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World Bank Unlikely to Quickly Follow Smart IMF Lead on Representation – Too Bad!
April 25, 2006
“More fairly reflecting the size of national economies through increased voting shares is important to retaining the institution’s legitimacy as it advises governments on their economic policies, officials at the fund and analysts said.”
That’s a quote from The New York Times story on the agreement by IMF members to give more votes to Asia’s rising powers. But the real impetus for giving more weight to China and Korea, among others, is not “legitimacy” but the IMF’s own relevance. To quote from the Washington Post story it’s about the IMF
“scrambling to maintain influence in a rapidly changing world economy.”
It’s a new world — a world in which China and its neighbors don’t need the Fund (China’s enormous reserves provide self-insurance against a financial crisis) but the Fund and the G-7 increasingly need China’s engagement — in addressing the worrying global account imbalance problem (see Bill Cline’s recent book, The United States as a Debtor Nation and Larry Summers’ terrific speech in Mumbai, India: Reflections on Global Account Imbalances and Emerging Markets Reserve Accumulation), not to mention the mounting demand pressures on world oil prices.
The World Bank does not yet face the same crisis of relevance as the IMF – since minimizing global systemic risks is not part of its mandate. And it is the Fund’s relevance not “legitimacy” that is motivating the G-7 to finally agree on quota changes. So we cannot expect that changes in quotas (and thus voting structure) at the Fund will translate soon into changes at the Bank. In its communique, members of the Development Committee (which is the ministerial forum most concerned with World Bank issues) referred carefully (and subtly) to the prospective changes at the Fund and their implications for the Bank. “We welcomed the discussion of quota and voice issues in the Fund [read: voting structure] and confirmed our intention to continue our discussions with a view to building the necessary political consensus on the voice issue in the Bank.”
OK, that’s better than nothing. But note that the communiqué says the Bank will consider only the “voice issue” and not the actual voting structure and broader legitimacy concerns that are increasingly being raised by independent observers. These include CGD’s own working group report, The Hardest Job in the World: Five Crucial Tasks for the New President of the World Bank; a statement on Democratizing the World Bank and the IMF released last year by a broad coalition of civil society groups; Ngaire Woods new book and CGD brief on The Globalizers and Kemal Dervis’s fine CGD book: A Better Globalization: Legitimacy, Governance, and Reform.
Sooner or later the Bank will surely have to follow the IMF lead. Sooner would be better for the Bank and for the world. But don’t hold your breath.
One Response to “World Bank Unlikely to Quickly Follow Smart IMF Lead on Representation – Too Bad!”
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April 28th, 2006 at 9:33 am
Why should the World Bank change as well? Because it needs to be more responsive to its fee-paying clients, upon whom ultimately its mission and funding depends.
Like the IMF, the World Bank’s income ultimately derives from its borrowers – who pay for their loans, and in so doing, pay for the organization. Yet they have a tiny fraction of voting power in the organization. Furthermore, the President of the Bank is selected by the United States, the headquarters are in Washington DC, and US academics and companies all benefit strongly from this. The result is to skew the accountability of the organization towards that one member.
The US has a vital role to play in the World Bank. Not as chief paymaster (which it is not) and not as chief agenda-setter (because this conflates the US administration’s policies with those of this international organization).
The vital role of the US derives from Americans – citizens, officials, and businesses – who support and invigorate the Bank’s mission to promote development in poorer countries. The Bank’s governance must change so as properly to harness that energy and expertise – properly balanced against the experience and needs of other countries.
What kind of reform? One modest reform would be to change how decisions are made. At present the Board has eight Directors which directly represent individual countries (United States, France, United Kingdom, Japan, Germany, Russia, China, Saudi Arabia), and sixteen Directors who represent the rest. Most Directors live in a grey zone, based in Washington DC, paid by the Bank, and neither instructed by, nor accountable to, most of the membership of the Bank.
This means that for about 174 members of the Bank, there is little incentive to engage in decisions being made by the Board. Eight Directors can marshal a majority among themselves with little if any consultation with others.
This does not have to be the case. If Directors had to marshal not just 50% of votes (which might be just 8 members), but also 50% of members (92 countries) to make decisions, there would be a clear incentive for to consult and bring on board Directors who represent a large number of countries but wield few votes (such as the two Directors who represent over twenty African countries each yet each wield less than 3.5% of voting power).
This is not a difficult reform. The Bank’s Articles already provide for double-majority voting (Article VIII) for any amendment to the Articles. This could be extended to other decisions. Along with transparency of the Board’s process such as publication of the full minutes of any Board meeting so that countries can read exactly what their Director has said in Board meetings, would be first steps towards a more effective Board.