GAO

United States General Accounting Office

Report to Congressional Committees

January 2001 INTERNATIONAL 

MONETARY FUND

Efforts to Advance 

U.S. Policies at the 

Fund

GAO-01-214

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Contents

Letter 3

Appendixes Appendix I: U.S. Legislative Policy Mandates Concerning the 

International Monetary Fund 22

Appendix II: Treasury’s Process for Pursuing IMF Legislative

Mandates 32

Appendix III: U.S. Policy on Sound Banking Principles at the IMF 38

Appendix IV: U.S. Policy on Labor Issues at the IMF 46

Appendix V: U.S. Policy on Audits of Military Expenditures at 

the IMF 56

Appendix VI: Objectives, Scope, and Methodology 67

Appendix VII: Comments From the Department of the Treasury. 71

Appendix VIII: GAO Contact and Staff Acknowledgments 73

Tables Table 1: U.S. Legislative Mandates Concerning the IMF 23

Table 2: Examples of Broad Policies That Are Addressed in 

Multiple Laws 30

Table 3: Examples of Banking Sector Reforms Promoted by the 

IMF and the U.S. Executive Director in India, Mexico,

Romania, South Africa, and Thailand Since 1998 42

Table 4: Labor Issues in Argentina, Ghana, Kazakhstan, Mexico, 

and Thailand Since 1998 48

Table 5: The United States, the IMF, and Five Countries’ Efforts

to Conform to the U.S. Audits of Military Expenditures

Mandate, as of November 30, 2000 61

Figure Figure 1: Treasury’s Process for Pursuing IMF Mandates 35

Abbreviations

AFL-CIO American Federation of Labor-Congress of Industrial 

Organizations

ILO International Labor Organization

IMF International Monetary Fund
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United States General Accounting Office

Washington, D.C. 20548 Letr

January 29, 2001

Congressional Committees

In recent years, extensive congressional and public attention has been 

focused on the appropriate role of the International Monetary Fund in the 

international financial system. The Fund is the chief intergovernmental 

financial institution whose core mission is to promote monetary 

cooperation and exchange rate stability1

 and provide resources to Fund 

member countries that experience balance-of-payments difficulties.2

Considerable attention has been given to how to define the Fund’s mission, 

whether narrowly, to core issues as described in the Fund’s charter, or 

more broadly, to address other concerns less traditionally in the Fund’s 

purview. The Department of the Treasury has the lead role within the 

executive branch regarding U.S. policy toward the Fund. The U.S. 

Executive Director, who is appointed by the President, represents the 

United States at the Fund and pursues U.S. policy objectives through its 

vote in the Fund’s Executive Board.3

1

 The Fund’s mission is to promote exchange stability among member countries, maintain 

orderly currency exchange arrangements among members, and avoid competitive currency 

exchange depreciation.

2

 Balance-of-payments problems occur when a country has difficulty obtaining the financial 

resources needed to meet its payments to nonresidents.

3

 The Executive Board oversees the day-to-day business of the Fund. The Board is 

composed of 24 executive directors, who are appointed or elected by member countries or 

by groups of member countries. The President appoints, with the advice and consent of the 

Senate, the U.S. Executive Director to represent the United States on the Board. 
Page 4 GAO-01-214 International Monetary Fund

As an international organization, the Fund in general is exempt from U.S. 

law. One of the ways in which the U.S. Congress endeavors to influence 

Fund policy is by passing legislative provisions or mandates that direct the 

Secretary of the Treasury to instruct the U.S. Executive Director to pursue 

specific policies or vote on certain programs or assistance within the Board 

of the Fund. We have identified 60 provisions of federal law that set forth 

U.S. policy toward the Fund. These mandates cover a wide range of 

policies, including issues considered core to the mission of the Fund, such 

as exchange rate policy, and emerging issues such as environmental policy. 

The legislation often directs Treasury to instruct the U.S. Executive 

Director to use its “voice” and/or “vote” at the Executive Board to bring 

about a policy change at the Fund. Most mandates instruct Treasury and 

the U.S. Executive Director to pursue a policy goal at the Fund but also 

provide some discretion in how to implement this instruction. However, 

some mandates are more directive in that they require in certain 

circumstances4

 that Treasury instruct the U.S. Executive Director to 

oppose (which in practice means to vote against or abstain from voting 

on)5

 a country’s Fund arrangement.6 For example, the U.S. Executive 

Director is directed to oppose financial assistance for a country that has 

excessive debt service payments. (See app. I for more information on the 

60 legislative policy mandates we identified concerning the Fund.)

4

 According to Treasury, the administration, along with previous administrations, believes 

that directed voting provisions, if construed as mandatory, are an impermissible intrusion 

on the President’s constitutional authority over the conduct of foreign affairs.

5

 Treasury interprets the term “oppose” to allow an absention or a no vote. According to 

Treasury officials, this interpretation is based on language in a 1977 House Conference 

Report regarding the International Monetary Fund mandate on human rights (22 U.S.C. 

262d). In this report, the conferees stated their view that “the term ‘oppose’ can mean voting 

‘no,’ voting present, abstention, or any other action other than voting ‘yes’”(H.R. Conference 

Report No. 95-363).

6

 In this report, we use the term “arrangement” to describe the broad concept of the financial 

assistance the Fund provides to countries and the associated conditions that are intended to 

address the underlying causes of the countries’ need for financial assistance. We use the 

term “program” to describe the conditions, which are the policy changes or reforms, as 

outlined in the documents countries prepare in the context of their receiving Fund 

assistance.
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The Consolidated Appropriations Act for Fiscal Year 2000 (P.L. 106-113 

sec. 504 (e)) requires GAO to report on the extent to which Fund practices 

are consistent with U.S. policies set forth in federal law. In order to address 

this requirement, we (1) identified how the U.S. Treasury and the U.S. 

Executive Director promote U.S. policies mandated by Congress for the 

Fund and (2) assessed whether Treasury and the Executive Director have 

been able to influence Fund operations and other members’ policy 

positions in a direction that would be consistent with U.S. policy as set 

forth in law.7

 To help answer these objectives, we analyzed the process by 

which Treasury pursues its legislative mandates and conducted case 

studies of specific U.S. policies and Treasury’s efforts to promote them for 

individual countries’ Fund arrangements from 1998 through 2000. 

The policy issues we selected for the case studies are (1) sound banking 

principles, (2) labor policies, and (3) audits of military expenditures.8

 These 

policies encompass issues that are both central to the traditional focus of 

the Fund’s mission as well as issues that are not necessarily viewed by all 

Fund members as a core part of the Fund’s mission. Further, these policies 

represent both “voice” and “directed vote” provisions.9

 For each policy 

issue, we reviewed Fund practices with respect to five member countries 

that we selected based on a number of factors, including geographic 

diversity; level of economic development; type of Fund arrangement,10 if 

applicable; and range of issues connected to the policy concern. 

Specifically, we selected 12 countries for our respective case studies: 

7

 Recognizing that influence by any member of the Fund is hard to discern in an organization 

that generally operates by consensus, for the purposes of this report we defined “influence” 

as the ability of the United States to affect Fund policies as contained in Fund programs, as 

well as the actions of countries using Fund resources.

8

 These policy issues are mandated in the following legislative provisions: (1) sound banking 

principles, 22 U.S.C. 262o-2 (Oct. 21, 1998); (2) labor policies, 22 U.S.C. 262p-4p (Aug. 23, 

1994) and 22 U.S.C. 262o-2 (Oct. 21, 1998); and (3) audits of military expenditures, 22 U.S.C. 

262k-1 (Sept. 30, 1996).

9

 In this report, we consider “voice” mandates to be those that direct Treasury to instruct the 

U.S. Executive Director to promote a policy goal at the Fund but stop short of explicitly 

directing the U.S. Executive Director to take a particular voting position. We use the term 

“directed vote” to refer to those mandates that require that the U.S. Executive Director take 

a specific voting position in certain circumstances.

10 The Fund has a number of instruments that it uses to provide financial assistance to its 

member countries. The instruments differ with respect to their term length and lending 

rates, according to the nature of the balance-of-payments difficulty faced by borrowing 

countries and their level of economic development. 
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(1) for sound banking principles—India, Mexico, Romania, South Africa, 

and Thailand; (2) for labor policies—Argentina, Ghana, Kazakhstan, 

Mexico, and Thailand; and (3) for audits of military expenditures—Burkina 

Faso, Guinea-Bissau, Indonesia, Kazakhstan, and Rwanda. Since we 

focused primarily on Fund rather than country practices, we did not travel 

to any of these countries as part of this review. We spoke with Fund 

officials who monitor developments in these countries as well as with 

several executive directors of the Fund’s Executive Board in Washington, 

D.C. (For more information on our scope and methodology, see app. VI.)

Results in Brief In 1999, the U.S. Treasury established a formal process to systematically 

promote congressionally mandated policies toward the International 

Monetary Fund. Treasury created an internal task force that routinely seeks 

to advance legislative mandates by identifying opportunities for the United 

States to influence decisions through discussions with Fund and member 

country officials and formal statements to the Fund’s Executive Board 

regarding members’ programs and economic reviews. The process involves 

using the internal task force as a coordinating mechanism to increase 

awareness within Treasury of mandates that may be applicable to certain 

countries and of opportunities to provide early input to the U.S. Executive 

Director as part of the effort to promote U.S. policies. Because these 

legislative provisions direct Treasury to instruct the U.S. Executive 

Director to promote specific policies at the Fund, they are commonly 

referred to as “mandates.” However, to varying degrees U.S. officials have 

flexibility in determining how best to promote a particular policy by, for 

example, taking into account the individual circumstances of each country 

when promoting specific policies. Our case study analyses show that 

Treasury and the U.S. Executive Director actively promoted U.S. policies 

related to sound banking principles, labor issues, and audits of military 

expenditures as required by the applicable legislative mandates, using the 

task force and other venues to identify opportunities to advance these 

policies where applicable to Fund members.

While Treasury and the U.S. Executive Director have had some influence 

over Fund policies, it is difficult to attribute the adoption of a policy within 

the Fund solely to the influence and efforts of any one member, because 

the Fund generally operates on a consensus decision-making basis. For 

example, although the U.S. Executive Director has been a strong advocate 

of the reforms called for within the “sound banking principles” mandate, it 

is hard to discern the U.S.’ unique influence in promoting this policy, 

because other Fund members also generally support sound banking 
Page 7 GAO-01-214 International Monetary Fund

principles. Furthermore, the adoption or implementation of a policy at the 

Fund depends in large part on whether the Fund’s members perceive the 

policy as being closely related to the institution’s core mission as described 

in the Fund’s charter, according to Treasury and Fund officials. For 

example, Treasury and the U.S. Executive Director have not had much 

success in incorporating labor standards issues within Fund programs, 

because core labor standards are not generally viewed by other Board 

members and staff as an essential part of a country’s macroeconomic 

reform program. Moreover, legislative mandates that limit the discretion of 

U.S. officials have an uncertain impact on U.S. influence at the Fund. For 

example, although Treasury’s pursuit of the audits of military expenditures 

mandate illustrates how this directed vote mandate has successfully 

increased pressure for countries to implement this U.S.-promoted reform, 

the mandate may have had a negative impact on the broader influence of 

the United States at the Fund. Some Fund members we spoke with 

questioned whether the United States promoted audits of military 

expenditures in certain countries simply because it is a legislatively 

mandated directed vote and not because it is among the most important 

issues confronting that country. In these members’ view, such limitations 

on an executive director’s discretion run counter to the consensus 

decision-making approach of the Fund. Therefore, while U.S. officials we 

spoke with said they are pleased with the progress realized through their 

pursuit of the mandate, they see a risk to U.S. credibility when they must 

emphasize one issue over other pressing matters that a country may be 

confronting.
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Background The International Monetary Fund is a cooperative, intergovernmental, 

monetary and financial institution, and as of November 2000, it had 182 

members. As part of the Fund’s mission to promote financial cooperation 

among its members, the Fund may provide financial assistance to countries 

facing actual or potential balance-of-payments difficulties that request such 

assistance. The Fund’s approach for providing financial assistance to its 

members has two main components—financing and conditionality—that 

are intended to address both the immediate crises as well as the underlying 

factors that contributed to the difficulties. The access to and disbursement 

of Fund financial assistance are conditioned upon the adoption and pursuit 

of economic and structural policy measures the Fund and recipient 

countries negotiate. This Fund “conditionality,” usually in the form of 

performance criteria and policy benchmarks,11 aims to alleviate the 

underlying economic difficulty that led to the country’s 

balance-of-payments problem and ensure repayment to the Fund. 

The Fund’s general framework for establishing a financial assistance 

arrangement is applied on a case-by-case basis that considers each 

country’s individual circumstances. The Fund and the recipient countries 

negotiate conditions for receiving Fund assistance that include a variety of 

changes in a country’s fiscal, monetary, and structural policies. Over the 

course of the arrangement, Fund staff and country officials periodically 

review the program’s status, and Fund staff determine whether or not the 

country has made satisfactory progress with respect to meeting the 

program’s conditions. In addition to providing financial assistance, the 

Fund conducts surveillance and provides policy advice regarding members’ 

economic policies as they relate to their overall external payments 

position. Article IV of the Fund’s charter provides that all members undergo 

a consultation process with the Fund as part of the surveillance effort; 

these reviews are usually conducted on an annual basis.

11 Performance criteria are clearly observable and measurable indicators that a country is 

making progress toward reaching the overall goals of its Fund program, such as 

strengthening the balance-of-payments and reducing inflation. Members generally must 

meet performance criteria to qualify for financial disbursements under a program. 

Benchmarks are points of references against which progress may be monitored, but Fund 

disbursements are not dependent upon meeting these benchmarks. Benchmarks are not 

necessarily quantitative and frequently relate to structural variables and policies, such as 

tax reform and privatizing state-owned enterprises.
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Treasury Uses a 

Systematic Process to 

Promote Mandates 

Based on Countries’ 

Circumstances

The Treasury has instituted a systematic process for applying legislative 

mandates concerning the Fund to individual countries, based on their 

economic circumstances. This process, adopted in 1999, uses a task force 

to facilitate coordination between Treasury and the U.S. Executive Director 

and to identify early opportunities to influence decisions regarding Fund 

members’ programs and economic reviews. Generally, Treasury and the 

U.S. Executive Director’s office pursue the mandates that are most relevant 

to the particular circumstances of a given country, because they believe 

that this is where they can have the greatest impact and success in 

influencing Fund members. Our case study analyses show that Treasury 

and the U.S. Executive Director have actively promoted U.S. policies 

related to sound banking principles, labor issues, and audits of military 

expenditures as required by the applicable legislative mandates, through 

their discussions with Fund and member country officials and formal 

statements to the Fund’s Executive Board. 

The Treasury Has a 

Systematic Process to 

Review Mandates

In response to the growing number and complexity of legislative mandates 

concerning the Fund, Treasury has created a formal process to advance 

U.S. objectives at the Fund. Specifically, in March 1999 Treasury set up the 

Task Force on Implementation of U.S. Policy and Reforms in the 

International Monetary Fund. The task force was designed in part to 

increase awareness among Treasury officials of the importance of the 

mandates and identify opportunities to provide early input to the U.S. 

Executive Director to advance U.S. objectives toward the Fund. Treasury 

recognized the need to strengthen its efforts to routinely review and 

coordinate how mandates may apply to countries, because previously it 

had used an ad hoc approach of addressing mandates that relied heavily on 

Treasury officials’ own initiative to be cognizant of mandates. 

Under its new process, Treasury disseminates information on the mandates 

to all officials working on Fund matters and also makes reference material 

on the mandates easily accessible electronically. In addition, 

representatives from Treasury offices who work on Fund matters, and a 

representative from the U.S. Executive Director’s office, meet every 

2 weeks as the task force to discuss how Treasury and the U.S. Executive 

Director can best apply mandates, given countries’ economic 

circumstances. In between these meetings, Treasury and U.S. Executive 

Director officials also coordinate to formulate and implement U.S. 

objectives at the Fund. (A detailed description of Treasury’s process for 

pursuing legislative mandates concerning the Fund is provided in app. II.)
Page 10 GAO-01-214 International Monetary Fund

Treasury and U.S. Executive Director officials use a variety of means to 

pursue legislative mandates as part of their efforts to achieve U.S. policy 

objectives within the Fund. For example, on a regular basis the U.S. 

Executive Director makes oral and written statements to the Fund’s 

Executive Board to make Board members aware of U.S. policy objectives 

regarding requests from countries for new programs, Fund reviews of 

existing programs, and regular Fund reviews of all members’ economic 

policies. In addition, to build support for U.S. policy goals, U.S. officials 

also discuss U.S. policy objectives informally with other executive 

directors, Fund management and staff, and occasionally country 

authorities, particularly when the Fund is involved in negotiating with 

countries about financial arrangements. U.S. officials also attempt to build 

support within the broader political arena to achieve U.S. objectives at the 

Fund. According to the U.S. Executive Director, a large part of advancing 

any policy issue is to reach a “critical mass” of support among other 

countries for a particular policy. Therefore, for some policies the dialogue 

necessary to reach an international political consensus also takes place 

outside of the Fund in other international forums. 

Treasury’s Process 

Considers a Country’s 

Circumstances When 

Applying Mandates 

Since the legislative provisions direct Treasury to instruct the U.S. 

Executive Director to promote specific policies at the Fund, these policies 

are often referred to as “mandates.” However, to varying degrees U.S. 

officials have flexibility in determining how best to promote particular 

policies at the Fund. This flexibility generally allows Treasury and the U.S. 

Executive Director to take into account the individual circumstances of 

each country when promoting specific policies. This is especially true of 

mandates that do not involve directed votes, as is the case for most of the 

legislative mandates that concern the Fund. Treasury officials told us they 

promote such mandates for each country on a case-by-case basis, using 

their knowledge and judgment to decide whether an individual mandate is 

most relevant for a country and, moreover, whether a particular time is 

appropriate for advancing a mandate given a country’s economic 

circumstances. Countries that approach the Fund for financial assistance 

often face multiple economic problems, and Treasury prioritizes how best 

to address these problems. According to Treasury and U.S. Executive 

Director officials, the U.S. message can be made more compelling and 

effective when priorities are set based on country circumstances, taking 

into consideration the range of problems that can be manageably 

addressed at one time. 
Page 11 GAO-01-214 International Monetary Fund

However, some legislative mandates that pertain to the Fund are more 

prescriptive in nature. According to Treasury’s Office of the General 

Counsel, Treasury and the U.S. Executive Director are more constrained in 

the degree of flexibility they have to implement these mandates because 

they usually direct the U.S. Executive Director to oppose (which in practice 

means to vote against or abstain from voting on) a financial arrangement or 

Fund disbursement when a country meets or does not meet certain criteria. 

