IFI governance


The end of the Wolfensohn era

26 January 2005

Bank president James Wolfensohn has said he will retire on 31 May after 10 years in the post. In a note addressed to the dean of the board, Yahya Al-Yahya of Saudi Arabia, Wolfensohn said: “I would like to retire at the end of my term and would suggest the board seek a new president for the institution as I would not wish to be considered for a third term.”

There were rumours that Wolfensohn had been lobbying hard for a third term. Washington insiders believe that he was unable to win over the support of the Bush administration in the wake of his outspoken comments on US military expenditures on war in Iraq.

By informal agreement since the establishment of the Bretton Woods Institutions in 1944, the US administration selects the president of the Bank, while a European candidate is given the top job at the IMF. Normally the lead on the decision would be taken by the undersecretary for international affairs at the US Treasury. However, with the current undersecretary John Taylor in the list of rumoured candidates, the decision may fall to Whitehouse staff working at the Council of Economic Affairs. The long list of rumoured candidates is catalogued on a new website: worldbankpresident.org.

leadership selection is only the tip of the iceberg

Civil society groups will be pressing for the selection process to be transparent and meritocratic. After the surprise resignation of former IMF managing director Horst Koehler in March, disappointment was widespread that the stitch-up that ensures that Europe nominates the Fund’s head had been allowed to continue. In its World Economic Situation and Prospects published in January, the UN showed exasperation with the inability of the Bank and Fund to meet their commitments to increase developing country participation. While board discussions can be useful, said the report, “real changes in representation can only be achieved through fundamental reform that has to come from political leaders”.

The Bretton Woods Project has long argued that fixing the leadership selection issue is only the tip of the iceberg. In the interests of legitimacy and the effectiveness of the institution, the Bank needs to re-balance the composition and voting power of its board, make its governing bodies more transparent, and hand back power over policy-making in developing countries to elected parliaments. Bank-watching NGOs are calling for parliamentarians who have taken an interest in the institution “to contact their ministers and the media to demand that the process be made transparent and meritocratic.”

A search process was begun to replace outgoing head of the International Finance Corporation, Peter Woicke. Asaad Jabre, vice-president of operations at the IFC, has been appointed acting head. A replacement is not expected to be appointed until after the announcement of the new World Bank president.

Open IFIs are effective IFIs

(Taken from Why it matters who runs the IMF and World Bank, Nancy Birdsall, Center for Global Development)

Birdsall defines institutional effectiveness in the case of the Bank and Fund as “maximising global poverty reduction by raising and efficiently allocating as much of members’ political and financial resources as can be used at positive rates of return in reducing poverty”. She gives four reasons why increasing developing country participation in the governance structures of the institutions would increase their effectiveness:

  1. ability to acquire additional resources: industrial countries have resisted opening up the issue of capital increases for middle income countries because of the possible detrimental impact on their own influence
  2. better representation of developing countries on the boards of the institutions would give the borrowing countries more influence in resisting pressure for constant liberalisation of their markets, and might create pressure to hire more professional staff with broader backgrounds, including more non-economists and more economists trained in other than the mainstream Anglo-Saxon neoclassical tradition.
  3. effectiveness requires explicit understanding of the political economy of borrowing country governments and ownership
  4. perceptions of illegitimacy