Many people have long complained about the governance of the International Financial Institutions. Now there is a rare window of opportunity to change this. The Development Committee – the supreme decision-making body for World Bank strategy – is due to discuss reforms to the governance structure at the Spring Meetings this April. This represents an excellent opportunity for civil society groups to raise awareness about the institutions’ many governance shortcomings and press for significant change.
“…the US gets the World Bank and Europe gets the IMF… What about the rest of the world? This is disgraceful.”
Clare Short on the selection of the heads of the WB and IMF
At the last Bank/Fund Annual Meetings it was agreed that Bank staff would draw up a paper on governance reform options. This is now being prepared by a team led by Thomas Bernes and is likely to be ready in early February. The Bank states that this is just a background document setting out various options put forward by a range of commentators. One well-placed aid ministry official told the Bretton Woods Project however, that they “were not expecting anything particularly radical and earth-shattering from the World Bank staff” who are not in a strong position to recommend a substantial shake-up of their own institution.
The South African, British and some of the Nordic governments have been championing governance reform in recent years. But they face strong resistance to change from some other major shareholders, including the USA and some European countries. Such unwillingness may well mean that little is decided in April, just a limited announcement of minor measures and establishment of a vague future process.
The likely options that will be examined include: increasing the voting shares of developing countries in the Bank Board, increasing the number of Executive Directors on the Bank’s Board, and initiatives to assist developing country EDs to analyse and negotiate. On the capacity-building agenda there is a high degree of consensus which may result, for example, in the establishment of a new resource centre in Washington for African countries.
Significant change in IFI governance however, will mean going beyond increasing the number of researchers available to Southern governments to tackle the structure of decision-making at the Bank and Fund. Many governments signed up to language at the UN conferences on Financing for Development and on Sustainable Development last year about the need to improve the governance of global economic institutions. At Monterrey it was agreed that the IMF and World Bank should “continue to enhance the participation of all developing countries in their decision-making”.
The arguments against giving more power to developing countries are weak. The Bank and IMF are now far less reliant on rich country contributions than when they were founded. As repayments of existing loans constitute a significant proportion of the Bank’s income “the financial case for strong developed country dominance on the World Bank Board has weakened considerably”, argues Professor Stephanie Griffith-Jones. Other institutions, such as the regional development banks, already give a far larger voting share to borrower countries. Despite this, increasing the number of developing country representatives on the Bank and Fund Boards will be an uphill struggle, despite the fact that just two Executive Directors currently face the near-impossible task of representing forty-six African countries.
One of the most glaring problems with the governance of the institutions is the manner in which their leaders are selected. There is an unwritten convention that the head of the IMF is chosen by the European governments whilst the World Bank presidency and IMF deputy head positions are in the hands of the US administration. This arrangement was recently condemned by Clare Short, UK development minister, as “an outrage”, but it is by no means clear that there is sufficient political will in the USA and Europe to shift entrenched positions. A new Bank President will have to be found in about two years time, just at around the same moment that the head of the World Trade Organisation will be changed. The Bank and Fund should learn from the problems which occurred during the last head selection processes for the WTO and the IMF and institute new processes.
Among the proposals to make the selection process more open and merit-based are:
- opening selection to all qualified candidates regardless of nationality;
- establishing clear criteria and timetables for selection;
- de-linking selection of IFI heads from bargaining over other positions (heads or deputy heads of other international institutions);
- requiring short-listed candidates to state publicly their views on priorities for the institution.
Other institutions have recently experimented with new procedures. For example on 19 January the eight shortlisted candidates for the top job at the World Health Organisation held a two hour world-wide public question and answer session linked across the world via video and tele-conferencing. Given the scope that leaders of such institutions have to shape their institutions’ work this is a vital, not just symbolic, decision.
Other proposals which should be considered include:
- Publishing and disseminating Board papers in a timely manner so that multiple inputs can be received;
- Making Board decisions transparent, including the positions of individual governments;
- Reducing donor contributions to the Bank through off-balance sheet Trust Funds;
- More use of Board sub-committees to deal with issues of importance to particular sections of the membership;
- Reducing the US voting share in the IMF so that no single country can veto decisions needing an 85 per cent super-majority;
- Quarantine clauses to prevent Board members and back office staff working for the World Bank and IMF for at least two years after that position terminates;
- Appointment of EDs and their advisers on merit, not through political patronage.
A number of civil society organisations are planning a campaign to stiffen political resolve to make significant changes in governance, focusing in particular on the selection of IFI heads and representation on their Boards. It will not be easy to shift the countries which currently wield the most power, but democratisation struggles at the national level have often yielded dramatic results. The Bank’s paper and government positions will be carefully monitored to see whether they move beyond capacity building to change the fundamental power inequities of the current governance arrangements. If not, the embarrassing gap between the Bank and Fund’s good governance rhetoric and the mechanisms for their own governance will grow ever wider.
Horst Köhler new IMF head , Bretton Woods Update 16
Reports on IFI governance
Reports of meetings of the Global Financial Governance Institutions Working Group
Suggestions on reforming the governance of the World Bank
Griffith-Jones, S. / Gapresearch.org, IDS, 2002
Do As I Say Not as I Do: A Critique of G7 Proposals on Reforming the MDBs
Devesh Kapur, Center for Global Development Working Paper #16, October 2002
Improving global economic governance, Sabrina Varma, South Centre, August 2002
Structural Adjustment for the IMF, Angela Wood, Bretton Woods Project 2001
Deepening Democracy in a Fragmented World, UNDP, July 2002
Governing Globalisation: Issues and Institutions, UNU/WIDER, October 2002
Re-inventing the World Bank
Edited by Jonathan Pincus and Jeffrey Winters, Cornell University Press, 2002
Global Finance and Civil Society
Edited by Jan Aart Scholte and Albrecht Schnabel, Routledge 2002
“Principles such as balanced and equitable representation and participation; fair and consistent decision-making rules which are constitutional and culturally reinforced; transparency; effective information flows; objectives which meet the interests of the full membership, evolve accordingly, and which are reflected in the nature and work of the organization; are all important in considering the effective and legitimate functioning of international institutions of governance”.