Examples include when a country has what is considered excessive 

external debt service payments or has been determined by the President to 

violate religious freedom. The directed nature of these mandates compels 

Treasury and the Executive Director to promote them regardless of 

whether they believe it is an appropriate time to do so given a country’s 

overall circumstances.

Case Study Results Show 

U.S. Officials Promoted 

Policies as Required by 

Legislation 

From 1998 through 2000, Treasury and U.S. Executive Director officials 

actively promoted the policies we reviewed in our case studies—sound 

banking principles, labor standards, and audits of military expenditures—

as required by the applicable legislative mandates, by identifying 

opportunities to influence Fund members’ program and economic reviews. 

For each policy, Treasury and U.S. Executive Director staff worked 

together to prioritize the issues that should be raised for each country. They 

then promoted those policies that they viewed as most relevant for the 

countries we reviewed, given the country’s economic and political 

circumstances. For example, in a 1999 statement to the Fund’s Executive 

Board in support of a new program for Kazakhstan, the U.S. Executive 

Director urged Kazakhstan both to ensure that any reforms to its labor 

code be consistent with internationally recognized labor standards and to 

consult with the International Labor Organization12 on this matter. Also, for 

a country that did not have a financial arrangement with the Fund, such as 

India, but where Treasury had prominent banking sector concerns, the U.S. 

Executive Director repeatedly highlighted U.S. concerns in statements to 

the Board during the Fund’s regular reviews of India’s economic policies. 

If Treasury determines through its analysis that a policy is not a major 

concern relative to other priorities for an individual country, it is not 

12 The International Labor Organization is a specialized agency of the United Nations that 

traditionally has addressed labor issues. Created in 1919, this organization has a mandate to 

improve working conditions and living standards for workers throughout the world. It 

currently has 174 member countries.
Page 12 GAO-01-214 International Monetary Fund

pursued at that time, unless it is a directed vote mandate. For example, 

until recently, Treasury determined that adherence to labor standards was 

not a major concern in Ghana relative to other problems Ghana faces as a 

poor country.13 According to a Treasury official, developing countries like 

Ghana typically lack an industrial base large enough for the protection of 

workers’ rights to be a major issue. In poor countries, labor issues, such as 

abusive child labor, are more likely to reflect human rights concerns than 

economic ones and thus are more difficult for the Fund to address. 

Difficult to Discern 

U.S. Unique Influence 

Over Fund Policies 

Our case study analysis indicates that while Treasury and the U.S. 

Executive Director have had some influence over Fund policies, it is 

difficult to attribute the adoption of a policy within the Fund solely to the 

influence and efforts of any one member, because the Fund generally 

operates on a consensus decision-making basis. Furthermore, the Fund’s 

willingness to adopt policy positions that are consistent with U.S. 

legislatively mandated policies is affected by whether a majority of Fund 

members perceive a given policy to be part of the Fund’s core mission to 

promote monetary cooperation and currency exchange rate stability and to 

provide resources to Fund members experiencing balance-of-payments 

problems. Moreover, mandated policies that constrain the U.S. Executive 

Director’s discretion may increase pressure on countries to implement 

specific U.S.-promoted reforms but may have a negative impact on the 

broader U.S. influence at the Fund by limiting the ability of U.S. 

policymakers to consider the overall circumstances confronting countries.

Core Policies While Treasury and the U.S. Executive Director have actively promoted 

sound banking principles at the Fund, it is difficult to discern the unique 

influence of the United States because of the general agreement within the 

Fund that strengthening members’ banking sectors is part of the Fund’s 

core mission. Moreover, since the Fund’s Executive Board generally 

operates on a consensus basis in making decisions, it is hard to distinguish 

the U.S.’ influence within the Fund from that of other members. In recent 

years, partly in response to economic crises faced by Mexico in 1994-95 and 

several Asian countries in 1997-98, the Fund increased its emphasis on 

13 In an August 2000 statement to the Fund’s Executive Board, the U.S. Executive Director 

urged Ghanaian authorities to move forward with new draft labor legislation, which 

Treasury’s labor specialist identified as conforming to International Labor Organization 

standards.
Page 13 GAO-01-214 International Monetary Fund

strengthening banking and banking supervision as part of members’ 

programs. Fund members now see a close interrelationship between 

weaknesses in a country’s banking system and the susceptibility of that 

country to financial shocks. Moreover, the Fund now realizes that 

encouraging countries to have a strong framework of financial regulatory 

policies and institutions is key to maintaining macroeconomic stability, 

according to Fund officials we interviewed.

As a result, according to Treasury and Fund officials, strengthening a 

country’s banking sector has been promoted irrespective of any U.S. 

legislative mandate because it is now considered an important part of both 

Treasury and the Fund’s ongoing work. Treasury and the U.S. Executive 

Director have generally been in agreement with the Fund’s approach for 

pursuing these reforms, and the U.S. Executive Director has been viewed 

by Fund officials as a strong advocate among many supporters for the 

Fund’s involvement in this area. (For more information about Treasury and 

U.S. Executive Director efforts to promote sound banking principles with 

the Fund, see app. III.)

The challenge to Treasury and the U.S. Executive Director, amid 

widespread member support for sound banking principles, has been in 

deciding how to influence what the Fund emphasizes within a country’s 

overall banking reform agenda. Given the complexity of banking issues and 

the difficulty in addressing banking reforms, especially reforms that require 

legal changes, there may occasionally be disagreement among the Board 

members on the pace of reform of the banking sector in a particular 

country, according to some executive directors. Nevertheless, we did not 

identify evidence of disagreement on the importance of pursuing sound 

banking policies for the five countries we reviewed, making it difficult to 

distinguish the U.S. Executive Director’s overall influence from those of 

other members in this area. 
Page 14 GAO-01-214 International Monetary Fund

Noncore Policies In contrast, Treasury and the U.S. Executive Director have found it more 

difficult to advance some mandated policies, such as those promoting the 

adherence to the five internationally recognized core labor standards14 or 

the adoption of environmental protection policies,15 because, according to 

Treasury and Fund officials, these policies do not directly relate to the 

Fund’s traditional mission. For example, some Fund officials believe that in 

individual country circumstances, core labor standards issues are not 

central to the economic problems causing the countries’ macroeconomic 

difficulties. Instead, the Fund views these policies as more closely related 

to the work of the International Labor Organization or the missions of other 

international financial institutions, such as the World Bank. The Fund 

views the mission of these institutions to be more focused on problems 

stemming from microeconomic, sector-specific concerns within 

countries.16

According to a labor policy specialist at Treasury, the Fund’s reluctance to 

consider labor standards within the scope of its work is due in part to 

conflicting academic literature on whether certain labor standards have 

beneficial or detrimental effects on economic growth. Conventional 

economic theory treats certain social policies, such as labor and 

environmental standards, as government interventions that can inhibit the 

efficient operation of the markets and, in turn, overall economic growth. 

According to this Treasury official, since most Fund staff and country 

representatives are trained as economists, they are reluctant to pursue 

policies that their training tells them could be counter to the Fund’s goal of 

encouraging economic growth. As one Executive Director at the Fund 

expressed, the implication of promoting stronger social standards in a 

country is higher unemployment. If the choice is between workers being 

employed under less than ideal labor conditions or not having them work at 

14 These standards are (1) the freedom of workers to associate with one another, (2) the 

right to organize and bargain collectively, (3) the prohibition of exploitative child labor, 

(4) the prohibition of forced or compulsory labor, and (5) the protection against 

discrimination in employment.

15 For example, 22 U.S.C. 286ll requires that Treasury instruct the U.S. Executive Director to 

encourage the Fund to make further progress toward environmentally sound policies and 

programs and incorporate environmental considerations into all Fund programs.

16 Although the promotion of labor standards is not usually part of a Fund program, in 

certain countries the Fund has focused on increasing the flexibility of members’ labor 

markets. Such conditions have been viewed by some as possibly counter to the goals of the 

U.S. labor standards mandate.
Page 15 GAO-01-214 International Monetary Fund

all, the Executive Director favored having the workers be employed and 

earning income.

While Treasury and the U.S. Executive Director have made special efforts 

to advance U.S. policy on core labor standards at the Fund, they have found 

it challenging to convince other members that consideration of labor 

standards fits within the Fund’s work. Despite the resistance at the Fund to 

the labor standards policy, the U.S. Executive Director has tried to build 

support for this policy by discussing it with individual executive directors 

who may be receptive to including this issue in Fund programs. In addition, 

the U.S. Executive Director has noted in statements to the Executive Board 

the importance of labor concerns in particular countries. For example, on 

several occasions the U.S. Executive Director has expressed concern over 

inadequate attention given to protecting labor standards in reviews of 

Mexico’s Fund program. Specifically, these statements noted the need to 

protect the freedom of workers to associate and bargain collectively and to 

prevent gender discrimination while Mexico was undertaking reforms to 

modernize its labor market. Likewise, in commenting on Thailand’s 

program at the Executive Board, the U.S. Executive Director urged Thai 

authorities to bring their labor laws into compliance with international 

standards and address complaints concerning legal restrictions on the 

rights to unionize and bargain collectively for employees of state 

enterprises. Despite these and other statements by the U.S. Executive 

Director in support of labor standards, we did not find evidence that the 

Fund has sought to have the adherence of labor standards specifically 

incorporated as a structural benchmark or performance criterion within a 

program.17 (The Treasury’s and the U.S. Executive Director’s efforts to 

promote labor policies at the Fund are described in more detail in app. IV.)

17 The fact that a policy is not immediately accepted at the Fund does not mean that it will 

not become accepted over time. According to the U.S. Executive Director, sometimes it is 

the cumulative effect of many efforts that finally achieves results in advancing U.S. policy 

objectives. Gradually, through many debates and Board discussions, a change can take place 

in sentiment among members as they begin to support these policies. An example is the 

effort to increase transparency, that is, the amount of information publicly available about 

Fund operations and its lending to member countries. Treasury and U.S. Executive Director 

officials told us that the United States and a few other members pushed very hard over a 

number of years before other members changed their views and supported increased 

transparency at the Fund. Good governance, including ensuring rule of law, improving the 

efficiency and accountability of the public sector, and tackling corruption, is another 

example of a policy that was not considered part of the Fund’s core mission but in recent 

years has become an increasing focus of the Fund’s work. Increased transparency and good 

governance are both the subjects of U.S. legislative mandates. 
Page 16 GAO-01-214 International Monetary Fund

In certain circumstances, Treasury and the U.S. Executive Director have 

had difficulty reaching consensus on how adherence to core labor 

standards best fits into the Fund’s work and how to effectively advance 

U.S. policy on labor issues at the Fund. For example, in March 2000, a 

Treasury official recommended that the U.S. Executive Director ask the 

Fund to report on the state of collective bargaining, union organization, and 

labor and management relations in Argentina, especially in the context of 

the U.S. Executive Director’s and the Fund’s recommended labor reforms 

in that country. However, the U.S. Executive Director did not raise this 

point because concerns were advanced that such a review of the Argentine 

labor market was beyond the Fund’s expertise.

To help address these ongoing challenges, Treasury has developed two 

documents since April 2000. One is a reference document outlining 

economic arguments for the relevance of labor standards to the Fund’s 

work for use by U.S. officials in their discussions with Fund members. The 

other is a document that sets out guidelines on how Treasury should 

advance U.S. policy on labor standards at the Fund through the U.S. 

Executive Director’s office. Treasury adopted these guidelines in November 

2000, after several months of internal debate during which senior Treasury 

policy officials were consulted to settle differences of view among

staff-level officials. According to Treasury officials, the guidelines clarify 

U.S. policy objectives and legislative obligations concerning labor 

standards to facilitate Treasury’s efforts to provide the U.S. Executive 

Director with timely and effective input.

Directed Vote The impact of directed vote mandates on U.S. influence at the Fund is 

uncertain. By limiting the discretion of the U.S. Executive Director, such 

mandates may increase pressure for countries to implement U.S.-promoted 

reforms but may have had a negative impact on the broader U.S. influence 

at the Fund by limiting the ability of U.S. policymakers to consider the 

overall circumstances confronting countries. This tradeoff is demonstrated 

by the audits of military expenditures mandate. Specifically, this mandate 

directs the U.S. Executive Director to oppose (which in practice means to 

vote against or abstain from voting on) any loan or utilization of funds for 

countries that do not have a functioning system for conducting an audit of 

military spending and reporting the results to a civilian authority. On the 

one hand, U.S. efforts to advance the mandate have successfully increased 

pressure on countries to make their military audit systems conform to the 

mandate’s requirements. On the other hand, the constraints the mandate 

places on U.S. officials may negatively affect U.S. credibility at the Fund, 
Page 17 GAO-01-214 International Monetary Fund

according to Treasury, U.S. Executive Director, and Fund officials. For 

example, the mandate has required Treasury and U.S. Executive Director 

officials to raise military audit concerns when they otherwise may not have 

chosen to do so because of the overall circumstances confronting the 

country. As a result, other Board members expressed the view that the 

United States may at times promote the issue primarily because it is a 

legislative requirement and not because it is the most appropriate for the 

borrowing country at that time. 

U.S. efforts to promote audits of military expenditures and influence the 

Fund have met with some success. Several countries we examined 

improved their military audit systems, partly in response to the threat of 

U.S. opposition to their Fund programs. All of these countries had a 

financial arrangement with the Fund where the U.S. directed vote could be 

applied.18 Although U.S. opposition to a Fund arrangement does not, on its 

own, prevent a country from having access to Fund resources,19 countries 

strive to avoid having the Fund’s largest member register such opposition, 

according to an official in the U.S. Executive Director’s office. For example, 

following the threat of U.S. opposition to their receipt of resources under 

their Fund arrangement, both Burkina Faso and Rwanda took steps to 

improve their military audit processes or accelerated efforts to conform to 

the U.S. mandate.20

18 For this case study, we chose five countries that have financial arrangements with the 

Fund because the directed vote is only applied to countries with such arrangements. In 

1999, U.S. officials deemed 22 countries as noncompliant with the mandate; of these, only 

the 5 countries we selected have had a financial arrangement with the Fund since the 

mandate went into effect. Four of the five countries we reviewed have become compliant. 

However, while Treasury and the U.S. Executive Director have pursued the mandate with 

several additional countries, only 1 of the other 17 countries that were originally deemed 

noncompliant and that have not had a financial arrangement with the Fund has become 

compliant as of November 9, 2000.

19Approval of the use of Fund resources requires the acceptance by a simple majority of the 

votes cast of the Executive Board. Since the U.S.’ share of voting power represents about 

17 percent of the total, the United States cannot unilaterally block the approval of a 

country’s program.

20 It should not be concluded that U.S. leverage is always this evident when a mandate 

requires a directed vote. According to a Treasury representative, the importance of the issue 

has been generally agreed to within the Fund. In contrast, the U.S. Executive Director at the 

World Bank routinely opposes loans to countries due to several additional directed vote 

mandates, including those pertaining to human rights, the environment, and nuclear 

nonproliferation. According to an official from the World Bank’s U.S. Executive Director’s 

office, the routine nature of the U.S. opposition has blunted its impact and has not 

necessarily led to any change in countries’ policies.
Page 18 GAO-01-214 International Monetary Fund

U.S. efforts to advance the mandate have been successful in four of the five 

countries we reviewed in part because the Fund has agreed that military 

audits are important for countries where military spending is not 

transparent or where there is suspicion that the country may have high 

levels of hidden, off-budget spending for the military. Prior to Treasury’s 

implementation of the mandate in 1999, the Fund already viewed excessive 

and unproductive spending by the military as having an adverse impact on 

individual countries’ overall macroeconomic stability. Generally, the Fund 

does not require countries to perform annual audits of military spending. 

Fund members we spoke with generally agreed that the auditing and 

transparency mechanisms promoted by the mandate could potentially 

bring important information regarding military spending to the attention of 

donors. The Fund’s agreement on the importance of audits of military 

expenditures is part of a broader campaign to improve the transparency 

and management of public finances. This has made it easier for the U.S. 

Executive Director to promote this mandate than, for example, the core 

labor standards mandate.

Treasury and U.S. Executive Director officials are pleased with the 

progress that has been made in bringing several countries that are under a 

financial arrangement with the Fund into compliance with the mandate’s 

requirements. However, at the same time, several of these officials are 

concerned that the lack of discretion that the mandate gives the U.S. 

Executive Director can have negative consequences. For example, the 

mandate required Treasury and U.S. Executive Director officials to raise 

audits of military expenditures concerns with Indonesia, when they 

otherwise might not have chosen to do so, given the overall circumstances 

confronting the country. In their view, the economic and political turmoil 

that the country has faced in recent years has presented more pressing 

reform priorities than the improvement of the audit of its military 

expenditures. Nevertheless, Treasury and the U.S. Executive Director were 

compelled by the directive nature of the mandate to make this a high 

priority issue with the country. This lack of discretion could also result in 

U.S. opposition to a program that it believes should be endorsed. For 

example, the U.S. Executive Director was compelled to abstain from voting 

to make a financial disbursement for Rwanda’s program because Rwanda 

was not yet in full compliance with the standards set forth in the military 

audit mandate. This occurred despite Treasury’s knowledge that Rwanda 

would become compliant with the mandate shortly, and, in Treasury’s 

judgment, was making satisfactory progress in implementing economic 

reforms and improving fiscal transparency. Other Fund Board members 

questioned whether the U.S. Executive Director pursued military audit 
Page 19 GAO-01-214 International Monetary Fund

concerns because of the legislative requirements and not necessarily 

because it was most appropriate for these countries at the time. These 

Board members noted that limitations on an executive director’s discretion 

run counter to the consensus decision-making approach of the Fund. 

Therefore, while Treasury and U.S. Executive Director officials agree with 

the intent of the mandate, they see a risk to U.S. credibility when Treasury 

and the U.S. Executive Director must emphasize an issue over other 

pressing matters that a borrowing country may be confronting. (See also 

app. V for more information on Treasury and U.S. Executive Director 

officials’ efforts to advance this mandate.)

Agency Comments and 

Our Evaluation

We received written comments on a draft of this report from the 

Department of Treasury, which are reprinted in appendix VII. Treasury’s 

comments characterized the report as a thorough and balanced appraisal of 

the administration’s efforts to advance in the Fund policies set out in U.S. 

legislative mandates. Treasury said that the report helps illustrate the risk 

that legislative mandates can at times weaken its ability to promote in the 

Fund the very objectives that the mandates aim to achieve. Treasury also 

states that the continued expansion of legislative mandates by Congress, 

without consolidating the provisions already in effect, risks overloading 

and thereby weakening its policy message and influence at the Fund.

