International Monetary Fund (IMF) Reform: Past Solutions, Current Proposals

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.