Staff in black (Bretton Woods Project)

"The longest serving board member, Iranian Abbas Mirakhor, convinced the others to hold off any decision on salary cuts until the end of January..."

Thanks to pressure from the major shareholders the IMF’s new managing director Dominique Strauss-Kahn is being forced to cut the IMF’s budget. Internal documents reveal some details of the restructuring, including 15 per cent staff layoffs and charges for technical assistance, but fail to shed light on whether the Fund will shift away from dictating to poor countries and towards overseeing global markets.

The December announcement by Strauss-Kahn that he would lay off 300 to 400 staff (see Update 58) is being viewed as a quid pro quo to secure US Treasury support for giving the IMF an endowment. The G7 has demanded that the IMF cut its expenses before considering how to boost its income. Inside sources have said that the managing director has been holed up in his office working on the Fund’s budget and how to come up with cuts to the work force, meaning that he has had little time to work on what is supposed to be the “cornerstone” of Fund reform: changes to its governance structure.

An internal working group on human resources released a confidential report in November, which has also been leaked. The paper, drawn up before Strauss-Kahn announced the staff cuts, recommended “that any needed workforce adjustment be addressed in a one-off move, rather than a drawn-out process that would prolong uncertainty and corrode staff morale.”

Leaked copies of Strauss-Kahn’s early January statement to the executive board committee on the budget and subsequent message to all Fund staff indicate that the Fund will largely be targeting the middle management of the institution. He would “like the process of downsizing to rely on voluntary approaches to separation to the extent possible” and plans to open a voluntary early retirement window from the end of January.

The biggest immediate change is to retirement rules to allow any staff member over the age of 50 to retire with an unreduced pension. There is no plan to eliminate the Fund's defined benefit pension scheme even though countless Fund programmes in developing countries have required pension restructuring and privatisation. A move to combine divisions within departments should further encourage division chiefs and other older staff to leave voluntarily leave. A further incentive may be an effort to “reduce[e] the costs of Fund technical assistance for example by … making greater use of former Fund staff.” To further boost voluntary retirement Strauss-Kahn also asked the board to modify the rule on pay-outs to fired staff, to boost the severance packages for those who have not worked at the Fund long and reduce the payments to those who are near retirement.

Dissension in the ranks
According to internal documents, the IMF’s usually orderly hierarchy has already been convulsed by salary and compensation disputes in 2007, and the new changes will only add to the discord. The Fund launched an employment compensation and benefits review (ECBR) in 2004, which resulted in final report in 2005 and an executive board decision in 2006. That decision prompted the Staff Association Committee (SAC), governing board of the staff association, to initiate a legal case with the IMF administrative tribunal to stop the salary restructuring. This unprecedented legal challenge to the authority of the IMF executive board to set employment policies was rejected by the tribunal in January 2007 but was only the first in a series of tumultuous events.

The day after the rejection of the legal challenge by the IMF administrative tribunal one of the officers of the Staff Association Committee (SAC), launched an ultimately unsuccessful campaign to amend the constitution of the association to make it more transparent and accountable.

The day after the rejection of the legal challenge Binta Terrier, one of the officers of the SAC, launched a campaign to amend the constitution of the staff association. She indicated: “Over the past year and a half, the staff has been adversely affected by developments in the Fund’s human resource policies, which underscore a critical need to strengthen the staff association.” Terrier blamed budgetary pressures within the Fund, but lamented that “the burden has so far fallen disproportionately on the most vulnerable staff.” Inside sources have indicated that there is displeasure amongst administrative staff who feel marginalised with the staff association because the chair almost always comes from the same department and the officers are usually professional staff rather than administrative staff. In the end the constitutional changes were not approved leaving the SAC chair with little oversight or accountability.