Treasury and the International Monetary Fund separately provided 

technical comments that GAO discussed with relevant officials and 

included in the text of the report, where appropriate.

We are sending copies of this report to other interested committees; the 

Honorable Paul H. O’Neill, Secretary of the Treasury; the Honorable Horst 

Köhler, Managing Director of the International Monetary Fund; and other 

interested parties. Copies will also be made available to others upon 

request.
Page 20 GAO-01-214 International Monetary Fund

Please contact me at (202) 512-4128 if you or your staff have any questions 

concerning this report. Another GAO contact and staff acknowledgments 

are listed in appendix VIII. 

Harold J. Johnson, Director

International Affairs and Trade

Sheila K. Ratzenberger, Managing Associate

General Counsel
Page 21 GAO-01-214 International Monetary Fund

List of Committees

The Honorable Jesse A. Helms

Chairman

The Honorable Joseph R. Biden, Jr.

Ranking Member

Committee on Foreign Relations

United States Senate

The Honorable Ted Stevens

Chairman

The Honorable Robert C. Byrd

Ranking Member

Committee on Appropriations

United States Senate

The Honorable Michael G. Oxley

Chairman

The Honorable John J. LaFalce

Ranking Minority Member

Committee on Financial Services

House of Representatives

The Honorable Bill Young

Chairman

The Honorable David R. Obey

Ranking Minority Member

Committee on Appropriations

House of Representatives
Page 22 GAO-01-214 International Monetary Fund

Appendix I

U.S. Legislative Policy Mandates Concerning Apendxies

the International Monetary Fund ApendxiI

We identified 60 legislative mandates concerning U.S. policy objectives 

toward the International Monetary Fund (IMF) as of November 2000 

through our own legal analysis supplemented with documentation obtained 

from the Department of the Treasury. We used two criteria as the basis for 

identifying the relevant laws for this review. These criteria were defined as 

(1) any current law that explicitly directs the U.S. Executive Director to the 

IMF to use its vote at the IMF to achieve a policy goal and (2) any current 

law that seeks to have the U.S. Executive Director use its voice at the IMF 

to promote a U.S. policy or make a policy change. Table 1 identifies the 

mandates and includes a brief description of the broad policy objective 

they address, as well as some of the actions they require on the part of the 

U.S. Treasury and the U.S. Executive Director. The mandates span more 

than 50 years, dating from as early as 1945 to as recently as 2000, with the 

majority being enacted in the last decade. Many mandates address multiple 

policy issues, sometimes overlapping with one another. Table 2 identifies 

some policies that are addressed in multiple laws.

Many of the mandates direct the Secretary of the Treasury to instruct the 

U.S. Executive Director to use its “voice” and “vote” at the IMF to pursue 

certain policies. Other mandates are even more directive in that they 

require Treasury to instruct the U.S. Executive Director in certain 

circumstances to oppose a decision regarding a country’s use of IMF 

resources. (In practice, “oppose” means to vote against or abstain from 

voting.) We identified 21 such mandates that address a variety of issues, 

including combating terrorism, nuclear and chemical nonproliferation, 

religious persecution, and human rights abuses in other countries. Several 

of the directed vote mandates have primarily applied to countries that 

borrow from the World Bank, and the United States has implemented them 

there.
Appendix I

U.S. Legislative Policy Mandates Concerning 

the International Monetary Fund

Page 23 GAO-01-214 International Monetary Fund

Table 1: U.S. Legislative Mandates Concerning the IMF

Law and date of 

enactmenta Subject matter Required actions

Directed 

vote

22 U.S.C. 262d 

Oct. 3, 1977

Human rights, 

international 

terrorism, religious 

freedom, and 

others, including 

nuclear material 

acquisition

Treasury shall instruct the USED to oppose loans to countries whose governments 

engage in a pattern of gross violations of internationally recognized human rights 

or provide refuge to individuals committing acts of international terrorism by 

hijacking aircraft, unless such assistance is directed to serve basic human needs. 

Severe violations of religious freedom should be considered in determining if the 

country has engaged in gross violations of internationally recognized human 

rights. Further, Treasury is to instruct the USED to consider a list of concerns when 

carrying out its duties, including whether recipient countries are seeking to acquire 

unsafeguarded special nuclear material.

Yes

22 U.S.C. 262e 

Oct. 3, 1977

Salaries and 

benefits of IMF 

employees

The President shall direct the USED to take all appropriate actions to keep the 

compensation for IMF employees at a level comparable to the compensation 

provided employees of both private business and the U.S. government in 

comparable positions.

No

22 U.S.C. 262h 

Oct. 15, 1986 (also 

repeated in 

P.L. 106-429, sec. 

514, Nov. 6, 2000)

Trade, mining, and 

surplus 

commodities.

Treasury shall instruct the USED to use its voice and vote to oppose any IMF 

assistance for the production or extraction of any commodity or mineral for export, 

if it is in surplus on world markets and if the assistance would cause substantial 

injury to the U.S. producers of the same, similar, or competing commodity.

Yes

 22 U.S.C. 262k 

Aug. 15, 1985

Impact of country 

adjustment 

programs on 

industries and 

commodity markets

Treasury shall instruct the USED to consider, when reviewing loans, credits, or 

other uses of IMF resources, the effect that country adjustment programs would 

have on individual industries’ sectors and international commodity markets 

including specific criteria to be considered as a basis for a vote against certain 

mining and related project proposals.

No

22 U.S.C. 262k-1 

Sept. 30, 1996

Military spending 

and audits

Treasury shall instruct the USED to use its voice and vote to oppose any loan, 

other than for basic humanitarian needs, to any country that the Secretary of the 

Treasury determines does not have in place a functioning system for reporting to 

civilian authorities audits of receipts and expenditures that fund activities of the 

armed and security forces and that has not provided to the IMF information about 

the audit process requested by the institution.

Yes

22 U.S.C. 262k-2 

Sept. 30, 1996

Female genital 

mutilation

Treasury shall instruct the USED to use its voice and vote to oppose any loan, 

other than for basic humanitarian needs, for any government that the Secretary of 

the Treasury determines has a known history of practicing female genital mutilation 

and has not taken steps to implement educational programs designed to prevent 

this practice.

Yes

22 U.S.C. 262n-3 

Oct. 21, 1998

Trade barriers and 

agricultural 

commodities

Treasury shall instruct the USED to use aggressively its voice and vote to 

vigorously promote policies to encourage the opening of markets for agricultural 

commodities and products by requiring recipient countries to make efforts to 

reduce trade barriers.

No
Appendix I

U.S. Legislative Policy Mandates Concerning 

the International Monetary Fund

Page 24 GAO-01-214 International Monetary Fund

22 U.S.C. 262o-1 

Aug. 23, 1994

Military spending 

and good 

governance

Treasury shall instruct the USED to consider, when deciding whether to support a 

country’s loan program, the extent to which IMF borrowing countries have 

demonstrated a commitment to (1) providing accurate and complete data on 

military spending; (2) establishing good and publicly accountable governance, 

including to end excessive military involvement in the economy; and (3) to make 

substantial reductions in excessive military spending and forces. The USED shall 

promote a policy that seeks to channel funding toward growth and development 

priorities and away from unproductive expenditures, including military spending.

No

22 U.S.C. 262o-2 

Oct. 21, 1998

Transparency, debt, 

private sector, 

trade, crisis lending, 

exchange rates, 

labor, the 

environment, 

military spending, 

sound banking, 

social safety nets, 

good governance, 

corruption, the poor, 

and ethnic and 

social strife.

Treasury shall instruct the USED to use aggressively its voice and vote to enhance 

the general effectiveness of the IMF with respect to numerous issues, including 

exchange rate stability, trade liberalization, antitrust reform, core labor standards, 

social safety nets, sound banking principles, private sector burden-sharing, 

disclosure of market information, debt, crises lending, good governance, 

procurement reform, corruption and bribery, drug-related money laundering, 

excessive military spending, ethnic and social strife, environmental protection, 

transparency, and microenterprise lending, especially to the world’s poorest, 

heavily indebted countries.

No

22 U.S.C. 262p-4n 

Nov. 5, 1990

Equal employment 

opportunities at the 

IMF

Treasury shall instruct the USED to use its voice and vote to urge the IMF to adopt 

policies and procedures that ensure that the IMF does not discriminate against any 

person on the basis of race, ethnicity, gender, color, or religious affiliation in any 

determination related to employment.

No

22 U.S.C. 262p-4o 

Aug. 23, 1994

Respect for 

indigenous peoples

Treasury shall direct the USED to use its voice and vote to bring about the creation 

and full implementation of policies designed to promote respect for and full 

protection of the territorial rights, traditional economies, cultural integrity, traditional 

knowledge, and human rights of indigenous peoples.

No

22 U.S.C. 262p-4p 

Aug. 23, 1994

Internationally 

recognized worker 

rights

Treasury shall direct the USED to use its voice and vote to urge the IMF to adopt 

policies to encourage borrowing countries to guarantee certain internationally 

recognized worker rights and to include the status of such rights as an integral part 

of the policy dialogue with each country. In addition, the USED shall urge the IMF 

to establish formal procedures to screen projects and programs for any negative 

impact in a borrowing country with respect to those rights.

No

22 U.S.C. 262p-4q 

Apr. 24, 1996

State support of 

international 

terrorism

Treasury shall instruct the USED to use its voice and vote to oppose any loan for a 

country for which the Secretary of State has made a determination that it is a 

terrorist state.

Yes

22 U.S.C. 262p-6 

Nov. 29, 1999

Debt relief Treasury should urge the IMF to complete a debt sustainability analysis by 

December 31, 2000, and determine eligibility for debt relief for as many countries 

under the modified Heavily Indebted Poor Countries Initiative as possible. Treasury 

should also instruct the USED to ensure that an external assessment of the 

Heavily Indebted Poor Countries Initiative takes place by December 31, 2001.

No

22 U.S.C. 262p-7 

Nov. 29, 1999

Extended Structural 

Adjustment Facility 

reform

Treasury shall instruct the USED to use its voice and vote to promote the IMF’s 

establishment of poverty reduction policies and procedures to support countries’ 

efforts under programs developed and jointly administered by the World Bank and 

the IMF containing those components listed in the mandate.

No

(Continued From Previous Page)

Law and date of 

enactmenta Subject matter Required actions

Directed 

vote
Appendix I

U.S. Legislative Policy Mandates Concerning 

the International Monetary Fund

Page 25 GAO-01-214 International Monetary Fund

22 U.S.C. 262r-5 

Oct. 21, 1998

GAO audits of the 

IMF

Treasury shall instruct the USED to facilitate timely access by the GAO to IMF 

documents and information needed by GAO to perform financial reviews of the IMF 

that will facilitate the conduct of U.S. policy with respect to the IMF.

No

22 U.S.C. 262t 

Dec. 19, 1989

Personnel practices 

at the IMF

It shall be U.S. policy that no initiatives, discussions, or recommendations 

concerning the placement or removal of any personnel employed by the IMF shall 

be based on the political philosophy or activity of that individual.

No

22 U.S.C. 286e-8 

Oct. 10, 1978

Treatment of 

creditors in debt 

rescheduling

Treasury shall instruct the USED to seek to assure that no decision by the IMF 

departs from U.S. policy regarding the comparability of treatment of public and 

private creditors in cases of debt rescheduling where official U.S. credits are 

involved.

No

22 U.S.C. 286e-9 

Oct. 10, 1978

Investment, 

employment, and 

basic human needs

Treasury shall instruct the USED to encourage IMF staff to formulate economic 

stabilization programs that foster a broader base of productive investment and 

employment, especially in those productive activities that are designed to meet 

basic human needs.

No

22 U.S.C. 286e-11 

Oct. 10, 1978

Countries harboring 

international 

terrorists

Treasury shall instruct the USED to work in opposition to financing for countries 

either harboring international terrorists or failing to take measures to prevent acts 

of international terrorism.

No

22 U.S.C. 286k 

July 31, 1945

International trade 

and economic 

stability

In considering the policies of the United States in foreign lending, the USED shall 

give careful consideration to progress made in reaching agreement among nations 

to reduce restrictions on international trade and promote international economic 

stability.

No

22 U.S.C. 286s 

Oct. 7, 1980

Basic human needs 

and economic 

adjustment 

programs

The USED shall recommend and work for changes in IMF guidelines to ensure the 

effectiveness of economic adjustment programs by considering the effect the 

program will have on issues such as jobs and investment. The USED shall also 

work toward improved coordination between the IMF, the World Bank, and other 

appropriate institutions in this area.

No

22 U.S.C. 286u 

July 31, 1945

Dollar-Special 

Drawing Rights 

substitution account

Treasury shall encourage IMF member countries to negotiate a dollar-Special 

Drawing Rights substitution account in which equitable burden-sharing would exist 

among participants in the account.

No

22 U.S.C. 286v 

Oct. 7, 1980

Membership for 

Taiwan in the IMF

The USED shall notify the IMF that it is U.S. policy that Taiwan be granted 

appropriate membership in the IMF.

No

22 U.S.C. 286w 

Oct. 7, 1980

Denial of 

membership for the 

Palestinian 

Liberation 

Organization

The USED shall notify the IMF that it is U.S. policy that the Palestinian Liberation 

Organization not be given membership or other status at the IMF.

No

22 U.S.C. 286x 

Oct. 7, 1980

Assistance to 

private sector of 

El Salvador, 

Nicaragua, and 

other nations

The USED shall promote the use of IMF programs to assist the private sector in 

any nation, though particularly El Salvador and Nicaragua, in creating an 

environment that will stabilize a nation’s economy.

No

22 U.S.C. 286y 

Nov. 30, 1998

Exchange rate 

stability

The USED shall work for adoption of policies in the IMF to promote exchange rate 

stability. Also, in determining a vote of assistance to any IMF borrower, the USED 

shall take into account whether the borrower’s policies are consistent with certain 

IMF requirements.

No

(Continued From Previous Page)

Law and date of 

enactmenta Subject matter Required actions

Directed 

vote
Appendix I

U.S. Legislative Policy Mandates Concerning 

the International Monetary Fund

Page 26 GAO-01-214 International Monetary Fund

22 U.S.C. 286z 

Nov. 30, 1983

Transparency Treasury shall instruct the USED to initiate discussions at the IMF and propose 

and vote for adoption of procedures to increase both the sharing of information 

among IMF members and the public dissemination of certain IMF information 

concerning international borrowing and lending.

No

22 U.S.C. 286aa 

Nov. 30, 1983

Denial of lending to 

communist 

dictatorships

Treasury shall instruct the USED to actively oppose any facility involving use of 

IMF credit by any communist dictatorship unless certain conditions are met.

Yes

22 U.S.C. 286bb 

Nov. 30, 1983

Elimination of 

predatory 

agricultural export 

subsidies

Treasury shall instruct the USED to propose and work for the adoption of an IMF 

policy encouraging members to eliminate all predatory agricultural export 

subsidies that might result in the reduction of other member countries’ exports.

No

22 U.S.C. 286cc 

Nov. 30, 1983

Trade, bank 

solvency, and 

external debt 

servicing

The USED shall recommend and shall work for changes in IMF guidelines and 

policies that encourage countries to formulate economic adjustment programs that 

deal with their balance-of-payment difficulties and external debt owed to private 

banks. The USED shall also oppose and vote against fund assistance for a country 

whose annual external debt services exceed 85 percent of its annual export 

earnings, unless Treasury can document why an exception should be given.

Yes

22 U.S.C. 286dd 

Nov. 30, 1983

Bank bailouts and 

debt rescheduling

Treasury shall instruct the USED to oppose and vote against any IMF drawing by a 

member country that would be used to repay loans imprudently made by banking 

institutions to a member country, and to ensure that the IMF encourages borrowing 

countries and banking institutions to renegotiate a rescheduling of debt that is 

consistent with safe and sound banking practices and the country’s ability to pay.

Yes

22 U.S.C. 286ee 

Nov. 30, 1983

International 

lending and 

external 

indebtedness

Treasury shall instruct the USED to propose that the IMF adopt policies with 

respect to international lending, including a policy to examine the trend and volume 

of external indebtedness of private and public borrowers in Article IV consultations.

No

22 U.S.C. 286ff 

Nov. 30, 1983

IMF interest rates Treasury shall instruct the USED to propose and work for the adoption of IMF 

policies regarding the rate of remuneration paid on use of members’ quota 

subscriptions and the rate of charges on IMF drawings to bring those in line with 

market rates.

No

22 U.S.C. 286gg 

Nov. 30, 1983

Elimination of trade 

and investment 

restrictions

Treasury shall instruct the USED to consult with the IMF to reduce obstacles to 

and restrictions upon international trade and investment in goods and services, 

eliminate unfair trade and investment practices, and promote mutually 

advantageous economic relations. The USED shall also work to have the IMF 

obtain agreement with countries to eliminate certain unfair trade and investment 

practices and shall take a country’s progress into account in formulating its position 

on requests for loans for periodic financial disbursements.

No

22 U.S.C. 286kk 

Dec. 19, 1989

Impact of IMF 

programs on the 

poor and the 

environment

Treasury shall instruct the USED to seek policy changes at the IMF that will result 

in a review of policy prescriptions implemented by the IMF to determine both if IMF 

objectives were met and the social and environmental impacts of such 

prescriptions, and the establishment of procedures to ensure that policy options 

that reduce the potential adverse impact on the poor or the environment are 

included in future economic reform programs.

No

(Continued From Previous Page)

Law and date of 

enactmenta Subject matter Required actions

Directed 

vote
Appendix I

U.S. Legislative Policy Mandates Concerning 

the International Monetary Fund

Page 27 GAO-01-214 International Monetary Fund

22 U.S.C. 286ll 

Oct. 24, 1992

IMF policy 

concerning 

transparency, the 

poor, and the 

environment

Treasury shall instruct the USED to promote regularly and vigorously in program 

and quota increase discussions a variety of policy proposals including a proposal 

designed to alleviate poverty, promote policy audits in the areas of poverty and the 

environment, and to allow public access to certain IMF information.

No

22 U.S.C. 286mm 

Oct. 24, 1992

Measures to reduce 

military spending

The USED shall use its voice and vote to urge the IMF to continue to develop an 

economic methodology to measure the level of military spending by every 

developing country. The USED shall also urge the IMF to provide annual reports 

that estimate the level of military spending by each developing country and urge 

the IMF to include in every Article IV consultations with such countries an analysis 

on this issue.

No

22 U.S.C. 286nn 

Nov. 29, 1999

Debt reduction Treasury is authorized to instruct the USED to vote to approve the sale of gold 

such that proceeds can be used toward debt reduction for the Heavily Indebted 

Poor Countries Initiative.

