Efforts to reform the IMF and World Bank’s governance structures may finally be coming to a head.
The eminent person committee on IMF governance reform (see Update 62) issued its report at the end of March. The committee, headed by South African minister Trevor Manuel, was set up to examine recommendations made by the IMF’s Independent Evaluation Office (IEO) in its report on IMF corporate governance in December 2007 (see Update 59).
While agreeing with most of the IEO recommendations, the Manuel committee notably omitted saying anything about transparency and accountability of the Fund’s governance. Instead it focused on the legitimacy and efficiency of the Fund’s structure. It supported the activation of the IMF Council and the elevation of the IMF board from day-to-day operational decision-making to a more strategic role. The committee argued that all its recommendations “should be agreed as a single package” of reforms.
The committee recommended that the IMF Council, a body of ministers that will have legal authority to make decisions at the IMF, have only 20 seats compared to the current board’s 24 seats, and that they be more fairly distributed between developed and developing countries. The recommendation for activating the council was obliquely referred to in the London G20 communiqué (see Update 65) but without mentioning further reform. However, without a single package of reform to also change board seat distribution, 12 of the 20 seats at the Council would likely go to developed countries, worsening the representation of developing countriesat the IMF.
The committee also supported an accelerated review of quotas at the IMF, asking for it to be finished by the spring meetings of the IMF in April 2010. This one year time frame was also demanded by UK NGOs and trade unions in their statement to the UK government before the G20 meeting. Ambition, however seems lacking. The G20 finance ministers called for the completion of the next review by January 2011. An inside source at the IMF has indicated that achieving agreement even by then may be difficult as European countries, the most likely losers from a quota review, were loath to speed up the existing timetable of completing the review by 2013.
The committee endorsed the often repeated but not yet tested commitments to a merit-based process for leadership selection. It also argued for expansion of double majority systems of decision making (see Update 55) and a reduction of voting thresholds from 85 to 70-75 per cent, which would remove the US veto; a serious test for the stated commitment of the new US administration to renewed multilateralism.
Capital account mandate back
While the committee ignored the issue of transparency, it delved into an area that was explicitly not in its mandate – a review of the roles of the IMF.
The most surprising recommendation in the report was buried in a box and only briefly mentioned in the executive summary: “The capital account would fall within the mandate.” This revives a debate that roared in the late 1990s over whether one of the IMF’s goals should be universal capital account liberalisation. The committee was careful to say that “the objective was never to champion the liberalisation of capital movements per se, but rather that countries adequately assess domestic macroeconomic and financial risks ahead of liberalisation.”
This is dangerous territory, as critics are concerned about the IMF’s bias towards liberalisation. Yilmaz Akyuz, former UNCTAD chief economist commented that “developing countries should be extremely careful in accepting multilateral obligations with respect to the capital account, implicitly or explicitly, or a broader mandate for the IMF unless it unambiguously recognises their rights to impose unilateral restrictions over inflows and outflows, and protect them against litigation by international investors and creditors.”
Bank governance reform
The G20’s call for a completion of World Bank governance reform by the 2010 spring meetings injects urgency into a reform process that had been slated for a 2011 completion date (see Update 63). Interestingly, the G20 communiqué calls for an expansion of the scope of reform to include mandates as well as governance.
The uncontroversial reforms agreed to in the autumn, including an extra board chair for Africa, were approved by the Bank’s board in February and should be ratified by member countries at the upcoming spring meetings later this month.
Controversial issues remain unresolved, in particular the G24 developing countries’ demand for parity of vote between borrowing and lending countries, a demand supported by over 80 NGOs and numerous influential figures from around the world (see Update 62). Europe which controls over 30 per cent of the vote, is likely to continue to be the main blocker of change, so far opposing parity.
These issues will be the focus of a high level commission on Bank governance, chaired by former Mexican president Ernesto Zedillo, which announced its membership in March. The 12 members include Pascal Lamy, of the World Trade Organisation, and ministers from the UK and Germany, the former president John Kufuor of Ghana is the sole African representative. The commission is scheduled to report in October.
Kofi Annan, former UN secretary general highlighted the central problem at a conference in Tanzania in March: “At issue is the political legitimacy of international financial institutions.” It remains unclear whether the reforms to both institutions will do enough to restore their tarnished legitimacy.