Increasing clarity on limitations of IFI governance debate (Bretton Woods Project)

In mid February high-level meetings were held in Washington DC to examine proposals to reform the governance of the World Bank and IMF (for background see Bretton Woods Update 32). A paper by Bank staff was considered by government representatives on the Boards of both institutions. This short note sets out the main contents of the Bank/Fund paper and what is known about the stance of key governments.

The next major discussions will be at the Bank/Fund Spring Meetings in Washington on 12-13 April. It is likely that some limited capacity-building measures for Southern EDs will be announced, with discussion of more significant reforms to the governance architecture put off until the Annual Meetings in September. Whilst providing more funding and personnel to Southern country representatives at the Bank and Fund is welcome it is certainly not sufficient to address the democratic deficit at the IFIs. A detailed examination of any capacity building efforts will be needed to ensure that any new money is well spent. Important questions include:

is it best to build up capacity in Washington or in recipient country capitals?
what will be the relationship between any new body and existing secretariats such as the G24?
will donors set up rival competing capacity building initiatives or pool their resources to back a common entity?

Any serious effort to improve Southern country voice at the institutions will require going far beyond capacity-building to changes in composition, voting shares and transparency of the Bank/Fund Boards. Unless this is done many civil society groups will complain that this is just a typical donor exercise of throwing money at a problem rather than tackling the underlying political issues. Civil society groups have discussed and are circulating a joint statement for sign-on. This sets out seven demands for rebalancing board composition and voting power, making governing bodies transparent, opening leadership selection, and reversing mission creep.

On the governance architecture questions there seems to be some interest in adding one or two extra Executive Directors, but minimal appetite for improving Southern countries' voting shares or renegotiating or improving the functioning of the constituency system. The US and a number of European governments have indicated that they are not ready to countenance change in these areas. Issues of transparency and leadership selection are also being given minimal official attention in this process.

Bank/Fund staff paper

In early February Bank and Fund staff produced a 'background note' (1) to help facilitate consideration of ways to broaden and strengthen the voice and participation of developing countries in decision-making at the institutions. The leaked paper, obtained by the Bretton Woods Project, provides a listing and brief analysis of some different measures that could be taken.

The paper says that two approaches are "well-supported" by Bank/Fund membership and should not therefore be changed:

the constituency-based system of representation which "has been able to bridge representation and efficiency reasonably well";
"the principle underlying the distribution of quotas, shares and voting rights - that these should in large measure reflect the relative importance of member countries in the global economy - remains appropriate for these institutions".

The paper discusses some possibilities in the area of voting strength and enhancing capacity of developing countries to form and put across their views. But these are listed in a manner which talks down the possibilities of many of them being approved. Typical language includes: "proposals for increases in basic votes have been made from time to time, but have lacked wide support. An increase in basic votes requires an amendment of the Articles of Agreement". If the Bank and Fund approached governance and economic reform in the same fatalistic way in negotiations with recipient countries, the world would be very different. As it is, however, the Bank and Fund frequently press for laws to be enacted by borrower countries, even if they lack widespread support and would not pass without heavy pressure from Washington.

The staff paper mentions increasing IMF quotas and IBRD capital shares only to say that the IBRD is not having a capital increase at present and the current General Review of Fund Quotas will result in a progress report by the time of the September 2003 Annual Meeting. It does touch on the possibility of requiring 'special majorities' for certain categories of decisions. This would mean that obtaining over 50 per cent of Board voting shares would not suffice. If a new target, between 70-85% was established, then a determined and organised set of developing country representatives could block the change.

Increased developing country representation on the Development Committee and International Monetary and Finance Committee is also suggested. These committees are the strategic guidance bodies which convene at Bank/Fund Spring and Annual Meetings. Increased borrowing government presence could be either for all meetings or just for specific sessions of importance to certain groups of countries.

A trust fund could be established to support Southern countries' ability to research analyse issues coming to the Board. This capacity could be established in Washington or in the countries or region being represented. It is suggested that large multi-country constituencies might be offered the following assistance:

More advisers/assistants
An additional Alternate Executive Director
Technical and Research Support.

The Bank/Fund staff paper makes no mention of:

increasing transparency;
selection process for key senior positions;
reducing the number of Northern country Board seats.

Other official papers on IFI governance

Other papers known to have been tabled include:

UK government paper (November 2002)
German government papers (January 2003 and February 2003)
African ED paper (February 2003).

German government proposals

Proposals include:

Greater decentralization of World Bank activities.
Resources available to, and/or restructuring of, the World Bank Executive Board. This includes introducing modern corporate governance approaches to protect the rights of minority shareholders through enhanced transparency of decisions, and of rules for decision-making. This might involve a formal separation of decisions into those being of direct relevance for the World Bank's financial integrity on the one hand and those of little or no relevance for its financial integrity on the other.
Reorganization of voting rights.
A restructuring of responsibilities and more cooperation between the various international organizations.
As Trust Funds (donor special purpose funding vehicles hosted by the World Bank) are becoming increasingly important in the Bank's work their decision-making should be reformed, perhaps using the model of Global Environmental Facility double-majority voting.

The German government is understood to be sceptical on efficiency grounds about the proposal to add an extra Board member to the Bank and Fund. It is also worried that any extra analytical capacity should not be placed in Washington DC. Instead they prefer the establishment of several regional Resource Centres.

African government proposals

African Executive Directors have tabled a proposal supporting:

the appointment of additional staff to help them in their work;
creating an African Advisory Council of experts who will meet periodically to advise EDs on topical issues. These two additions would be paid for by a new trust fund.
extra Board seats to reduce the size of the constituencies to a more manageable level. Currently Sub Saharan African countries are lumped together into just two seats: one with 25 countries and the other with 22 countries. The third largest seat is the Australian chair with 13 countries.

UK government proposals

The UK government tabled an 'ideas paper' which included the following:

Improving implementation of PRSP objectives, supposed to shift programme development to borrower countries and away from international financial institutions. This should include greater access to independent advice on key policy areas, and training to improve negotiating skills, improving the functioning of networks established by and for developing countries such as the G24;
Further decentralisation of Bank and Fund staff and delegation of negotiating authority;
increased efforts towards greater openness and transparency in Fund and Bank programmes through discussion of alternative policy options and analysis of their poverty and social impact;
improve consultation on key issues of concern to developing countries such as streamlining conditionality, HIPC evaluation, and Codes and Standards;
an extra Board seat for African countries;
establishing a new Resource Centre in Washington
an increase of IMF basic votes as a percentage of total IMF votes to 10 per cent.

Notes and links

(1) Voice and Participation of Developing Countries in Decision-Making at the World Bank and IMF. A Technical Note by Bank/Fund Staff for the Development Committee (5 February 2003).

Sign the joint civil society statement | French version

Options for Democratising the World Bank and IMF, Christian Aid, February 2003:

Window of opportunity on IFI governance Bretton Woods Update 32 (includes links to statements and publications).

Report on the G24 Workshop on Financing for Development, (28 page PDF file), pp. 13-15.

Please send any further insights into the positions of different governments, or views on Bank/Fund governance reforms to: ifigovprocess@brettonwoodsproject.org

Alex Wilks, Bretton Woods Project. Posted 10 March 2003.

Increasing clarity on limitations of IFI governance debate