No

50 U.S.C. 1701 

note (P.L. 103-160, 

sec. 1511, Nov. 30, 

1993 & P.L. 104-

208, sec. 540, 

Feb. 12, 1996)

Serbia and 

Montenegro 

Treasury shall instruct the USED to use the voice and vote of the United States to 

oppose any IMF assistance to the governments of Serbia and Montenegro, except 

for basic human needs or unless a proper waiver or certification is made.

Yes

22 U.S.C. 2225 

Dec. 30, 1974

Integration of 

women

Treasury is requested to instruct the USED to encourage and promote the 

integration of women into the national economies of IMF member countries and 

into professional positions within the IMF organization. In addition, Treasury is to 

take any progress or lack of progress into account when making contributions to 

the IMF.

No

22 U.S.C. 2370a 

Apr. 30, 1994

Expropriation of 

U.S. property

Treasury shall instruct the USED to vote against any use of IMF funds for the 

benefit of any country that has, after 1956, nationalized or expropriated U.S. 

property without compensation or adequate arbitration, unless the funds are 

directed to programs that serve the basic human needs of the citizens of that 

country, or the President waives this prohibition on the basis of U.S. national 

interests.

Yes

22 U.S.C. 2799aa-1 

Apr. 30, 1994

Nuclear transfers 

and illegal exports

The U.S. government shall oppose the extension of any IMF loan or financial or 

technical assistance to any country that the President determines either delivers 

nuclear reprocessing equipment, material, or technology to any country or 

receives such equipment, materials, or technology from another country, or is a 

nonnuclear state that exports from the United States illegally any material, 

equipment, or technology that would contribute significantly to their ability to 

manufacture a nuclear explosive device and will be used for such a device.

Yes

22 U.S.C. 5605 

Dec. 4, 1991

Sanctions against 

use of chemical and 

biological weapons

The United States shall oppose, in accordance with 22 U.S.C. 262d, the extension 

of any loan or financial or technical assistance to any country that the President 

determines uses chemical or biological weapons either in violation of international 

law or against its own nationals.

Yes

22 U.S.C. 6034 

Mar. 12, 1996

Opposition to 

Cuban membership

Treasury shall instruct the USED to use the voice and vote of the United States to 

oppose admission of Cuba as a member of the IMF until the President submits a 

determination that a democratically elected government is in power in Cuba.

Yes

(Continued From Previous Page)

Law and date of 

enactmenta Subject matter Required actions

Directed 

vote
Appendix I

U.S. Legislative Policy Mandates Concerning 

the International Monetary Fund

Page 28 GAO-01-214 International Monetary Fund

22 U.S.C. 6302

Apr. 30, 1994

Nuclear 

nonproliferation

Treasury shall instruct the USED to use the voice and vote of the United States to 

oppose any use of IMF funds to promote the acquisition of unsafeguarded special 

nuclear material or the development, stockpiling, or use of any nuclear explosive 

device by any non-nuclear-weapon state.

Yes

22 U.S.C. 6445 

Oct. 27, 1998

Religious freedom The President shall instruct the USED to oppose and vote against loans primarily 

benefiting a foreign government, agency, instrumentality, or official determined by 

the President to be a violator of religious freedoms.

Yes

22 U.S.C. 6713 

Oct. 21, 1998

U.S. liability, 

confidential 

business 

information, and 

chemical weapons

The United States shall oppose any IMF loan or financial or technical assistance to 

either a foreign government or any foreign person, officer, or employee of the 

Organization for the Prohibition of Chemical Weapons whose actions taken in the 

implementation of the Chemical Weapons Convention make the United States 

liable, or who knowingly divulge U.S. confidential business information, or in the 

case of a government, encourage or assist a person in making such disclosures.

Yes

P.L. 104-208, 

sec. 570

Sept. 30, 1996

Burma and human 

rights

Treasury shall instruct the USED to vote against any utilization of IMF funds for 

Burma until such time as the President certifies to Congress that Burma has made 

measurable and sustainable progress in improving human rights practices and 

implementing a democratic government in Burma, or the President waives the 

sanction by certifying to Congress that the sanction is contrary to U.S. national 

interests.

Yes

P.L.105-277, 

sec. 602 

Oct. 21, 1998

Korea Treasury shall instruct the USED to exert the influence of the United States to 

oppose further disbursements of funds to the Republic of Korea under the stand-by 

arrangement of Dec. 4, 1997, unless it can be certified that no IMF resources 

made available under the arrangement were used to provide financial assistance 

to the semiconductor, steel, automobile, shipbuilding, or textile and apparel 

industry and that the Republic of Korea has committed itself to meet all conditions 

contained in the stand-by arrangement.

Yes

P.L. 106-113,

sec. 545 

Nov. 29, 1999

Purchase of 

American-made 

equipment and 

products

Treasury shall report to Congress annually on the efforts of the USED to comply 

with Congress’ sense that all agriculture commodities, equipment, and products 

purchased with funds made available under the Foreign Operations, Export 

Financing and Related Programs for fiscal year ending Sept. 30, 2001, should be 

American made.

No

P.L. 106-309, 

sec. 109 

Oct. 17, 2000

Multilateral 

Microenterprise 

Assistance

It is the sense of Congress that Treasury shall instruct the USED to advocate the 

development of a coherent and coordinated strategy to support the 

microenterprise sector and an increase of multilateral resource flows for the 

purpose of building microenterprise retail and wholesale intermediaries.

No

P.L. 106-386, 

sec. 110 

Oct. 28, 2000

Combat Trafficking 

in Persons

The President will instruct the USED to vote against, and to use her best efforts to 

deny, any loan or other use of IMF funds for the subsequent fiscal year to a country 

that fails to comply or is not making significant efforts to bring itself into compliance 

with the minimum standards for the elimination of trafficking in persons. This 

mandate does not apply to humanitarian assistance, trade-related assistance, or 

development assistance and can be waived by the President if the continuation of 

assistance is in the national interest.

Yes

P.L. 106-429, 

sec. 533 

Nov. 6, 2000

Compensation for 

the USED

No funds appropriated by the Foreign Operations, Export Financing, and Related 

Programs Act, 2001, may be made as payment to the IMF while the USED is 

compensated by the IMF at a rate that, together with the compensation the USED 

receives from the United States, is in excess of the rate provided for an individual 

occupying a position at level IV of the Executive Schedule under 5 U.S.C. 5315.

No

(Continued From Previous Page)

Law and date of 

enactmenta Subject matter Required actions

Directed 

vote
Appendix I

U.S. Legislative Policy Mandates Concerning 

the International Monetary Fund

Page 29 GAO-01-214 International Monetary Fund

Legend

USED = U.S. Executive Director

a

This column reports the original date of enactment. However, many of these mandates were amended 

subsequent to this date.

Source: GAO analysis of legislative mandates concerning the IMF.

P.L. 106-429,

sec. 537

Nov. 6, 2000

Clean coal 

technology

Treasury, through the USED, should, as appropriate, vigorously promote the use of 

U.S. clean coal technology in environmental and energy infrastructure programs, 

projects, and activities, such as in reconstruction assistance for the Balkans.

No

P.L. 106-429, 

sec. 564 

Nov. 6, 2000

Countries providing 

sanctuary to 

indicted war 

criminals

Treasury shall instruct the USED to work in opposition to and vote against any 

extension of IMF grants or financial or technical assistance to any country whose 

authorities have failed, as determined by the Secretary of State, to take necessary 

steps to apprehend and transfer persons convicted by the International Criminal 

Tribunal for the former Yugoslavia. Exempt from this provision is any IMF lending to 

a country to support common monetary and fiscal policies at the national level as 

contemplated by the Dayton Peace Accord.

Yes

P.L. 106-429, 

sec. 570 

Nov. 6, 2000

Cambodia Treasury shall instruct the USED to oppose loans to the central government of 

Cambodia, except loans to support basic human needs.

Yes

P.L. 106-429, 

sec. 594,

Nov. 6, 2000

Serbia After March 31, 2001, Treasury shall instruct the USED to support loans and 

assistance to the Yugoslavian government subject to certain conditions, including 

that the Yugoslavian government is taking steps consistent with the Dayton Peace 

Accord to end financial, political, security, and other support that served to 

maintain separate Republika Srpska institutions. With respect to such loans, 22 

U.S.C. 262k-1, which requires transparency of military budgets, shall not apply. 

Finally, the Secretary of State shall also instruct the USED to support membership 

for Yugoslavia in the IMF subject to certification by the President that the 

government has taken appropriate steps to resolve certain issues.

No

P.L. 106-429,

sec. 596 

Nov. 6, 2000

User fees Treasury shall instruct the USED to oppose any loan that would require user fees 

or service charges on poor people for primary education or primary healthcare, 

including prevention and treatment efforts for Human Immunodeficiency 

Virus/Acquired Immune Deficiency Syndrome and malaria, among others.

Yes

P.L. 106-429,

sec. 805 

Nov. 6, 2000

Short- and mediumterm financing, 

misreporting, and 

premium pricing

It is the policy of the United States to work to implement reforms in the IMF to 

achieve the following goals: primarily using short-term balance-of-payments 

financing, limiting the use of medium-term financing, introducing premium pricing 

for lending that is greater than 200 percent of a member’s quota in the IMF, and 

redressing cases of misreporting of information in the context of IMF programs.

No

(Continued From Previous Page)

Law and date of 

enactmenta Subject matter Required actions

Directed 

vote
Appendix I

U.S. Legislative Policy Mandates Concerning 

the International Monetary Fund

Page 30 GAO-01-214 International Monetary Fund

Table 2: Examples of Broad Policies That Are Addressed in Multiple Laws

Broad policy objective Law

Administrative and personnel matters 22 U.S.C. 2225 (Dec. 30, 1974)

22 U.S.C 262e (Oct. 3, 1977)

22 U.S.C. 262t (Dec. 19, 1989)

22 U.S.C. 262p-4n (Nov. 5, 1990)

P.L. 106-429, sec. 533 (Nov. 6, 2000)

Banking 22 U.S.C. 286cc (Nov. 30, 1983)

22 U.S.C. 286dd (Nov. 30, 1983)

22 U.S.C. 262o-2 (Oct. 21, 1998)

Debt 22 U.S.C. 286e-8 (Oct. 10, 1978)

22 U.S.C. 286cc (Nov. 30, 1983)

22 U.S.C. 286dd (Nov. 30, 1983)

22 U.S.C. 286ee (Nov. 30, 1983)

22 U.S.C. 262o-2 (Oct. 21, 1998)

22 U.S.C. 286nn (Nov. 29, 1999)

22 U.S.C. 262p-6 (Nov. 29, 1999)

Employment 22 U.S.C. 2225 (Dec. 30, 1974)

22 U.S.C. 286e-9 (Oct. 10, 1978)

Environment 22 U.S.C. 286kk (Dec. 19, 1989)

22 U.S.C. 286ll (Oct. 24, 1992)

22 U.S.C. 262o-2 (Oct. 21, 1998)

P.L. 106-429, sec. 537 (Nov. 6, 2000)

Exchange rate stability 22 U.S.C. 286y (Nov. 30, 1998)

22 U.S.C. 262o-2 (Oct. 21, 1998)

Governance 22 U.S.C. 262o-1 (Aug. 23, 1994)

22 U.S.C. 262o-2 (Oct. 21, 1998)

Human rights 22 U.S.C. 262d (Oct. 3, 1977)

22 U.S.C. 262p-4o (Aug. 23, 1994)

P.L. 104-208, sec. 570 (Sept. 30, 1996)

Investment 22 U.S.C. 286e-9 (Oct. 10, 1978)

22 U.S.C. 286s (Oct. 7, 1980)

22 U.S.C. 286gg (Nov. 30, 1983)

Labor 22 U.S.C. 262p-4p (Aug. 23, 1994)

22 U.S.C. 262o-2 (Oct. 21, 1998)

Poverty alleviation and education 22 U.S.C. 286kk (Dec. 19, 1989)

22 U.S.C. 286ll (Oct. 24, 1992)

22 U.S.C. 262o-2 (Oct. 21, 1998)

22 U.S.C. 262p-7 (Nov. 29, 1999)

P.L. 106-429, sec. 596 (Nov. 6, 2000)

Military spending and military audit 22 U.S.C. 286mm (Oct. 24, 1992)

22 U.S.C. 262o-1 (Aug. 23, 1994)

22 U.S.C. 262k-1 (Sept. 30, 1996)

22 U.S.C. 262o-2 (Oct. 21, 1998)
Appendix I

U.S. Legislative Policy Mandates Concerning 

the International Monetary Fund

Page 31 GAO-01-214 International Monetary Fund

Source: GAO analysis of legislative mandates concerning the IMF.

Nuclear and chemical nonproliferation 22 U.S.C. 2799aa-1 (Apr. 30, 1994)

22 U.S.C. 6302 (Apr. 30, 1994)

22 U.S.C. 6713 (Oct. 21, 1998)

22 U.S.C. 5605 (Dec. 4, 1991)

Religious freedom 22 U.S.C. 262d (Oct. 3, 1977)

22 U.S.C. 6445 (Oct. 27, 1998)

Terrorism 22 U.S.C. 262d (Oct. 3, 1977)

22 U.S.C. 286e-11 (Oct. 10, 1978)

22 U.S.C. 262p-4q (Aug. 24, 1996)

Trade 22 U.S.C. 286k (July 31, 1945)

22 U.S.C. 286bb (Nov. 30, 1983)

22 U.S.C. 286cc (Nov. 30, 1983)

22 U.S.C. 286gg (Nov. 30, 1983)

22 U.S.C. 262k (Aug. 15, 1985)

22 U.S.C. 262h (Oct. 15, 1986) (also repeated in 

P.L. 106-429, sec. 514, Nov. 6, 2000)

22 U.S.C. 262n-3 (Oct. 21, 1998)

22 U.S.C. 262o-2 (Oct. 21, 1998)

P.L. 106-113, sec. 545 (Nov. 29, 1999)

Transparency 22 U.S.C. 286z (Nov. 30, 1983)

22 U.S.C. 286ll (Oct. 24, 1992)

22 U.S.C. 262o-2 (Oct. 21, 1998)

22 U.S.C. 262r-5 (Oct. 21, 1998)

Use of IMF resources 22 U.S.C. 286u (July 31, 1945)

22 U.S.C. 286ff (Nov. 30, 1983)

P.L. 106-429, sec. 805 (Nov. 6, 2000)

Women’s issues 22 U.S.C. 2225 (Dec. 30, 1974)

22 U.S.C. 262k-2 (Sept. 30, 1996)

(Continued From Previous Page)

Broad policy objective Law
Page 32 GAO-01-214 International Monetary Fund

Appendix II

Treasury’s Process for Pursuing IMF 

Legislative Mandates ApendxiI

The Department of the Treasury uses a systematic process to discuss and 

formulate a strategy for pursuing U.S. policies toward the IMF, including 

policies set forth in legislative mandates. Treasury has the lead role within 

the executive branch for formulating U.S. policy toward the IMF, while the 

U.S. Executive Director represents the United States at the IMF and 

pursues U.S. policy objectives through its membership on the IMF’s 

Executive Board. In March 1999, Treasury created the Task Force on 

Implementation of U.S. Policy and Reforms in the IMF with the broad 

purpose of strengthening the process by which the United States pursues 

its objectives in the IMF. In particular, the task force was designed to 

improve the implementation of U.S. policy and reforms called for in 

legislative mandates by increasing awareness among Treasury staff about 

the mandates and identifying early opportunities to provide input to the 

U.S. Executive Director to influence decisions regarding IMF members’ 

programs and economic reviews. 

Treasury and the U.S. 

Executive Director 

Jointly Formulate U.S. 

Policy Positions 

Regarding Legislative 

Mandates

Treasury’s Office of International Affairs along with the Office of the U.S. 

Executive Director of the IMF formulate, evaluate, and implement Treasury 

policy concerning U.S. participation in the IMF, including policies set forth 

in 60 legislative mandates (for more information on these mandates, see 

app. I). The Office of International Affairs has regional and functional 

offices staffed with country officers and policy specialists who monitor 

developments in individual countries and various policy matters. Over 

time, Treasury has hired or created specialist positions to monitor country 

developments concerning policies for which Treasury traditionally did not 

have expertise. For example, according to Treasury officials, Treasury 

began covering environmental issues in the late 1980s and began hiring 

environmental specialists in the early 1990s. In 1996, Treasury created a 

military audit specialist position to follow issues related to military audit 

concerns, and in 1998, Treasury created a similar position to monitor 

country developments concerning labor practices. According to Treasury 

officials, the environmental and military audit specialists initially focused 

primarily on pursuing U.S. policy and legislative mandates concerning the 

multilateral development banks. Beginning in 1998, these specialists also 

focused on IMF practices.

The U.S. Executive Director, who represents the United States on the IMF’s 

Executive Board, pursues U.S. objectives, including legislative mandates, 

through various channels at the IMF. For example, on a regular basis the 

U.S. Executive Director makes oral or written statements to the Board to 

make Board members aware of U.S. policy objectives regarding requests 
Appendix II

Treasury’s Process for Pursuing IMF 

Legislative Mandates

Page 33 GAO-01-214 International Monetary Fund

from countries for new programs, Fund reviews of existing programs, and 

regular Fund reviews of all members’ economic policies. The U.S. 

Executive Director prefers to make oral statements but does provide 

written statements when the United States has a major policy 

pronouncement to make or when the topic being discussed is contentious. 

Written statements allow IMF staff and Board members to become familiar 

with the U.S. position prior to the Board’s discussion and serve as a 

reference point for the discussion. To build support for U.S. policy goals, 

the U.S. Executive Director also discusses U.S. policy objectives with IMF 

staff and management and other Board executive directors, outside 

Executive Board meetings. 

Treasury country officers, policy specialists, and U.S. Executive Director 

staff share the responsibility for applying to countries the standards set 

forth in the mandates, although their roles differ somewhat. Treasury 

country officers are responsible for being broadly aware of U.S. policy and 

legislative mandates and the topics these mandates cover; policy 

specialists are responsible for tracking specific U.S. policies. Country 

officers generally consult the policy specialists first when evaluating 

whether a mandate applies to a country’s circumstances. 

Like Treasury country officials, U.S. Executive Director staff must be 

mindful of legislative mandates as they monitor the status of the countries 

they cover. They are also responsible for assisting Treasury staff in the 

development of the U.S. policy position for IMF member countries. 

