “The International Monetary Fund: Outdated, Ineffective, and Unnecessary,” Heritage Foundation Backgrounder No. 1113, May 6, 1997; Bryan T. Johnson and John Sweeney, “Down the Drain: Why the IMF Bailout in Asia Is Wasteful and Won’t Work,” Heritage Foundation Backgrounder No. 1150, December 5, 1997.

5.Patricia A. Wertman and Pamela Hairston, “The IMF and ‘Voice and Vote’ Amendments: A Compilation,” Congressional Research Service, Economics Division, April 15, 1998. For a more complete discussion of the effectiveness of past reform efforts see Feulner, “The IMF Needs Real Reforms, Not More Money.”

6.Testimony of Karin Lissakers, U.S. Executive Director to the IMF, Hearing on the International Monetary Fund (IMF) Before the General Oversight Subcommittee of the Banking and Financial Services Committee, U.S. House of Representatives, 105th Cong., 2nd Sess., April 21, 1998.

7. On June 11, 1998, the House Republican leadership (Speaker Newt Gingrich [R-GA], Representatives Richard K. Armey [R-TX], Christopher Cox [R-CA], Tom DeLay [R-TX], and John Boehner [R-OH]) advised President Clinton in a letter that the House required more information in order to consider the Administration’s $18 billion funding request for the IMF. Thirty-nine Representatives signed a June 25, 1998, letter to the Speaker supporting the statement and requesting a full floor debate on the issue.

8. The current U.S. Executive Director to the IMF, Karin Lissakers, has testified before Congress only once, although she has served as U.S. Executive Director for nearly four years. As a result, Congress has limited understanding of the IMF and its practices, and Members are prevented from representing the interests of their constituents effectively.

9. An amendment by Dennis J. Kucinich (D-OH) would go one step further and withhold U.S. funding until the U.S. Secretary of the Treasury certified that the IMF Articles of Agreement have been changed to require that the IMF Managing Director visit the legislatures of the member countries annually and make himself available for legislative committee hearings.

10. International Monetary Fund, “The IMF at a Glance,” April 1998.   Even the most creditworthy countries cannot receive such interest rates on the private financial markets. For example, the United States must pay between 5 and 7 percent on government bonds of similar maturity.

11.See “IMF Financing: A Review of the Issues,” Joint Economic Committee, U.S. House of Representatives, at  ; Lawrence B. Lindsey, “The Benefits of Bankruptcy,” The Weekly Standard, January 12, 1998, pp. 24-28; James K. Glassman, “Who Needs the IMF?” The Washington Post, December 9, 1997, p. A25; William E. Simon, George P. Shultz, and Walter B. Wriston, “Who Needs the IMF?” The Wall Street Journal, February 3, 1998, p. A22; Charles W. Calomiris, “The IMF’s Imprudent Role as Lender of Last Resort,” Cato Journal, Winter 1998, pp. 275-294.

12.See Feulner, “The IMF Needs Real Reforms, Not More Money.”

13.The Exchange Stabilization Fund (ESF) is a reserve fund of fluctuating worth ($40.106 billion on September 30, 1997, according to “Audited Fiscal Years 1997 and 1996 Financial Statement of the Exchange Stabilization Fund,” Office of Inspector General, United States Department of the Treasury, OIG-98-043, March 31, 1998) controlled by the Secretary of the Treasury. It contains U.S. dollars, foreign currencies, IMF special drawing rights, and (periodically) outstanding loans. It was established by Congress in 1934 to stabilize the dollar and foreign exchange markets. Many experts and Members of Congress have supported restrictions on the ESF. Examples include Senator Lauch Faircloth, “Unwise Bailouts,” The Washington Post, December 12, 1997; “How Bill Clinton Plans to Spend the ‘Surplus’: Bailing Out Foreign Governments–and Their Western Underwriters,” Center for Security Policy Perspective No. 98-C2, January 7, 1998.

14.For a comprehensive analysis, see Johnson and Schaefer, “The International Monetary Fund: Outdated, Ineffective, and Unnecessary.”

15. “The IMF Wrinkle,” The Wall Street Journal, Review & Outlook, April 10, 1998, p. A10.

16.Communique of the Interim Committee of the Board of Governors of the International Monetary Fund, Press Release No. 98/14, International Monetary Fund, April 16, 1998; and Lorraine Wollert, “IMF Seeks Power Over Markets,” The Washington Times, March 21, 1998, p. A1.

17. Mexico had received $13.5 billion in U.S. funds from the ESF ($20 billion was made available) as of December 20, 1996. December Monthly Report to Congress, Summaries of the Treasury Secretary’s Monthly Reports, July-December 1996.

18. Several proposals to restrict the ESF have been suggested. The Foreign Government Bailout Accountability Act of 1998 (H.R. 3138), sponsored by Representative Spencer Bachus, requires presidential certification that any ESF loan or obligation pose no cost to U.S. taxpayers and be backed by an assured source of repayment. It also requires an act of Congress to extend loans or obligations to any one country or entity in excess of $1 billion over 180 days. The Accountability for International Bailouts Act of 1998 (S. 1458 and H.R. 3106) would require congressional approval for ESF loans or obligations in excess of $250 million. Representative John Dingell’s (D-MI) bill, H.R. 3573, is much looser in only requiring the Secretary of the Treasury to certify that the recipient country is meeting its commitments to the IMF before the Treasury could disperse or obligate ESF funds in excess of $500 million for an international rescue plan.

19. Patricia A. Wertman, “Costs of U.S. Participation in the International Monetary Fund (IMF),” Congressional Research Service private memorandum to Representative Ron Paul, October 20, 1997, p. 10. A subsequent report confirmed this amount, stating, “The impact of transactions with the IMF was…$4.6 billion outstanding at the end of calendar year 1990.” Patricia A. Wertman, “International Monetary Fund (IMF): Costs and Benefits of U.S. Participation,” Congressional Research Service, April 29, 1990, p. 14.

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