Bretton Woods Institutions should “start a new life”: Chinese central bank governor Meeting highlights from annual meetings 2004

Minutes|Bretton Woods Project|5 October 2004|url
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Friday 1 October 2004
Host: World Bank and G24

As part of the World Bank programme of seminars, a panel was held to discuss the lack of democracy in the governance of the World Bank and IMF. Panellists included: Luiz Pereira da Silva, secretary of international affairs, ministry of finance, Brazil; Li Ruogu, deputy governor of the People's Bank of China; Charles Soludo, governor of the central bank of Nigeria. The moderator was Leo Van Houtven, president of the Per Jacobsson Foundation, who has written recently on the issue in a journal of the IMF (see Update 42). Indian and Canadian representatives failed to attend.

Governor Soludo emphasised that incremental reform would allow time for more radical approaches to take root. He described the Bretton Woods institutions as "powerful instruments of control". Despite the emphasis on incrementalism, his recommendations for reform were far-reaching. He suggested that board seats could be de-linked from the quota weights of countries. Basic votes should be increased to 25 per cent of the total. As a guiding principle, he recommended an equal balance between creditor and debtor nations.

Governor Li told the audience that in China sixty years marks the start of a new life. He hoped that "the Bretton Woods institutions start a new life". He pointed to the hypocrisy in one-way conditionality. There is, he said, no conditionality to ensure the reform of the Fund or to make industrialised countries meet the 0.7 per cent target for overseas development assistance. He made a number of recommendations:

• Revise the quota formula: increase the quota size and increase basic votes as a percentage of total votes. Request the EU/US to voluntarily give up quota shares;
• Reform the voting majority;
• Add another chair to the development committee; and
• Add two deputy managing director posts for developing countries.

Luiz Pereira da Silva addressed the effectiveness of the board. He urged a revival of the consensus-building nature of debates, and called for an increase in the board's monitoring role. The current governance structure had not allowed for a proper discussion of a precautionary facility for countries in distress. Like the other speakers, he supported reform of the quota formula, backing a G24 proposal to judge economic weight based on purchasing power parity numbers.

During the discussion, Governor Li told the audience that China would use its invitation to the G7 to raise issues around developing country representation at the Bank and Fund. Da Silva suggested making executive directors more independent of political decisions in country. Finally, moderator Van Houtven warned that pursuit of an incremental approach might lead to "reform fatigue". He urged that any recommendations exhibit "artistry" to get around the 85 per cent rule (the supermajority required for fundamental changes to the board structure) to ensure that all parties can see themselves as winners.

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Published: 5 October 2004 , last edited: 8 February 2010

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