Specifically, they are tasked with (1) providing additional perspectives 

about country circumstances and whether mandates apply, (2) helping 

craft input to the U.S. Executive Director, (3) alerting Treasury officials 

about upcoming opportunities to pursue legislative mandates, and 

(4) sharing information about discussions among Executive Board 

members and IMF staff. U.S. Executive Director staff are in regular contact 

with Treasury staff about specific country matters. 
Appendix II

Treasury’s Process for Pursuing IMF 

Legislative Mandates

Page 34 GAO-01-214 International Monetary Fund

The ongoing collaborative approach Treasury and U.S. Executive Director 

officials use to formulate and implement U.S. objectives at the IMF, 

including legislative mandates, is illustrated in figure 1. It starts with 

Treasury and U.S. Executive Director officials identifying and sharing 

information with one another on upcoming opportunities to influence the 

Fund concerning U.S. objectives. According to Treasury officials, on a daily 

basis Treasury and U.S. Executive Director officials consult about when 

countries are coming before the IMF Executive Board for a program or 

economic review or when IMF missions to a country are planned as part of 

these reviews.1

 Working together, Treasury and U.S. Executive Director 

staff determine whether legislative mandates are relevant to these 

countries and jointly develop input to the U.S. Executive Director on U.S. 

objectives to be used in oral or written statements to the Executive Board 

or other discussions with IMF officials. In addition to this ongoing contact, 

Treasury’s task force is used to coordinate and collaborate on developing 

and implementing the U.S. policy position toward IMF members. 

1

Treasury focuses more attention on countries that are requesting IMF assistance or have a 

program under way because the IMF has greater leverage over the reforms that these 

countries pursue, according to Treasury officials.
Appendix II

Treasury’s Process for Pursuing IMF 

Legislative Mandates

Page 35 GAO-01-214 International Monetary Fund

Figure 1: Treasury’s Process for Pursuing IMF Mandates

Source: GAO analysis.

Legend

USED = U.S. Executive Director.

Treasury and USED look for opportunities to pursue

mandates

--Country officers and functional specialists bring expertise

and knowledge of country developments

--USED staff provide information to Treasury officials on

informal contacts with IMF management and staff regarding

country matters

Treasury’s Office of

International

Monetary Policy receives

Executive Board calendar

from USED and circulates

to Treasury task force

members

No

End of

process

Discuss mandates

that are potentially

relevant for country

Task force

meeting

every two

weeks

Are there

upcoming opportunities

to implement mandates, such as

planned IMF missions for new and

ongoing programs, and economic

reviews; bilateral discussions;

or Treasury public

statements?

End of process

For

countries on

Board calendar,

are there mandate

issues?

Ongoing contacts

among Treasury

officials and

USED

Yes

Yes

No

Country officers, with

assistance from functional

specialists, collaborate

with USED staff to

develop U.S. policy

position and draft input for

statement or talking

points, as necessary

USED delivers policy

through various

channels as

opportunities arise,

including via written and

oral statements to IMF

Executive Board and

discussions with IMF

management and staff

and country authorities.

End of process

Is this an

appropriate

opportunity to raise

mandate issue

with IMF?

No

After task force meeting,

country officers and

functional specialists

conduct further research

and discuss merits of

mandates for country

Yes
Appendix II

Treasury’s Process for Pursuing IMF 

Legislative Mandates

Page 36 GAO-01-214 International Monetary Fund

Composition of the Task 

Force

Treasury’s task force is composed of staff-level representatives from the 

regional and functional offices within Treasury’s Office of International 

Affairs, Treasury’s Office of General Counsel and the U.S. Executive 

Director’s office and meets every 2 weeks to discuss how Treasury and the 

U.S. Executive Director can best apply legislative mandates given a 

country’s economic circumstances. Task force members seek to provide 

early input to the U.S. Executive Director as opportunities arise to 

influence the IMF, in part because Treasury and U.S. Executive Director 

officials believe the United States can have the most impact if it engages 

early with IMF officials prior to decisions regarding program and economic 

reviews. Task force meetings are conducted informally and are designed to 

address several goals:

• Ensure that Treasury staff are aware, as early as possible, of upcoming 

opportunities to provide input to the U.S. Executive Director, especially 

with respect to requests by IMF members for new programs, IMF 

reviews of existing programs, periodic IMF reviews of members’ 

economic policies, and general policy discussions. 

• Exchange views at an early stage regarding which policy goals and 

legislative mandates are especially important for particular upcoming 

events.

• As needed, seek to resolve issues concerning particular policy goals or 

mandates.

• Encourage consistency of purpose across and coordinate U.S. strategy 

among the international financial institutions.2

Task Force Serves as 

Coordinating Mechanism 

but Not Final Arbiter of U.S. 

Policy Position

According to Treasury officials, the task force serves an important role as a 

mechanism to systematically remind Treasury officials of the need to 

address legislative mandates. As shown in figure 1, prior to each task force 

meeting, a tentative schedule of the IMF Executive Board meetings for 

upcoming weeks is circulated to task force members. Also before the 

meeting, task force members review the schedule to keep abreast of what 

countries will be discussed by the Board and when Treasury should be 

ready to provide input to the U.S. Executive Director staff for the Board 

discussions. In addition, Treasury officials, through their ongoing contacts 

with U.S. Executive Director staff, may identify and come prepared to 

2

 Many legislative mandates also concern other international financial institutions besides 

the IMF, such as the World Bank. The task force serves as a mechanism to help promote 

consistency in Treasury’s position across these institutions. 
Appendix II

Treasury’s Process for Pursuing IMF 

Legislative Mandates

Page 37 GAO-01-214 International Monetary Fund

share information on other opportunities to attempt to influence the IMF, 

such as through discussions with Fund officials when an IMF mission is 

planned to a given country as part of negotiations for a new or existing 

program or an economic review. 

At their meetings, task force members informally discuss both what 

opportunities exist to implement mandates and whether there are 

mandates that may be potentially relevant for a given country. According to 

the Treasury official who generally chairs these meetings, the aim of the 

discussion is to identify the best opportunities to make a credible and 

convincing case for pursuing a mandate at a given time. If possible, 

members try to reach agreement in the meeting on two questions: 

(1) whether there are relevant mandates for the countries discussed and 

(2) whether the opportunity available is an appropriate one to pursue the 

mandate. According to Treasury officials, some mandates that are directive 

in nature must be applied in all cases, regardless of country circumstances. 

Once agreement is reached on whether to pursue a mandate, Treasury 

country officers collaborate with U.S. Executive Director staff and 

functional specialists where appropriate on drafting a policy position for 

the U.S. Executive Director. This can be in the form of input for a written 

statement or talking points for an oral statement to the Executive Board. 

The policy position may undergo several revisions until country officers, 

functional specialists, and U.S. Executive Director staff reach agreement. 

Although the task force helps facilitate coordination among Treasury 

officials and with the U.S. Executive Director, it is not the final arbiter for 

determining the U.S. policy position toward the IMF on any given issue. 

The task force is not a review or approval mechanism to give Treasury’s 

sanction to pursue individual mandates. Instead, it is a forum to discuss 

and debate the merits of how mandates fit into the macroeconomic focus 

of the IMF, whether certain mandates apply to individual countries, and 

what the best opportunities are to pursue various mandates. When 

members disagree on the best approach for pursuing a mandate and are not 

able to reach agreement in discussions that continue after a task force 

meeting, the matter is forwarded to Treasury’s senior management for a 

policy decision.
Page 38 GAO-01-214 International Monetary Fund

Appendix III

U.S. Policy on Sound Banking Principles at the 

IMF ApendxiI

In 1998, Congress passed legislation that encourages the U.S. Executive 

Director at the IMF to work to strengthen the financial systems of IMF 

member countries and encourage them to adopt sound banking principles 

and practices. Over the last 5 years, the promotion of sound banking 

practices have come to be regarded as a core mission of the IMF. As a 

result, there is general agreement in the IMF that it is appropriate for the 

IMF to advance sound banking policies and practices in member countries. 

In addition, IMF members generally agree on the steps that need to be 

taken to implement banking reform in member countries. For example, 

executive directors generally agree on the details of how to strengthen 

members’ banking systems when countries have financial arrangements 

with the IMF. They also agree on the need for members that do not have 

financial arrangements to adhere to international banking standards. The 

U.S. Executive Director has been a strong advocate of encouraging the IMF 

to increase its emphasis on the stability of the banking sector and pushing 

banking reforms in member countries. However, the general support of 

other IMF members for sound banking principles makes it hard to discern 

the U.S.’ unique influence within the IMF. 

Background The U.S. policy concerning sound banking principles and practices toward 

the IMF, as laid out in federal law,1 requires that Treasury instruct the U.S. 

Executive Director to vigorously promote policies to increase the 

effectiveness of the IMF in strengthening financial systems in developing 

countries and encouraging the adoption of sound banking principles and 

practices. This requirement includes encouraging the development of laws 

and regulations that will help to ensure that domestic financial institutions 

meet strong standards regarding capital reserves,2

 regulatory oversight, 

and transparency. 

To assess whether Treasury and the U.S. Executive Director have been able 

to influence IMF operations and other members’ policy positions regarding 

the adoption of sound banking principles and practices, we reviewed the 

financial assistance arrangements and economic program reviews for five 

countries: India, Mexico, Romania, South Africa, and Thailand. We selected 

1

 U.S. policy on banking issues is set forth in section 22 U.S.C. 262o-2 (Oct. 21, 1998).

2

 Standards involving capital reserves concern the ability of a bank to absorb operating 

losses or shrinkage in asset values.
Appendix III

U.S. Policy on Sound Banking Principles at 

the IMF

Page 39 GAO-01-214 International Monetary Fund

these countries, in part because of banking sector issues, geographic 

location, and type of IMF arrangement, where applicable. 

Sound Banking 

Practices Have 

Become Part of the 

IMF’s Core Mission 

Before the mandate was implemented, the international financial 

institutions, particularly the IMF, had already begun to focus their attention 

on what constitutes sound banking practices and how sound banking 

practices could be put in place in the banking systems of member 

countries. Focusing on sound banking systems has become more important 

in recent years because many financial crises in emerging markets have 

either been precipitated or exacerbated by problems in banking systems. 

The financial crises of the 1990s, specifically the 1994-95 Mexico and the 

1997 Asia crises, led the IMF to intensify its focus on members’ banking 

sectors. In early 1996, the Executive Board of the IMF began to examine the 

relationship between banking system soundness and macroeconomic and 

structural policies, as well as the ways in which issues of bank soundness 

could be incorporated into the IMF’s periodic economic reviews, financial 

assistance programs, and technical assistance. The IMF’s efforts were 

focused on where there was a possibility that financial system problems 

could have systemic implications, not only domestically, but also by 

affecting the financial systems of other countries. 

According to Treasury and IMF officials, by the time the U.S. mandate was 

implemented, sound banking had come to be considered a core mission of 

the IMF. As such, the IMF’s and the U.S. Executive Director’s efforts to 

strengthen member countries’ banking systems and promote sound 

banking practices would have been pursued by the IMF irrespective of 

whether the U.S. sound banking mandate had come into being. IMF 

members and staff had already realized the importance of countries having 

and maintaining sound financial systems and had begun to increase their 

emphasis on the stability of members’ banking systems. 

IMF Staff and 

Executive Board 

Generally Agree on 

How to Implement 

Banking Reform in 

Member Countries 

As an accepted part of the IMF’s core mission, the IMF pursued sound 

banking practices and policies in both its financial assistance arrangements 

and its periodic economic reviews. Generally, the executive directors agree 

on the steps that countries need to take in order to make necessary reforms 

in their banking sectors. Executive directors told us that directors may 

disagree over the pace for implementing reforms, mostly due to concerns 

about countries’ abilities to implement reforms quickly. However, 

executive directors said that within the IMF’s Board there is general 
Appendix III

U.S. Policy on Sound Banking Principles at 

the IMF

Page 40 GAO-01-214 International Monetary Fund

agreement on the content of a country’s financial arrangement regarding 

banking reform, including the diagnosis of the problem facing a country 

and the reforms needed to fix the problems. The same is generally true for 

suggestions the IMF Executive Board makes to member countries during 

the periodic economic review.

In reviewing IMF financial assistance arrangements, executive directors 

focus on the specific banking situation of each country seeking financial 

assistance from the IMF. For example, when Thailand sought financial 

assistance from the IMF during its financial crisis in 1997, there were 

numerous banking sector problems that had to be addressed, such as weak 

licensing requirements, lax banking supervision, and no formal deposit 

insurance. The IMF’s financial assistance to Thailand was conditioned 

upon Thailand’s undertaking a set of actions that would address those and 

other issues that were specific to Thailand’s banking sector. 

The IMF has also sought ways to focus on sound banking practices in its 

economic reviews. The IMF holds annual consultations with most member 

countries as a part of its economic reviews to discuss, among other things, 

the country’s banking sector practices and policies. During the last few 

years, the IMF has implemented a number of voluntary assessments that 

member countries can undertake to help the IMF assess the stability of 

members’ financial systems and encourage members to implement 

internationally accepted banking standards. For example, IMF members 

can volunteer to participate in the Financial Sector Assessment Program. 

This joint World Bank-Fund program provides a diagnosis of financial 

sector vulnerabilities and development needs. It is used by the IMF as a 

basis for its Financial System Stability Assessments, which focus on 

examining the soundness and operation of a country’s financial sector and 

its link to the country’s macroeconomic performance. The IMF staff 

prepares Financial System Stability Assessment reports during the periodic 

economic review process, and these reports become a part of the IMF staff 

papers presented to the IMF Executive Board. In addition to the Financial 

System Stability Assessment program, the IMF, in cooperation with the 

Basel Committee on Banking Supervision, has been undertaking 

assessments of countries’ compliance with the Basel Core Principles for
Appendix III

U.S. Policy on Sound Banking Principles at 

the IMF

Page 41 GAO-01-214 International Monetary Fund

Effective Banking Supervision.3 In many instances, these assessments are 

published as Reports on the Observance of Standards and Codes modules. 

The IMF has used the Basel core principles assessments to identify specific 

gaps in a country’s regulatory or supervisory framework and to develop an 

appropriate focus for reforms. Similar to the Financial System Stability 

Assessments, the Basel core principle assessments are also to be included 

in the IMF’s economic reviews. 

We reviewed how the IMF and the U.S. Executive Director worked together 

in promoting sound banking principles in five countries—India, Mexico, 

Romania, South Africa, and Thailand (see table 3 for examples of IMF and 

U.S. Executive Director proposed banking reforms in these five countries). 

The U.S. Executive Director generally agreed with the focus of the IMF 

Executive Board in the three countries that had an IMF arrangement 

(Mexico, Romania, and Thailand) and in the two countries that were not 

under an IMF arrangement (India and South Africa). Table 3 provides an 

analysis of examples of reforms promoted by the U.S. Executive Director 

and the IMF in the five countries we reviewed. 

3

 In 1996, the Basel Committee on Banking Supervision—a committee of banking 

supervisory authorities, which was established in 1974 by the central bank governors of the 

Group of Ten countries (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, 

Sweden, the United Kingdom, and the United States)—issued core principles for banking 

supervision that were intended to serve as standards against which countries may evaluate 

the adequacy of their supervisory systems as well as guidance to countries changing their 

systems. The core principles provide operational guidance for (1) preconditions for banking 

supervision, (2) licensing and structure, (3) prudential regulations and requirements, 

(4) methods of ongoing banking supervision, (5) information requirements, (6) formal 

powers of supervisors, and (7) cross-border banking.
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Table 3: Examples of Banking Sector Reforms Promoted by the IMF and the U.S. Executive Director in India, Mexico, Romania, 

South Africa, and Thailand Since 1998

Current IMF arrangement as 

of November 2000 Examples of reforms promoted by U.S. Executive Director

India No • Encouraged India to strengthen supervision, regulation, and the oversight of nonbank 

financial institutions

• Stressed the need for India to withdraw from public ownership of banks

Mexico Yes • Urged Mexico to further strengthen its bankruptcy procedures

• Urged Mexico to aggressively implement its plans to recapitalizea

 banks, establish a 

suitable legal framework for bank lending, and bring regulatory capitalb

 standards 

closer to international standards

Romania Yes • Encouraged the license withdrawal of a major state-owned bank and stressed that the 

privatization of banks would help to restore healthier financial markets

• Encouraged the aggressive implementation of supervisory and prudential elements in 

the financial sector as being critical both for the viability of Romania’s financial 

institutions and for rebuilding public confidence in the country’s currency and financial 

institutions

South Africa No • Agreed with the findings of the IMF’s staff in the consultation process and commented 

on the Financial System Stability Assessment

Thailand No • Cautioned against a large state role in the bank recapitalization process

• Encouraged Thai officials to focus on financial conditions of banks and the high level of 

nonperformingc

 loans, especially of those banks that had intervention programs

• Encouraged foreign investment

• Promoted bankruptcy statute and related corporate laws
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a

Recapitalization refers to any restructuring of a troubled bank assisted by a deposit insurance fund, as 

in a bailout of a failing bank, where the insurance fund pays the acquiring bank the difference between 

Examples of reforms promoted by the IMF Discussion

• Supported India’s efforts to tighten its regulatory regime, improve 

bank supervision, and reduce directed lending and domination by 

its public sector banks

• Commented on India’s compliance with Basel core principles

Both the IMF and the U.S. Executive Director encouraged India to 

keep making banking sector reforms. India had volunteered for the 

Financial System Stability Assessment program and a Basel core 

principles assessment. Both the IMF and the U.S. Executive 

Director supported India’s efforts to assess its banking sector. India 

had embarked on a broad-based reform in the early 1990s to open 

the economy and foster private sector activity. By the late 1990s, 

India had made a number of changes. 

• Promoted strengthening and consolidating the banking system

• Pushed for improving the capitalization of Mexican banks, issuing 

new loan classificationd

 rules, and changing capital requirements

• Wanted the role of the Bank Savings Protection Institute to be 

clarified and for Mexico to specify actions for banks in distress

The U.S. Executive Director had supported the IMF’s financial 

arrangement for Mexico and directed its comments on urging 

Mexico to continue to make progress in areas Mexico was trying to 

change, such as bankruptcy reform, and also supporting Mexico as 

it met IMF targets. As a result of its program, Mexico adopted 

important measures to strengthen the operating environment of the 

banking system and improve the soundness of its banks.

• Required Romania to reduce public enterprise losses through 

accelerating the restructuring and privatization of state banks and 

enterprises

• Required the liquidation of a large, state-owned bank and 

privatization of other banks

•

The IMF arrangement for Romania was conditioned upon 

Romania’s privatizing a large, state-owned bank. The U.S. 

Executive Director’s focus was also on the privatization of 

state-owned banks. As a result of its program, Romania 

successfully closed a large, insolvent, state-owned bank. 

• Encouraged South Africa’s central bank to have a more active role 

in on-site examinations, bring limits on large credit exposurese

more in line with international best practices, and adopt a formal 

framework to govern the government’s strategy for removing itself 

from involvement in a bank in which it had previously intervened

Both the U.S. Executive Director and the IMF agreed with the IMF’s 

staff assessment that South Africa had a sound banking sector and 

that a few changes could be made in order to further strengthen 

South Africa’s system. South Africa had also participated in the 

Financial System Stability Assessment program, and both the U.S. 

