International Monetary Fund (IMF) Reform: Past Solutions, Current Proposals (CRS Report for Congress)
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| Release Date |
May 28, 1999 |
| Report Number |
RL30132 |
| Report Type |
Report |
| Authors |
Patricia A. Wertman, Foreign Affairs, Defense, and Trade Division |
| Source Agency |
Congressional Research Service |
Summary:
Major changes in the International Monetary Fund (IMF) and the international monetary system
have
been reflected in amendments to the IMF's Articles of Agreement, its "constitution." Changes to
the IMF's Articles require an 85% majority of the voting power, giving the United States, with
17.56% of the vote, a veto. Under the Bretton Woods Agreement Act (P. L. 79-171, 22 U.S.C. 286),
any proposed changes to the IMF's Articles require congressional approval. Thus, by extension, the
U.S. Congress has a veto power over changes to the IMF's Articles. Beyond the specific issues of
amending the IMF's Articles, legislation enacted by the 105th Congress laid the groundwork for a
much more active oversight of the IMF, its role, and any proposed changes in the "architecture" of
the international monetary system. Finally, some proposals that do not involve amending the IMF's
Articles might also be expressed in legislation.
The IMF's Articles have been amended three times and, appropriately, the changes have been
designated the First, Second, and Third Amendments. The First Amendment created the "Special
Drawing Right" (SDR), an international reserve asset issued by the IMF. The Second Amendment
was the first and, so far, only comprehensive rewrite of the IMF's Articles of Agreement. It
legitimized the floating exchange rate system that replaced the "fixed" exchange rate Bretton Woods
system in the early 1970s. The Third Amendment, approved in 1992, addressed the problem of a
build-up of arrears that were owed by the poorer countries and that threatened the IMF's own
liquidity.
The period 1997-1999 has been one of enormous economic and financial turmoil. An
examination of the history of amendments to the IMF's charter, however, shows much that is
familiar, including: increased levels of cross-border capital flows, increased economic integration,
increased market-pricing of exchange rates, the preeminence of the market over the regulator, and
financial innovation.
The significant difference is the extent to which emerging market countries, transitional
economies, and the poorer less developed countries have become a part of the global economy. This
has been abetted by major advances in communications technology. These changes turned a
financial crisis in Thailand into a global crisis.
A number of proposals are emerging that are intended to reform the IMF and the "architecture"
of the international monetary system. A proposed Fourth Amendment, like the Third Amendment,
reflects the number of transitional and poor countries that form the IMF's membership and loan base.
The Fourth Amendment would provide additional liquidity to some 39 member countries by
permitting a targeted allocation of SDRs. This would require congressional approval, but not U.S.
Budgetary funding. Finally, a controversial proposal to amend the IMF's Articles of Agreement to
allow it to oversee the orderly liberalization of capital accounts has emerged. Agreement on the text,
however, has not been reached.
This report will not be updated.