Despite the tribunal decision, IMF management has yet to resolve the most controversial issue related to salaries: pay for the IMF’s lowest level staff, 87 per cent of whom are women. The management had proposed a 15 per cent pay cut and separate pay lines for staff within the same pay grade depending on whether their functions were administrative or specialised. This prompted an end-August debate of the staff association, with over 500 members taking part. An IMF intranet article said that “staff out of solidarity wore black to protest proposed changes to [support staff] compensation.” According to inside sources, some support staff ended up appealing directly to the executive board in advance of an early September meeting to consider the change. The longest serving board member, Iranian Abbas Mirakhor, convinced the others to hold off any decision on salary cuts until the end of January.

When contacted about the planned staff lay offs members of the SAC either did not return phone calls or refused to comment.

Paying the piper?
Beyond the lay offs, further work on efficiency and reduced expenditures at the IMF was to be worked out by the managing director for another meeting of the board’s budget committee on 6 February. Proposals on the table include a new department for multilateral surveillance, which would produce new versions of the World Economic Outlook and Global Financial Stability Report, both of which would see modifications to their content and sequencing. This may facilitate lay offs in the divisions currently responsible for these products.

Another proposal was to force staff to work on multiple countries in the proposed larger divisions. Rather than reducing the frequency of Article IV reports, annual check-ups on members’ economies, Strauss-Kahn prefers “less-paper intensive” board discussion based on mission concluding statements and oral presentations rather than formal papers which are costly because of the need for multiple reviews by all departments involved.

In terms of low-income countries, there are plans to reduce staff because of less intensive work related to debt relief initiatives. Strauss-Kahn also seems to favour reducing the frequency of programme reviews, currently every six months for low-income countries with Poverty Reduction and Growth Facility (PRGF) loans or Policy Support Instruments, special oversight arrangements that come with no financing. There was no talk of civil society’s preferred option: for the IMF to drastically scale down, if not eliminate altogether, its work in low-income countries (see Update 52).

The most radical change will be in the provision of technical assistance (TA), where charges, varying according to the income of the country and the importance the Fund attaches to the work, will be introduced. Areas of TA which the Fund considers vital will be provided free or at much reduced cost, while areas that the Fund does not consider vital will carry full charges. It is claimed that this gives “both the Fund and member countries a role in assigning value to technical assistance.” The IMF wants donors to contribute more to pay for IMF technical assistance and is considering adopting the trust fund model used by the Bank (see Update 47). That would give the Fund a pot of donor resources for use on specific topics.

This is very different from civil society proposals that TA be driven solely by country demand. NGO ActionAid’s Real Aid report series has highlighted how the use of TA in donor aid budgets leads to “phantom aid” that “is not genuinely available to poor countries to fight poverty”. The IMF’s proposals, aside from soaking up limited aid resources, would also worsen the ability of developing countries to control the TA agenda, with both the IMF and donors jointly controlling the allocation of money. The varying charges would ensure that low-income countries will be channelled into a TA agenda set by the IMF and operating on the institution’s own economic model. In contrast ActionAid has called for TA that is “fully untied, predictable, co-ordinated and channelled through a host government managed fund.”

Some other proposals aired in the managing director’s statement include: cuts to the number of documents produced jointly with the World Bank; more tightly focussed financial sector assessments, greater integration of economic and financial sector surveillance, simplified document review processes, outsourcing of more functions such as human resources, and leasing out IMF property including its second headquarters building and apartment building.

Strauss-Kahn is expecting reports from five working groups chaired by department heads and “10 smaller task forces led by senior staff” to feed into the final proposals. As of yet the IMF has not announced plans to publish the final reports let alone seek public consultation. Strauss-Kahn seems to be repeating the mistakes of his predecessor in keeping the process secret (see Update 50). Outside of the US Treasury, his new triumvirate of advisors – Bank of Israel governor Stanley Fischer, former US Treasury official Tim Adams, and former West African central bank governor Alassane Ouattara – will likely be the most influential.

The managing director’s statement is clear that the efficiency measures combined with voluntary retirement will not be enough and some staff will have to be fired. Strauss-Kahn plans to send full and detailed proposals on the income side, based on the Crockett report (see Update 55), and the expenditure side together to the executive board on 24 March. That would leave just enough time to prepare resolutions for votes by the board of governors during the spring meetings in April. Get out your black suits.