Executive Director and the IMF agreed with the findings of the 

assessment. However, the Financial System Stability Assessment 

caused the U.S. Executive Director to question South Africa’s efforts 

to stimulate credit to small- and medium-sized enterprises, since 

the assessment revealed that those efforts were not benefiting 

those enterprises. 

• Required Thailand to prepare restructuringf

 and privatization 

strategies for recently intervened banks

• Required Thailand to review the Financial Institution and 

Development Fund policies and operations, and finalize a plan for 

the introduction of a deposit insurance scheme to replace the 

current system by Dec. 1998 

• Required Thailand to assist banks in reducing nonperforming 

loans

• Required Thailand to finalize recapitalization plans for all banks 

and finance companies

The IMF and the U.S. Executive Director were in agreement about 

Thailand’s program and the changes Thailand needed to make. The 

U.S. Executive Director focused its comments on the issues that 

Thailand was to address to meet its program targets, congratulating 

Thailand when targets were met but also raising issues that could 

come up and/or worsen. 
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U.S. Policy on Sound Banking Principles at 

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Page 44 GAO-01-214 International Monetary Fund

the book value of a troubled bank’s assets and the estimated market value of the assets. The 

insurance fund may also take an equity position in the restructured bank.

b

Capital refers to the funds invested in a bank. Banking supervisory agencies generally require banks 

to maintain certain capital levels to meet the claims of creditors and depositors.

c

Non-performing loans are loans that are not performing according to the borrower’s original loan 

agreement. 

d

Loans are usually classified by different categories such as maturity, industry, security, and type of 

borrower. 

e

Exposure limits are the total amounts of credit a bank can extend to one borrower.

f

Restructuring refers to a condition where a lender grants a concession to a borrower in financial 

difficulty. Typically, the lender negotiates a workout agreement with the borrower to modify the original 

credit terms rather than initiate foreclosure proceedings against the delinquent borrower.

Source: GAO analysis of IMF documents.

U.S. Executive Director Has 

Been a Strong Advocate of 

Banking Reform

The U.S. Executive Director told us that the United States was already 

promoting the importance of the IMF’s focus on banking sector reform, 

prior to the implementation of the banking mandate. The U.S. Executive 

Director’s emphasis has been on two factors that the IMF should be 

concerned with regarding sound banking and financial system stability. The 

first factor was to determine the vulnerability of countries’ financial 

systems in order to prevent a financial crisis. The second factor was to 

focus greater attention on establishing efficient financial intermediation—

the process of transferring funds from savers to borrowers. According to 

the U.S. Executive Director, the most critical piece in determining the 

vulnerability of members’ financial systems was assessing the health of 

each member’s banking system. In addition, the U.S. Executive Director 

stated that the IMF’s main role in the financial sector agenda was 

surveillance—the job of alerting members to the weaknesses in their 

banking systems and supervisory regimes, and monitoring a member’s 

progress to that end. Over the last 3 years, the U.S. Executive Director has 

supported the IMF’s efforts to incorporate Financial System Stability 

Assessment reports into the IMF’s surveillance efforts and has actively 

supported the adoption and monitoring of the Basel core principles by 

member countries and assessments of countries’ progress. 

Other executive directors have said that the U.S. Executive Director was a 

driving force in focusing the IMF’s attention on sound banking practices. 

However, it is difficult to discern the extent of the U.S. Executive Director’s 

influence in relation to other executive directors in promoting sound 

banking practices in member countries, because the IMF generally 

operates on a consensus decision-making basis. In addition, there is broad 
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agreement among IMF members that pursuing sound banking principles 

and policies in member countries is an important part of the IMF’s work. 
Page 46 GAO-01-214 International Monetary Fund

Appendix IV

U.S. Policy on Labor Issues at the IMF ApendxiIV

Since 1994, Congress has enacted two provisions of law that set forth U.S. 

policy on internationally recognized core labor standards and worker rights 

in the context of International Monetary Fund programs. However, the 

predominant view at the IMF is that a country’s adherence to those 

standards is usually not relevant to its macroeconomic condition and thus 

not directly relevant to the IMF’s mission. Therefore, although U.S. officials 

have taken several different approaches to actively promote U.S. policy on 

core labor standards in an effort to garner support for the inclusion of this 

policy within the IMF’s dialogue with borrowing countries, they have not 

had much success in influencing the IMF on this issue.

Background Under U.S. mandates concerning labor issues at the IMF,1

 the Secretary of 

the Treasury must instruct the U.S. Executive Director to urge the IMF, as 

an institution, to encourage countries to guarantee internationally 

recognized core labor standards and worker rights. The five internationally 

recognized core labor standards advanced by Treasury and the U.S. 

Executive Director are

• the freedom of workers to associate with one another,

• the right to organize and bargain collectively,

• the prohibition of exploitative child labor,

• the prohibition of forced or compulsory labor, and

• the prohibition against employment discrimination.2

1

 U.S. policy on labor issues at the IMF is codified in 22 U.S.C. 262o-2 and 22 U.S.C. 262p-4p.

2

 Federal law also sets forth that the U.S. Executive Director shall urge the IMF to encourage 

borrowing countries to guarantee five internationally recognized worker rights. The first 

four rights specified in the law are the same as the first four core labor standards, but the 

fifth right specified—acceptable conditions of work with respect to minimum wages, hours 

of work, and occupational safety and health—differs from the fifth core labor standard 

concerning employment discrimination. According to Treasury officials, Treasury and the 

U.S. Executive Director focus their efforts more on the five core labor standards because 

they have widespread recognition, but added that Treasury and the U.S. Executive Director 

also take into account the fifth internationally recognized worker right specified in federal 

law. Because Treasury and the U.S. Executive Director focus their efforts more on core 

labor standards, we refer to this aspect of labor policy as core labor standards.
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Through the International Labor Organization (ILO), the international 

community has codified these core labor standards in eight international 

treaties, or conventions.3

 At the ILO’s 1998 conference, ILO members 

adopted the “ILO Declaration on Fundamental Principles and Rights at 

Work,” which renewed all ILO members’ commitment to respect, promote, 

and realize these core labor standards.

The Department of the Treasury and the U.S. Executive Director 

collaborate to formulate and actively advance their objectives concerning 

labor policies at the IMF. To advance U.S. policy on core labor standards, 

the U.S. Executive Director urges the IMF to consider the implications of 

its programs on borrowing countries’ adherence to these standards. To 

illustrate the influence that Treasury and the U.S. Executive Director have 

had on IMF policies and practices with respect to labor issues, we reviewed 

their efforts to affect IMF programs for Argentina, Ghana, Kazakhstan, 

Mexico, and Thailand. We selected these countries, in part, because of the 

range of labor issues in each country, especially as they related to the 

economic challenges the countries have faced. General information on the 

countries and a summary of our findings are presented in table 4.

3

 The eight relevant conventions are the Freedom of Association and Protection of the Right 

to Organize Convention (no. 87); the Right to Organize and Collective Bargaining 

Convention (no. 98); the Minimum Age Convention (no. 138); the Worst Forms of Child 

Labor Convention (no. 182); the Forced Labor Convention (no. 29); the Abolition of Forced 

Labor Convention (no. 105); the Discrimination (Employment and Occupation) Convention 

(no. 111); and the Equal Remuneration Convention (no. 100).
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Table 4: Labor Issues in Argentina, Ghana, Kazakhstan, Mexico, and Thailand Since 1998 

Argentina Ghana

Level of economic developmenta Developing Heavily Indebted Poor Country

GDP per capita (US$, 1998) $8,253 $406

Adherence to core labor standardsb

Right to associatec • Constitutionally provided and generally 

respected

• Legally provided and generally respected

Right to organize and bargain 

collectivelyd

• Constitutionally provided and generally 

respected

• Legally provided and generally respected

Prohibition of exploitative child labore • Prohibited, but some illegal child labor 

occurs

• Prohibited, but illegal child labor is 

widespread

Prohibition of forced or compulsory laborf • Effectively prohibited • Prohibited, but occurs as part of rural or 

religious customs

Prohibition of employment discriminationg • Constitutionally prohibited, but 

discrimination occurs

• Constitutionally prohibited, but 

discrimination occurs

Treasury and USED’s efforts to advance 

U.S. policy on core labor standards issues

• While expressing support for flexibility 

enhancing labor market reforms, asked 

IMF staff to comment on consistency of 

collective bargaining reform with ILO 

convention on this issue

• Supported the government’s proposed 

labor code reform, noting that it conformed 

with ILO standards

IMF efforts on core labor standards issues • Discussed reforms to enhance labor 

market flexibility with Ministry of Labor 

officials and representatives from labor 

unions but did not raise adherence to core 

labor standards

• Core labor standards not part of program

• Discussed labor issues such as minimum 

wage and civil service wage structure with 

Ghanaian government, but did not raise 

adherence to core labor standards

• Core labor standards not part of program
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Legend

GDP = gross domestic product.

USED = U.S. Executive Director.

a

According to the IMF’s World Economic Outlook: A Survey by the Staff of the International Monetary 

Fund (Washington, D.C.: International Monetary Fund, Sept. 2000).

b

According to the Department of State’s Human Rights Report for each country, which describe the 

countries’ adherence to each core labor standard.

c

The right of association is the right of workers to establish and join organizations of their choosing 

without prior authorization.

Kazakhstan Mexico Thailand

Transitional Developing Developing

$1,410 $4,106 $1,819

• Legally provided, but government infringes • Legally provided, but government has 

interfered

• Legally provided, except for state 

enterprise employees until recently

• Right to organize legally provided, but right 

to bargain collectively is not

• Government has imposed significant limits 

on both

• Legally provided, but government has 

interfered 

• Legally provided, except for state 

enterprise employees until recently

• Effectively prohibited • Prohibited, but common in small 

companies, agriculture, and informal 

sector

• Prohibited, but a problem in agricultural 

and informal sectors 

• Effectively prohibited • Effectively prohibited • Prohibited, but occurs in informal sector

• Prohibited, but discrimination occurs • Constitutionally prohibited, but 

discrimination occurs

• Constitutionally prohibited, but 

discrimination occurs

• In response to proposed Kazakhstani 

reforms that would dismantle old

Soviet-based labor code, urged 

government to make further reforms so 

labor code would be consistent with core 

labor standards and to consult with ILO

• Raised concerns for freedom of 

association, collective bargaining, gender 

discrimination, and the treatment of 

workers in export processing zones

• Raised concerns for implications of 

proposed labor reforms on core labor 

standards

• Encouraged IMF staff to consult with ILO 

and labor leaders in Mexico

• Raised concerns about progress of 

reforms to allow state enterprise workers 

the right to associate, organize, and 

bargain collectively

• Discussed labor issues such as wage 

arrears and the minimum wage but did not 

raise adherence to core labor standards

• Core labor standards not part of program

• Discussed increasing labor mobility and 

labor participation in developing reforms, 

but did not raise adherence to core labor 

standards

• Staff included an appendix on labor market 

reforms in a report to the Executive Board

• Core labor standards not part of program

• Monitored progress of reforms to allow 

state enterprise workers the right to 

associate, organize, and bargain 

collectively but did not discuss in terms of 

adherence to core labor standards

• Core labor standards not part of program
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d

The right to organize and bargain collectively is the right of workers to organize unions without 

employer reprisals, and government promotion, where necessary and appropriate, of measures to 

encourage voluntary collective bargaining to establish wages, hours, and working conditions.

e

The prohibition of exploitative child labor states that children should not be forced to work under 

abusive conditions. Consideration is made for work on family farms, in family businesses, and light 

work that does not interfere with schooling.

f

The prohibition against forced labor states that persons should not be forced to work, except in certain 

defined circumstances, such as compulsory military service or when imposed through conviction in a 

court of law.

g

The prohibition against employment discrimination proscribes that employers shall not discriminate 

against workers because of their race, gender, ethnicity, or religion in terms of their pay, working 

conditions, or performance standards.

Sources: GAO analysis of data from the IMF, World Bank, Department of State, and Department of the 

Treasury.

IMF Members Have 

Not Embraced U.S. 

Policy on Core Labor 

Standards

The IMF does not regularly pursue adherence to core labor standards with 

borrowing countries. According to IMF officials, while the IMF supports 

core labor standards in principle, the IMF has not found that the degree to 

which a country has adhered to core labor standards is directly related to 

the country’s macroeconomic difficulties. Therefore, IMF members and 

staff do not consider the issue to be within the IMF’s core mandate and 

have not addressed this issue in the IMF’s country programs. Also, the 

IMF’s staff lacks expertise in this complex and sensitive policy area. Our 

analysis of five borrowing countries found no evidence that IMF staff had 

incorporated the countries’ adherence to core labor standards issues into 

the countries’ performance criteria or structural benchmarks.

According to Treasury officials, the IMF’s reluctance to consider core labor 

standards within the scope of its work is due in part to conflicting 

academic literature on whether certain labor standards have beneficial or 

detrimental effects on economic growth. Conventional economic theory 

treats certain social policies, such as labor and environmental standards, as 

government interventions that can inhibit the efficient operation of 

markets and, in turn, overall economic growth. According to Treasury 

officials, since most IMF staff and country representatives are trained as 

economists, they are reluctant to pursue policies that their training tells 

them could be counter to the IMF’s goal of encouraging economic growth. 

As one Executive Director at the IMF expressed, the implication of 

promoting stronger social standards in a country is higher unemployment. 

If the choice is between workers being employed under less than ideal 

labor conditions or not having them work at all, this Executive Director 

favored having the workers be employed and earning income.
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Other IMF members are also reluctant to have the IMF include 

consideration of these standards because it is a policy area where the IMF 

does not currently have expertise or institutional knowledge. Some 

executive directors with whom we spoke noted that other institutions, 

particularly the ILO, are better placed to address labor standards. In 

addition, some executive directors noted that the World Bank also has 

some expertise and institutional knowledge to help countries address core 

labor standards. Executive directors also noted that they would be 

agreeable to IMF staff consulting with the ILO or the World Bank on labor 

issues in borrowing countries if the staff found that labor issues were 

relevant to the country’s program.4

 Furthermore, one Executive Director 

noted that there is concern that a country’s adherence to core labor 

standards is primarily a political issue, and as such the IMF is prohibited 

from addressing them by its charter. As another Executive Director noted, 

the issues embodied in the core labor standards are complex and must be 

handled with careful regard for various cultural and political factors facing 

borrowing countries.

Treasury and the U.S. 

Executive Director 

Actively Promote U.S. 

Policy on Core Labor 

Standards

Since other IMF members and IMF staff have not widely embraced U.S. 

policy on the relevance of core labor standards to the IMF’s work, Treasury 

and the U.S. Executive Director have made special efforts to advance this 

policy at the IMF. Nevertheless, they have not had much success in 

influencing the IMF to consider core labor standards in its programs. In 

certain circumstances, Treasury and the U.S. Executive Director’s staff 

have had difficulty reaching consensus on how adherence to core labor 

standards best fits into the IMF’s work and how to effectively advance U.S. 

policy on labor issues at the Fund. As part of its efforts to reach consensus, 

Treasury, with input from the U.S. Executive Director, has completed two 

documents since April 2000. The first document circulated within Treasury 

presents economic arguments for the relevance of core labor standards to 

the macroeconomic focus of the IMF’s work. The second document, which 

was finalized in November 2000, sets out guidelines for Treasury officials as 

they pursue U.S. objectives on core labor standards and try to build support 

for U.S. policy among other IMF members. These guidelines clarify U.S. 

4

 In the past few years, the ILO and the IMF have been increasing the level of cooperation 

and collaboration between them. The ILO has official observer status at the IMF’s 

International Monetary and Financial Committee and IMF-World Bank annual meetings and 

joint Development Committee. The ILO is also involved in ongoing IMF-World Bank poverty 

reduction efforts.
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policy objectives and legislative obligations concerning labor standards to 

facilitate Treasury’s efforts to provide the U.S. Executive Director with 

timely and effective input. 

Engaging the IMF on the 

Relevance of Core Labor 

Standards

Treasury and the U.S. Executive Director are simultaneously following two 

approaches to change the thinking of other IMF members, IMF staff, and 

IMF management on this issue. The first approach is to engage other 

executive directors and IMF staff on the relevance of core labor standards 

to the IMF’s mission. Treasury and the U.S. Executive Director have argued 

that the IMF should not develop programs that may negatively impact 

countries’ adherence to core labor standards without taking those impacts 

into consideration. Treasury officials have also taken advantage of other 

forums to promote U.S. policy on the relevance of core labor standards to 

the IMF’s mission. For example, Treasury officials have promoted U.S. 

policy at meetings with government officials of the Group of Eight,5

through personal contact with other countries’ officials, and at IMF annual 

meetings. In addition, Treasury and the U.S. Executive Director organized a 

seminar on core labor standards for the IMF and the World Bank’s 1999 

annual meeting in cooperation with the IMF, the World Bank, and the 

American Federation of Labor-Congress of Industrial Organizations 

(AFL-CIO).6

 Senior officials from these institutions, as well as a Minister of 

Finance from Chile and a noted academic, presented their views on the role 

of core labor standards at the IMF and the World Bank.

5

 The Group of Eight, or G-8, refers to the governments of the eight major industrial 

democracies: Canada, France, Germany, Italy, Japan, Russia, the United Kingdom, and the 

United States.

6

 The AFL-CIO is a voluntary federation of 68 U.S. unions that promotes their concerns on 

labor issues at the national and international level.
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Treasury and the U.S. Executive Director’s second approach has been to 

pursue the best examples of countries where they believe that adherence to 

core labor standards is deficient and that the IMF should consider core 

labor standards as relevant to their macroeconomic stability. Treasury and 

the U.S. Executive Director can then use these examples as successful 

precedents to urge the IMF to advance core labor standards in other 

countries and at the broader level. According to Treasury officials, 

countries that make the best cases are those where the conditions of its 

IMF program will clearly have implications for the labor market. For 

example, the IMF and the Argentine government agreed that to stimulate 

economic growth, Argentina would need to increase labor market 

flexibility through various reforms, including legally decentralizing union 

collective bargaining.7

 While Treasury and the U.S. Executive Director 

agreed with Argentina’s need to increase labor market flexibility, they also 

recognized that some of the reforms discussed would have implications for 

Argentina’s adherence to the core labor standard concerning collective 

bargaining. Therefore, they monitored the progress of these reforms and 

asked IMF staff to clarify whether the reform proposed to decentralize 

union collective bargaining would be consistent with the ILO Right to 

Organize and Collective Bargaining Convention (no. 98).

