September 28, 2009
Mismatch between Newly Inclusive G-20 and Limited Changes at the IMF and World Bank
By Nancy Birdsall
The big headline from Pittsburgh was the G-20 officially becoming the recognized grouping on “global economic issues”, eclipsing forever the nearly four-decade role of the G-7/8. Presumably that was the quid pro quo for three steps by China: (1) its signing on to the promise in the communique to support for increasing domestic consumption at home to deal with the global imbalance problem; (2) keeping alive that China will find a way to help fill the unfilled gap in the $750 billion to be made available by the G-20 countries to the IMF’s short-term resources; and most important (3) the 5 percent shift in voting power at the IMF to underrepresented countries, which means mostly China.
But insiders can only be disappointed about the contrast between the ascendancy of the more inclusive and representative G-20 (though NOT IDEAL) and the timidity of planned reforms at the Bretton Woods institutions to make them more inclusive and representative. First the G-20 heads of government let stand the antiquated and embarrassing quota formula at the IMF – presumably to quiet the Europeans who benefit from the inclusion in the formula of trade/GDP among countries even within their EU trading zone.
At the World Bank, the promised three percentage point increase in voting power for developing countries, which will increase their total to 47 percent, is a Pyrrhic victory. It fails to go to the heart of the matter, which is about overall influence and sense of ownership – a function as at the IMF of how the head of the institution is selected, how Board chairs and the Board’s budget are distributed, and with whom both positive and effective veto power rest.
In short, no one should be fooled that these promised changes in governance at the institutions alone make any fundamental difference in the distribution of influence and power and the prospects for increased responsiveness and effectiveness.
September 29, 2009 at 1:47 pm
depressingly decorative reforms at IMF & WB but it give ‘ Hope” -we are learning from the American experience with the realization of Civil Rights that change can happen at the end!
September 29, 2009 at 3:36 pm
The article correctly recognise the insignificance of the changes in the distribution of decision-making power in the IFIs.
It is surprising though that G-20 is recognised and is being promoted as a legitimate and representative body. Surprising since the Group is self selected, is comprised exclusively of the larger and economically stronger economies. The 172 excluded had no part in selecting these representatives; have no means of influencing the positions they advocate;and receive no report from them on their stewartship. These are well known features of a representative body.
!n the case of an international body dealing with global economic policy issues a representative body must include members of the advanced industrialised countris, members of the newly industrialising, the large LDCs, the smaller economies and the landlocked economies. Each of these groups has specific challenges which are better understood by Members of the group. The actual selection of the State(s) to represent the Group could be done by the groups or or on a geographic basis. There are several representative bodies mhich could be used as models.
The simpliest test of representativeness is to ask the excluded if the feel represented.
Much more could be said
byron
October 21, 2009 at 9:47 am
Byron raises a provocative point in his post — perhaps a truly representative body would include different TYPES of economies (landlocked, MICs, LICs, etc.). I urge him to see a paper written by CGD senior fellow Vijaya Ramachandran on just this issue, available here: http://www.cgdev.org/content/publications/detail/1421065/.