The U.S. Executive Director also tries to set precedents by pursuing labor 

policy with IMF management and staff in advance of an IMF mission to a 

member country as part of a program or general economic review. For 

example, Treasury and the U.S. Executive Director became aware that the 

IMF and the Mexican government were exploring a possible financial 

arrangement at the end of 1998. Officials from Treasury and the U.S. 

Executive Director’s office collaborated to determine whether the U.S. 

labor mandates were relevant to the proposed IMF program in Mexico. 

Based on their analysis, they became concerned that reforms the Mexican 

government was proposing to increase labor market flexibility and 

modernize the labor relations system could have negative implications for 

the rights of workers to organize and bargain collectively. The U.S. 

Executive Director therefore sent a memo to the Managing Director of the 

IMF, urging the IMF’s mission team to, among other things, (1) incorporate 

7

 Collective bargaining can occur at various levels, from highly centralized, such as between 

all of the workers and employers in an industry at once, to highly decentralized, such as 

between a particular group of workers in one factory and their common employer. While 

there is no consensus among labor policy specialists on the most appropriate level of 

collective bargaining, it is agreed that generally, the more centralized the level of collective 

bargaining, the more strength organized labor holds.
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the discussion of core labor standards into their policy dialogue with 

Mexican authorities in the context of any discussion of broader labor 

market reforms and (2) survey labor market policies and practices in 

Mexico and recommend policy initiatives that will help ensure the 

maintenance or improvement of core labor standards.

As part of another means for establishing precedents, the U.S. Executive 

Director encourages IMF staff and borrowing country governments to 

consult with the ILO when labor issues come up in a country or when a 

country’s program may have implications for the country’s adherence to 

core labor standards. For example, in commenting on Kazakhstan’s 1999 

request for a new arrangement at an Executive Board meeting, the U.S. 

Executive Director encouraged the Kazakhstani government to consult 

with the ILO concerning proposed reforms to Kazakhstan’s labor code. In 

doing so, Kazahstan could ensure that these reforms were not only better 

suited to the market economy that it is trying to develop, but also 

consistent with core labor standards.

Officials at Treasury and U.S. Executive Director’s office do not often 

advance core labor standards with two groups of countries—advanced 

industrial economies and the poorest countries—because they believe that 

these countries do not make good precedents. According to Treasury 

officials, they do not pursue these issues with advanced industrial 

economies, such as France, Germany, or Japan, because their adherence to 

core labor standards is generally high. In reviewing the poorest countries, 

Treasury officials have found that they also do not generally make good 

cases because they do not have a sufficiently large industrial base for the 

core labor standards of freedom of association and freedom to organize 

and bargain collectively to be important issues relative to the other 

challenges facing these countries. Moreover, although child labor can be a 

concern in these countries, Treasury officials noted that the root of the 

problem is in the high level of poverty, cultural and societal norms, and lack 

of opportunities for the children. In addition, concerns that Treasury might 

have about forced labor or gender inequality in these countries are more 

closely related to human rights issues than to core labor standards. 

Therefore, according to Treasury officials, they address these issues in that 

context. For example, according to Treasury officials, Ghana’s adherence 

to each of the core labor standards could be improved, but since Ghana has 

a pressing need to address poverty, and most of its labor force is engaged in 

agriculture, Treasury did not urge the U.S. Executive Director to comment 

on core labor standards in Ghana until recently.
Appendix IV

U.S. Policy on Labor Issues at the IMF

Page 55 GAO-01-214 International Monetary Fund

To enhance Treasury’s and the U.S. Executive Director’s efforts to advance 

U.S. policy on core labor standards, Treasury hired a labor policy specialist 

in 1998 to provide background information and policy guidance on core 

labor standards issues to other Treasury officials and the U.S. Executive 

Director. The labor specialist is responsible for reviewing the labor 

situation in each IMF member country as it comes before the IMF’s 

Executive Board as part of a program request, a review of an existing 

program, or the IMF’s periodic reviews of the country’s economic 

conditions. For each country, the specialist determines whether there are 

concerns for that country’s adherence to core labor standards and 

coordinates with Treasury’s country desk officers to provide the U.S. 

Executive Director with input for an oral or written statement to the IMF’s 

Executive Board.

Although U.S. officials have been targeting their efforts to pursue core 

labor standards, two executive directors noted that some developing 

countries do not support U.S. policy on core labor standards because these 

countries do not believe that U.S. motives are altruistic. Rather, they view 

U.S. promotion of core labor standards as a trade protectionist measure 

meant to increase labor costs in developing countries, thereby potentially 

averting the relocation of U.S. firms and the loss of U.S. jobs. Despite this 

resistance, officials at Treasury and the U.S. Executive Director’s office 

note that they have seen signs that their efforts to advance U.S. policy are 

being heard. For example, in response to U.S. interest on labor issues in 

Mexico, IMF staff included an appendix concerning Mexico’s efforts to 

modernize labor markets and improve their efficiency in their 1999 report 

on Mexico’s request for an arrangement.8

 In addition, during visits to 

Argentina to discuss its ongoing arrangement, IMF staff consulted with 

union officials on a variety of labor issues related to the flexibility of its 

labor markets.

8

 “Mexico—Request for Stand-By Arrangement” (Washington, D.C.: International Monetary 

Fund, June 18, 1999).
Page 56 GAO-01-214 International Monetary Fund

Appendix V

U.S. Policy on Audits of Military Expenditures 

at the IMF ApendxiV

In 1996, Congress enacted the audits of military expenditures legislation,1

which includes a specific directed voting provision that requires the U.S. 

executive directors at international financial institutions to oppose 

nonbasic human needs assistance to countries that do not conduct and 

report regular audits of their military spending to civilian authorities. In the 

five cases we reviewed, we determined that the United States has achieved 

some success in advancing this mandate at the IMF and in convincing some 

borrowing countries to conduct audits of military spending. The U.S. 

Executive Director’s effectiveness in advancing this particular mandate at 

the IMF is due in part to a widespread view in the international community 

that good governance, transparency of budgets, unproductive spending, 

and military spending are economic issues that could impact the 

effectiveness of a country’s macroeconomic reform effort. Nevertheless, 

the pursuit of this mandate has had an uncertain impact on the broader U.S. 

influence at the IMF. While there is strong IMF support for the intent of the 

legislation, U.S. and IMF officials emphasized that the military audit 

mandate sometimes competes with countries’ priorities and that U.S. 

officials have limited discretion on when to advance the mandate for 

countries deemed out of compliance. As a result, U.S. and IMF officials 

believe that the limited discretion that U.S. officials have in advancing this 

mandate runs counter to the consensus decision-making approach of the 

Fund and could negatively impact U.S. influence at the IMF.

1

Foreign Operations, Export Financing, and Related Programs Appropriations Act, 1997

(P. L. 104-208, title V, sec. 576, 22 U. S. C. 262k-1), as amended by section 572, Foreign 

Operations, Export Financing, and Related Programs Appropriations Act, 1998 

(P. L. 105-118).
Appendix V

U.S. Policy on Audits of Military 

Expenditures at the IMF

Page 57 GAO-01-214 International Monetary Fund

Background Congress has been concerned that military expenditures by some 

developing countries are excessive and an unproductive drain on their 

limited resources. Congress was also concerned that public information on 

military expenditures for some countries is generally characterized by 

incompleteness, lack of transparency, and inaccuracy.2

 Partly in response 

to these concerns, in 1996 Congress passed the audits of military 

expenditures legislation. The legislation states that the U.S. Executive 

Director is to use its voice and vote to oppose the use of funds, other than 

those to address basic human needs, for any government that does not 

have in place a functioning system for reporting audits of military 

expenditures to civilian authorities or has not provided such information to 

any institution that requests it.3

 The U.S. Treasury was given a 3-year 

window to develop an implementation approach, with the voting 

requirement taking effect on October 1, 1999. After that date, the U.S. 

Executive Director was instructed to oppose approval of IMF 

arrangements for countries deemed not in compliance with the standards 

set forth in the mandate. On October 18, 1999, 22 countries were deemed 

noncompliant with the standards of the mandate, but by November 9, 2000, 

this number had declined to 17 countries.4

In 1999, Treasury formed an Interagency Policy Group to assess countries’ 

compliance with the military audit legislation. The group is comprised of 

the Treasury, the Department of State, the Department of Defense, the U.S. 

Agency for International Development, the National Security Council, and 

the Office of Management and Budget. The Policy Group developed the 

following interpretation and definitional guidance for the legislation:

• A country must be routinely conducting a post-expenditure 

examination, verification of accuracy, and reconciliation of irregularities 

2

 Four separate pieces of legislation have been passed since 1992 requiring the United States 

to consider a country’s military spending when making decisions on providing international 

financial institution assistance. Descriptions of these legislative mandates are provided in 

appendix I. 

3

 For the purposes of this legislation, international financial institutions are the International 

Bank for Reconstruction and Development, the Inter-American Development Bank, the 

Asian Development Bank, the Asian Development Fund, the African Development Bank, the 

African Development Fund, the International Monetary Fund, the North American 

Development Bank, and the European Bank for Reconstruction and Development. 

4

According to Treasury, the list of noncompliant countries is not publicly disclosed.
Appendix V

U.S. Policy on Audits of Military 

Expenditures at the IMF

Page 58 GAO-01-214 International Monetary Fund

of receipts that fund the military (annually, though a 2-year completion 

lag is acceptable).

• Results of the audit must be reported to a nonmilitary entity.

• Significant off-budget or commercial revenue (defined as greater than

5 percent of the total defense budget) that funds the military must also 

be audited and reported to a civilian authority.

Treasury has taken several steps to advance the military audit mandate at 

the IMF, including working with the State Department to inform IMF 

member countries of the legislation through U.S. embassies and providing 

information to the U.S. Executive Director on the countries that are 

noncompliant with the mandate. The U.S. Executive Director’s office also 

informed IMF management and staff of the importance it attached to the 

mandate and the compliance requirements.

The Process for Registering 

Opposition to IMF Programs

When a country is found to be not in compliance by the Policy Group, the 

U.S. Executive Director is directed to oppose the use of IMF resources. The 

process for registering opposition to the use of IMF resources is as follows: 

• The Policy Group recommends to the Secretary of the Treasury that the 

U.S. Executive Director oppose the use of Fund resources to that 

country.

• The Secretary of the Treasury then instructs the U.S. Executive Director 

to oppose the use of Fund resources to that country. 

• The U.S. Executive Director then states in an oral or written statement 

to the Executive Board that the United States wants to record its 

opposition to that country’s program. 

• The Secretary of the IMF’s Executive Board records U.S. opposition in 

the Board minutes.

The Policy Group has determined that the reference in the legislation for 

the U.S. Executive Director to “oppose” provides flexibility to either 

abstain or vote no. The use of a “no” vote versus “abstain” would be the 

Secretary’s determination, based on interagency consultation on a 

case-by-case basis. The Policy Group has also determined that in cases 

where the only reason for opposing the use of IMF resources is a lack of 

compliance with the military audit legislation, the U.S. Executive Director 

should abstain. In addition, in cases where countries are actively engaged 

in making necessary changes to become compliant, the U.S. Executive 

Director would include strongly supportive comments in Board statements 

accompanying the directed vote. The U.S. Executive Director has never 
Appendix V

U.S. Policy on Audits of Military 

Expenditures at the IMF

Page 59 GAO-01-214 International Monetary Fund

voted no under the military audit mandate but has abstained 3 times, as of 

September 30, 2000. Regardless of whether the United States chooses to 

abstain or vote no, its actions alone are not sufficient to veto a country’s 

access to IMF resources because approval of a country’s arrangement 

requires support from a majority of the Executive Board. Although the 

United States has the largest voting share of any member (17 percent), this 

is insufficient to unilaterally block access to IMF resources.

The decision by the United States to record its opposition to a country’s 

program is considered by the Secretary to the Board to be a vote (and 

recorded as such in the minutes). However, other members do not have to 

formally vote in response. Formal votes are rarely taken at IMF Board 

meetings, but any executive director may require a formal vote to be held. 

According to an IMF official, Board decisions are expected to reflect the 

consensus of Board members, with the views expressed as part of the 

overall discussion. Over the course of the meeting, the Secretary keeps 

track of each executive director’s position. While directors in almost all 

cases support IMF programs on the whole, they may express differences of 

views with programmatic details or broader issues regarding the quality of 

the program. However, if there is evidence of widespread opposition, the 

Chairman or an individual member may request a poll of members’ views. 

Such a poll is not considered a “vote” by the Board but a tool for accurately 

gauging the views of Board members. An analysis of the U.S. Executive 

Director’s voting record for the period of October 1997 through 

September 2000, shows that the U.S. Executive Director voted against or 

abstained from voting a total of 21 times.5

 Of these 21 votes, 3 were related 

to abstentions under the military audit mandate. 

5

 The U.S. Executive Director voted against a proposed decision 11 times, abstained 9 times, 

and in 1 situation it was uncertain as to whether the U.S. Executive Director had abstained 

or voted against the decision. In seven instances, the U.S. Executive Director’s actions were 

related to the IMF’s administrative and personnel matters, and in the other cases, the actions 

taken were related to specific country programs.
Appendix V

U.S. Policy on Audits of Military 

Expenditures at the IMF

Page 60 GAO-01-214 International Monetary Fund

U.S. Efforts to Advance 

the Military Audit 

Directed Vote Mandate 

Have Been Successful

The United States has been actively advancing the military audit mandate 

and has been successful in the majority of the cases we analyzed. The U.S. 

Executive Director has emphasized issues of fiscal controls and budget 

transparency in U.S. country statements to the Board, in attempting to 

integrate the military audit mandate within the IMF’s own operating 

guidelines and institutional processes. According to the U.S. Executive 

Director, the military audit mandate is easier to advance than, for example, 

the labor mandate, because it fits well within the Fund’s efforts to promote 

good governance, fiscal transparency, and the control of unproductive 

spending.6

 While the IMF does not generally require audits of military 

spending as a condition for the use of its resources, the IMF has asserted 

that its staff may need information about the level of and trend in military 

expenditures and related transactions in order to permit a full and 

internally consistent assessment of the member’s economic position and 

policies. In addition, IMF members we spoke with generally agreed that the 

auditing and transparency mechanisms promoted by the mandate could 

potentially bring important information regarding military spending to the 

attention of donors.

We reviewed five countries that were included on the October 1999 list of 

22 noncompliant countries established by the U.S. Treasury (Burkina Faso, 

Guinea-Bissau, Indonesia, Kazakhstan, and Rwanda).7

 Of these five 

countries, as of November 9, 2000, only Guinea-Bissau is not in compliance 

with the military audit mandate (see table 5).

6

 Various mechanisms in the IMF and other international financial institutions have 

contributed to the United States effectively advancing the military audit legislation. These 

mechanisms include The IMF’s Annual Survey of World Military Spending, Public 

Expenditure Reviews, Performance-based Lending Criteria, and Advance Budget 

Commitments. In addition, the IMF, with strong U.S. encouragement, established the Code 

of Good Practices on Fiscal Transparency in 1998 that promotes budget, expenditure, and 

auditing standards.

7

 The directed vote aspect of the mandate is only pertinent to countries under an IMF 

financial arrangement. Of the original 22 countries that were deemed noncompliant, these 

5 countries were the only ones under such an arrangement since the mandate went into 

effect and thus were suitable as case studies. Although the United States pursued the 

mandate at some of the other 17 countries, none faced the prospect of U.S. opposition to 

their program at the IMF, and only 1 of these 17 countries has become compliant as of 

November 9, 2000.
Appendix V

U.S. Policy on Audits of Military 

Expenditures at the IMF

Page 61 GAO-01-214 International Monetary Fund

Table 5: The United States, the IMF, and Five Countries’ Efforts to Conform to the U.S. Audits of Military Expenditures Mandate, 

as of November 30, 2000

Burkina Faso Guinea-Bissau Indonesia Kazakhstan Rwanda

Arrangement 

approved after 

September 30, 1999

July 10, 2000 January 7, 2000 February 4, 2000 December 13, 1999 November 19, 1999, 

and July 31, 2000

U.S. Treasury’s 

determination as of 

October 18, 1999

Noncompliant Noncompliant Noncompliant Noncompliant Noncompliant

U.S. Treasury’s 

efforts

Worked indirectly 

through the IMF 

Country Director and 

directly through U.S. 

embassy.

Worked with U.S. 

embassy in Senegal 

to apprise 

Guinea-Bissau of its 

noncompliant status 

and to advance the 

mandate.

High-level Treasury 

and U.S. embassy 

officials conducted 

several meetings 

with top Indonesian 

officials and 

advanced mandate.

Worked with U.S. 

embassy to obtain 

information on the 

audit process for 

military spending.

Worked with U.S. 

embassy and IMF 

staff to obtain 

information on audit 

system and status of 

military audit.

U.S. Executive 

Director’s efforts 

using its voice/votea

Fund program 

reviewed on 

September 10, 1999, 

prior to mandate 

becoming effective. 

The U.S. Executive 

Director’s statement 

voiced concerns 

regarding the 

absence of annual 

audits of Defense 

Ministry.

Fund program 

reviewed on 

September 14, 1999, 

prior to mandate 

becoming effective. 

The U.S. Executive 

Director’s statement 

encouraged annual 

audits of military 

spending. Abstained: 

January 7, 2000

U.S. Executive 

Director voiced 

several concerns 

about unaudited, offbudget revenue that 

funds the military and 

actively pursued with 

IMF staff.

On October 19, 

1999, U.S. Executive 

Director at the 

European Bank for 

Reconstruction and 

Development 

abstained on a 

project. No action 

was necessary by 

the U.S. Executive 

Director at the IMF 

on December 13, 

1999.

Abstained: 

November 19, 1999

Abstained: July 31, 

2000

Authorities had not 

begun an audit of the 

Defense Ministry.

IMF efforts IMF mission officers 

discussed the 

mandate and U.S. 

Executive Director’s 

concerns with 

country officials.

The audit and control 

of military 

expenditures is a key 

aspect under an 

upcoming IMF 

arrangement and the 

IMF-World Bank 

portion of the Heavily 

Indebted Poor 

Countries Initiative 

debt relief. 

IMF staff worked with 

Indonesian 

authorities to commit 

in the Letter of Intentb

to audits of 

off-budget revenues 

that fund the military.

No action was 

necessary by IMF 

staff because 

country was deemed 

compliant by U.S. 

Treasury after the 

U.S. abstention at the 

European Bank for 

Reconstruction and 

Development.

Urged the authorities 

to give priority to the 

audits of key 

ministries, including 

Defense. IMF 

believes that 

authorities’

commitment were 

strengthened with 

assistance from the 

Canadian, Dutch, 

and Swedish 

governments 
Appendix V

U.S. Policy on Audits of Military 

Expenditures at the IMF

Page 62 GAO-01-214 International Monetary Fund

a

Vote = abstain or vote “no.” Voice = stating U.S. position without a vote. A formal vote is never actually 

taken. The U.S. Executive Director provides a written statement for the record. 

b

The Letter of Intent describes the policies that a country intends to implement in the context of its 

request for financial support from the IMF. 

Sources: GAO analysis of data from the Department of the Treasury, U.S. Executive Director at the 

IMF, and IMF.

According to the U.S. Executive Director, U.S. success in advancing the 

audits of military expenditures mandate was aided by two factors: 

acceptance by the IMF of the merits of the issue, and the possibility that the 

United States would oppose a country’s use of IMF resources. There is a 

widespread view in the international community, including at the IMF, that 

good governance, transparency of budgets, unproductive spending, and 

military spending are economic issues that could impact the effectiveness 

of a country’s macroeconomic reform effort. Therefore, IMF staff consider 

it appropriate to raise concerns about military expenditures in the context 

of their efforts to assist countries. As shown in table 5, IMF staff 

encouraged the countries’ authorities to audit government accounts, 

including military receipts and expenditures. In the case of Kazakhstan, 

IMF support was unnecessary because the country was already compliant. 

In these cases, the changes encouraged by the IMF also helped the country 

in its efforts to comply with the U.S. mandate. For example, in the case of 

Indonesia, IMF staff strongly encouraged Indonesian officials to include a 

commitment to audit off-budget military expenditures as part of its Letter 

of Intent to the IMF. The inclusion of this commitment within the 

Indonesian Letter of Intent was a contributing factor in the U.S. decision to 

remove Indonesia from the list of noncompliant countries.

Country’s efforts President issued a 

decree in April 2000 

calling for annual 

audit of Defense 

Ministry.

Audit of the Defense 

Ministry has not been 

initiated but is 

anticipated.

Authorities agree 

with intent of 

mandate and have 

initiated steps to 

account for all

off-budget funds in its 

audits of public 

institutions, including 

the Defense Ministry.

Authorities provided 

information that 

indicates a 

functioning audit 

system, including 

Defense Ministry.

Authorities agreed to 

give a high priority to 

the audit of the 

Defense Ministry. 

Current country 

status 

Compliant 

June 29, 2000

Noncompliant 

January 6, 2000

Compliant 

February 3, 2000

Compliant 

November 29, 1999

Compliant 

September 13, 2000

(Continued From Previous Page)

Burkina Faso Guinea-Bissau Indonesia Kazakhstan Rwanda
Appendix V

U.S. Policy on Audits of Military 

Expenditures at the IMF

Page 63 GAO-01-214 International Monetary Fund

Based on our review of country documents and discussions with Treasury, 

U.S. Executive Director, and IMF officials, we have determined that the 

success of the mandate was also aided by countries’ desire to avoid having 

the United States oppose their receipt of resources under their IMF 

arrangements.8

 As our military audit mandate case study revealed, certain 

countries have agreed to undertake military audits as a response to U.S. 

pressure. According to Treasury and U.S. Executive Director’s officials, 

because of the key role of the U.S. government in the IMF and the donor 

community, recipient countries do not like having the United States oppose 

their IMF program. Although U.S. opposition is not sufficient to veto a 

country’s access to IMF resources, according to U.S. and country officials, 

the U.S. position raised the priority of this issue and motivated some of the 

countries on the noncompliant list to become compliant more rapidly. For 

example, according to Treasury, because the United States was threatening 

to oppose debt relief to Burkina Faso, the authorities agreed to initiate an 

audit of military spending earlier than they otherwise would have. In the 

case of Guinea-Bissau and Rwanda, despite their efforts to become 

compliant with the audits of military expenditures mandate, the U.S. 

Executive Director opposed their receipt of IMF resources because at the 

time of the review of their IMF arrangement, they were not compliant with 

the criteria established by the Policy Group. Both countries continued to 

address U.S. concerns following their reviews; Rwanda became compliant 

in September 2000, and Treasury believes the government of Guinea-Bissau 

is beginning to take steps to audit government expenditures, including the 

military. According to a Treasury representative, the Treasury is working 

with U.S. embassy representatives to ensure that Guinea-Bissau 

understands U.S. legislative criteria requiring the reporting of its military 

audit to civilian authority.

8

 It should not be concluded that U.S. leverage is always this evident when a mandate 

requires a directed vote. The U.S. Executive Director at the World Bank routinely opposes 

loans to countries due to several additional directed vote mandates, including those 

pertaining to human rights, the environment, and nuclear nonproliferation. According to an 

official from the World Bank’s U.S. Executive Director’s office, the routine nature of the U.S. 

opposition has blunted its impact and has not necessarily led to any change in countries’ 

policies.
Appendix V

U.S. Policy on Audits of Military 

Expenditures at the IMF

Page 64 GAO-01-214 International Monetary Fund

The Impact of the 

Military Audit Mandate 

on Broader U.S. 

Influence at the IMF

The impact of pursuing the military audit mandate on the broader U.S. 

influence on IMF policy is uncertain. Based on our discussions with U.S. 

and IMF officials, we have determined that the directed nature of the 

mandate has worked to advance U.S. policy goals; nevertheless, it may also 

limit U.S. credibility with other IMF members. There is widespread support 

by IMF members with the intent of the legislation, meaning that countries 

should strive to control their level of military spending and have in place a 

system that provides accurate and reliable information to the public. As our 

military audit mandate case study revealed, certain countries have agreed 

to undertake military audits in response to U.S. pressure. However, other 

IMF members we spoke with questioned whether the United States may 

have promoted the military audit issue in certain countries simply because 

it is a legislatively mandated directed vote and not necessarily because it 

was in the best interest of the country at the time. Therefore, while U.S. 

officials are pleased with the progress realized through their pursuit of the 

mandate, they see a risk to U.S. credibility when they must emphasize one 

issue over other more pressing matters that a country may be confronting.

The mandate does not give the U.S. Executive Director the discretion to 

determine when to pursue the military audit issue. As a result, the U.S. 

Executive Director is compelled to advance the mandate with country 

authorities and with IMF staff regardless of whether the U.S. Executive 

Director believes it is an appropriate time to pursue the mandate with a 

given country. Treasury staff and all of the executive directors we 

interviewed at the IMF expressed concern with the inflexibility of the law. 

The executive directors believe that the U.S. Executive Director has been 

very effective in advancing the military audit mandate but, due to the 

inflexibility of the mandate, has at times been too aggressive in this pursuit.

The constraints imposed by the directed nature of the military audit 

mandate were evident in our case study analyses. For example, as a result 

of a severe economic crisis and the subsequent collapse of 30 years of 

military dictatorship, Indonesia has been faced with many competing 

priorities. Numerous Treasury and IMF documents and Board meeting 

agendas over the past 3 years indicate that the major priorities of the IMF 

Board for Indonesia centered on issues such as banking and corporate 

restructuring, bankruptcy law, and social safety net issues. Annual audits of 

off-budget revenues that fund the military were not one of these major 

priorities. According to IMF staff, while the new democratic government of 

Indonesia is receptive to the military audit mandate, discussions with 

authorities on this issue were highly complex. For example, according to 
Appendix V

U.S. Policy on Audits of Military 

Expenditures at the IMF

Page 65 GAO-01-214 International Monetary Fund

IMF staff, the auditing capacity in Indonesia is limited, and it has been a 

challenge getting the overall fiscal accounts under control, especially when 

it requires the cooperation of the military. In addition, according to IMF 

staff, the time frame needed to achieve transparency in military 

expenditures is quite burdensome, and there are many immediate, more 

urgent issues to address. IMF staff also believe that the Letter of Intent 

commitment to audit off-budget sources that fund the military was 

ambitious and should be recognized as such. IMF staff expressed concern 

about having U.S. officials overemphasize this issue at this point. 

Similarly, Rwanda, as a post-conflict country, has several major priorities, 

including government and macroeconomic stability, building 

administrative capacity, and satisfying the requirements of the Heavily 

Indebted Poor Countries Initiative.9

 Based on issues before the IMF Board, 

an audit of its military spending was only one of a large number of 

important priorities. According to the U.S. Executive Director, as of July 

2000 Rwanda continued to face very difficult humanitarian and economic 

problems that require the utmost resolve and determination to effectively 

address. In addition, according to the U.S. Executive Director’s 

representative, when the United States abstained from voting on Rwanda’s 

program in July 2000, it required the U.S. Executive Director to raise as the 

first priority an issue that was just one of the necessary steps to address the 

country’s many problems. The U.S. Executive Director was compelled to 

abstain from voting to make a financial disbursement for Rwanda’s 

program because Rwanda was not yet in full compliance with the military 

audit mandate’s requirements. This occurred despite the administration’s 

knowledge that Rwanda would become compliant with the mandate 

shortly and, in its judgment, was making good progress in implementing 

economic reforms and improving fiscal transparency.

IMF Board members understand that in certain cases the U.S. Executive 

Director advanced military audit concerns because of the legislative 

requirements and not necessarily because a focus on military audits was 

among the most important issues confronting that country. These Board 

members noted that the Executive Board generally makes decisions on a 

consensus basis and that limitations on an executive director’s discretion 

runs counter to this practice. Therefore, while U.S. officials agree with the 

9

 The Heavily Indebted Poor Countries Initiative is a framework developed jointly by the 

IMF and the World Bank to address the external debt problems of the heavily indebted poor 

countries.
Appendix V

U.S. Policy on Audits of Military 

Expenditures at the IMF

Page 66 GAO-01-214 International Monetary Fund

intent of the mandate, they believe that there is a risk to U.S. credibility at 

the IMF when the U.S. Executive Director must emphasize an issue over 

other, more pressing priorities for a borrowing country.
Page 67 GAO-01-214 International Monetary Fund

Appendix VI

Objectives, Scope, and Methodology ApendxiVI

The Consolidated Appropriations Act for Fiscal Year 2000 (P.L. 106-113 

sec. 504 (e)) requires GAO to report on the extent to which Fund practices 

are consistent with U.S. policies set forth in federal law. In order to address 

this requirement, we (1) identified how the U.S. Treasury and the U.S. 

Executive Director promote U.S. policies mandated by Congress for the 

Fund and (2) assessed whether Treasury and the Executive Director have 

been able to influence Fund operations and other members’ policy 

positions in a direction that would be consistent with U.S. policy as set 

forth in law.1

 To help answer these objectives, we analyzed the process by 

which Treasury pursues its legislative mandates and conducted case 

studies of specific U.S. policies and Treasury’s efforts to promote them for 

individual countries’ Fund arrangements from 1998 through 2000. 

To identify how the U.S. Treasury and the U.S. Executive Director of the 

International Monetary Fund promote U.S. policies mandated by Congress 

for the Fund, we analyzed the process by which Treasury pursues 

legislative mandates. Specifically, we reviewed Treasury documents, 

including internal correspondence, concerning the creation in 1999 of 

Treasury’s Task Force on Implementation of U.S. Policy and Reforms in the 

International Monetary Fund, its operations, and the challenges that 

Treasury has faced in implementing its process for addressing legislative 

mandates. We also reviewed examples of Treasury officials’ draft policy 

position input to the U.S. Executive Director for oral and written 

statements to the Executive Board. In addition, we interviewed officials 

within all 10 Treasury offices2

 who are responsible for developing the U.S. 

policy position toward the Fund, including members’ Fund arrangements.3

Further, in July 2000 we attended one task force meeting to observe 

Treasury’s efforts to address legislative mandates. We also reviewed U.S. 

1

 Recognizing that influence by any member of the Fund is hard to discern in an organization 

that generally operates by consensus, for the purposes of this report we defined “influence” 

as the ability of the United States to affect Fund policies as contained in Fund programs, as 

well as the actions of countries using Fund resources.

2

 Specifically, we interviewed Treasury officials within the following offices: the Office of 

African Nations; the Office of Middle East and South Asian Nations; the Office of Central 

and Southeastern Europe; the Office of Russia, Eastern Europe, and Central Asia; the Office 

of Latin American and the Caribbean Nations; the Office of East Asian Nations; the Office of 

International Monetary Policy, the Office of International Banking and Securities Markets, 

the Office of Development Finance, and the Office of International Trade.

3

 We also interviewed Treasury officials within the office of Multilateral Development Banks 

to compare how legislative mandates concerning other international financial institutions, 

such as the World Bank, are pursued.
Appendix VI

Objectives, Scope, and Methodology

Page 68 GAO-01-214 International Monetary Fund

statements to the Executive Board and internal U.S. Executive Director 

documents from 1998 to 2000 regarding U.S. Executive Director efforts to 

pursue legislative mandates. Finally, we interviewed the U.S. Executive 

Director and all of the staff in that office who monitor country and policy 

developments concerning the Fund, as well as numerous Fund staff and 

other Executive Board members.

To assess whether Treasury and the U.S. Executive Director have been able 

to influence Fund operations and other members’ policy positions in a 

direction that would be consistent with U.S. policy as set forth in law, we 

conducted case studies of specific U.S. policies and Treasury’s efforts to 

pursue them for individual countries’ Fund arrangements. To select these 

case studies, we identified legislative mandates concerning U.S. policy 

objectives with respect to the Fund, using our own legal analysis 

supplemented with documentation obtained from Treasury. We used two 

criteria as the basis for identifying the relevant laws for this review. We 

defined these criteria as (1) any current law that explicitly directs the U.S. 

Executive Director to use the U.S. vote at the Fund to achieve a policy goal 

and (2) any current law that seeks to have the U.S. Executive Director use 

the U.S. voice at the Fund to promote a U.S. policy or make a policy 

change.

We selected sound banking principles, labor policies, and audits of military 

expenditures as the U.S. policy focus for our case studies. We chose these 

policies because they represent a range of types of legislative provisions, or 

mandates, that are set forth in federal law, including both voice and 

directed vote provisions. We also chose these policies on the basis of our 

preliminary analysis, which suggested that the U.S.’ ability to impact Fund 

practice was related to whether policies encompassed issues that were 

viewed as central to the traditional focus of the Fund’s mission. For each 

policy issue, we reviewed Fund practices with respect to five member 

countries that we selected based on a number of factors, including 

geographic diversity, level of economic development, type of Fund 

arrangement, and range of issues connected to the policy concern. For the 

labor policies and audits of military expenditures case studies, we selected 

only countries that have a financial arrangement with the Fund because the 

language in their corresponding mandates is expressly directed at those 

countries. Specifically, we selected the following countries for each case 

study: (1) for sound banking principles, India, Mexico, Romania, South 

Africa, and Thailand; (2) for labor policies, Argentina, Ghana, Kazakhstan, 

Mexico, and Thailand; and (3) for audits of military expenditures, Burkina 

Faso, Guinea-Bissau, Indonesia, Kazakhstan, and Rwanda. We limited our 
Appendix VI

Objectives, Scope, and Methodology

Page 69 GAO-01-214 International Monetary Fund

review to the activities of the Treasury, the U.S. Executive Director, and the 

Fund for the last 3 years; that is, the period from January 1998 through 

November 2000. Since we focused primarily on the Fund rather than on 

country practices, we did not travel to any of these countries as part of this 

review. However, we interviewed Fund officials who monitor 

developments in these countries as well as seven other executive directors 

of the Fund’s Executive Board in Washington, D.C. Our basis for selecting 

these executive directors to speak with is discussed below.

We reviewed numerous internal Treasury and U.S. Executive Director 

documents dating from 1998 to 2000 to answer our second objective. These 

documents included internal correspondence among officials within 

Treasury and the U.S. Executive Director’s office concerning their 

deliberations to develop U.S. policy positions with respect to both general 

mandate issues as well as the case study policies. We also reviewed 

Treasury’s policy position input to the U.S. Executive Director and all U.S. 

statements to the Fund’s Executive Board for each country covered for our 

case studies. In addition, we interviewed Treasury and U.S. Executive 

Director officials who monitor sound banking, labor, and military audit 

issues as well as those who monitor the country developments and are 

charged with formulating and implementing the U.S. policy position for 

each country with respect to the Fund. We also reviewed all Fund staff 

documents provided to the Executive Board concerning these countries for 

their program and economic policy reviews. These included Fund staff 

reports concerning countries’ requests for arrangements, reviews of 

ongoing arrangements, and countries’ periodic economic reviews, as well 

as staff summaries of Executive Board meetings. 

In addition, we interviewed numerous officials at the Fund to answer our 

second objective. Specifically, we interviewed staff at the Fund who 

monitor each of the countries under our review, except for Fund staff who 

monitor developments in Burkina Faso, who were not available to meet 

with us. For the other countries, we discussed with Fund staff how they set 

priorities in negotiating arrangements with these countries and how our 

case study policies fit into these priorities. We also met with officials from 

the Fund’s Policy Development and Review Department to discuss how the 

Fund pursues labor and military audit issues and we met with the Fund’s 

Monetary and Exchange Affairs Department to discuss how the Fund 

pursues strengthening sound banking principles in countries. In addition, 

we met with 7 of the 23 non-U.S. Executive Board directors and discussed 

their views of these policies and the impact of U.S. influence at the Fund. 

Specifically, we met with the appointed executive directors of France, 
Appendix VI

Objectives, Scope, and Methodology

Page 70 GAO-01-214 International Monetary Fund

Germany, Japan, and the United Kingdom, and the elected representative 

executive directors from Gabon, Mexico, and Thailand. We selected these 

executive directors to speak with because (1) they represent the largest 

donor countries and a mix of borrower countries at the Fund and (2) the 

elected executive directors represent several of the countries we reviewed 

in our case studies. 

Finally, we also interviewed the Assistant Secretary of the Fund’s Executive 

Board and the Deputy General Counsel of the Fund to obtain information 

on the Board’s process for voting and how often voting occurs. For 

comparison purposes, we interviewed an official within the U.S. Executive 

Director’s office at the World Bank about the voting process in that 

institution as well.

We conducted our work from March through November 2000 in accordance 

with generally accepted government auditing standards.
Page 71 GAO-01-214 International Monetary Fund

Appendix VII

Comments From the Department of the 

Treasury ApendxiVI
Appendix VII

Comments From the Department of the 

Treasury

Page 72 GAO-01-214 International Monetary Fund
Page 73 GAO-01-214 International Monetary Fund

Appendix VIII

GAO Contact and Staff Acknowledgments ApendxiVI

GAO Contact Thomas Melito (202) 512-9601

Acknowledgments In addition to the person named above, Carolyn Black-Bagdoyan, Tamara 

Cross, Barbara Shields, Valérie Leman Nowak, Rona Mendelsohn, Mark 

Speight, Mary Moutsos, and Mark Dowling made key contributions to this 

report.

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