IFI governance


Expert panel calls for sweeping Bank governance reform

20 November 2009

Official ambitions for reform of World Bank governance remain limited, while an expert panel calls for far-reaching change. At the IMF, aside from small shifts in voting share, details of further quota reform are notably absent.

Former Mexican president, Ernesto Zedillo’s high level commission on Bank governance (see Update 65) released its report in October, calling for more radical reform than is currently on the table. This came too late to influence the discussions in Istanbul, but will influence debate in advance of next year’s spring meetings deadline. The Zedillo report finds that the Bank’s “decision-making process is widely seen as too exclusive” and “certain conventions and practices have contributed to the perception that the institution is accountable and responsive only to a handful of shareholders at best.” It argues that the Bank president currently has too much leeway in defining the Bank’s strategy, and that “mission creep is endemic” within the institution.

The report recommends a comprehensive package of reforms including parity of votes between developed and developing countries, an end to appointed chairs, and a reduction in European chairs by at least four, down from eight. It proposes a reduction in the majority needed to amend the Bank’s articles of association to 80 per cent, down from 85 per cent, which would effectively put an end to the US veto over major changes at the Bank. The commission also called for an increase in independent evaluations, and an end to the “revolving door” practice of Bank staff interchanging with staff of the Independent Evaluation Group (IEG).

accountable and responsive only to a handful of shareholders at best

In contrast, October’s World Bank annual meetings in Istanbul produced a rubber-stamping of the September G20 commitment that there be an increase of “at least 3 per cent of [World Bank] voting power for developing and transition countries” by next year’s spring meetings. The G24 group of developing countries’ push for a “more ambitious” shift of at least 6 per cent to move close to genuine “parity” between borrowers and lenders was rebuffed. The only promise for low income countries is that their existing voting power will be protected. However, countries like Singapore and Korea are included in the ‘developing countries’ category, so change to the relative voting share of low- and middle-income countries could be even smaller. World Bank president Robert Zoellick said he thought a 3 per cent shift was “not ambitious enough” and supported an increase in the share of developing countries to 50 per cent, but only gradually, over time. Meanwhile one of the background papers by the Bank for the Istanbul meetings admitted that even the limited reforms agreed last year including an extra board seat for Africa and an increase in basic votes for all countries (see Update 62), have still not been implemented.

Bank capital boost?

Meanwhile attention has shifted to the issue of increases to the capital that the Bank holds to secure its lending (see Update 68). Countries that provide any additional capital get increased voting power at the Bank, so it is unsurprising that the biggest supporters of capital increases have so far been middle-income countries including Argentina, Brazil, India, Russia and China, who all want a bigger say at the Bank. Other richer countries, such as Korea, which see themselves as under-represented at the Bank, are also keen to contribute.

Rich countries, strapped for cash after propping up their economies and banks, and unwilling to see a dilution of their voting share, have been less enthusiastic about stumping up more cash for the Bank. US treasury secretary, Timothy Geithner summed up their position, saying that because “donor countries are facing severe fiscal constraints at home … we will be seeking critical institutional reforms in any consideration of additional resources.” The British government was blunter, saying in a statement that: “the Bank still has ample headroom and can continue to do more with its existing resources,” while French finance minister Christine Lagarde said: “the [World Bank] has substantial resources at its disposal to assist its members, resources that are far from being depleted.”

IMF falls at first hurdle

On IMF governance, the IMF board’s International Monetary and Financial Committee (IMFC) also repeated the wording from the September G20 communiqué, promising “a shift in quota share to dynamic emerging market and developing countries of at least 5 per cent from over-represented countries to underrepresented countries using the current quota formula as the basis to work from.” A demand of the G24 group of developing countries for a 7 per cent shift was ignored. It also fails to clarify the issue of how to treat rich countries that are currently ‘under-represented’ according to the quota formula, including tiny Luxembourg as well as Ireland, Spain, Japan, and the United Kingdom, or developing countries that are ‘over-represented’ such as India and South Africa

Further quota formula reform, which, in 2008 was promised before any further voting changes (see Update 60), seems to have dropped off the agenda.

An IMFC commitment to “an open, merit-based and transparent process for the selection of IMF management” fell at the first hurdle, with the October appointment of a new Japanese deputy managing director without such a process.

The IMFC communiqué failed to make any specific mention of civil society efforts under the so-called “fourth pillar” consultations (See Update 66). This was supposed to be an equal input to the board’s work with the previous reports of the IEO (see Update 61) and an eminent persons committee chaired by Trevor Manuel (see Update 65).The fourth pillar recommendations included a move to “approximate parity in the distribution of voting power between advanced and developing economies”; a combining of European chairs; the consideration of a double majority voting system based on both voting shares and countries; the establishment of an external ombudsman; and improvements in IMF transparency.

Civil society organisations continued to be critical of the slow pace of reform. “Piecemeal change cannot restore the tarnished legitimacy of the Bank and the Fund,” said Roberto Bissio of international NGO Social Watch. “Without fundamental change, the IFIs will continue to be seen as undemocratic, untransparent and unaccountable institutions across the South.”

Rumblings about the unrepresentative nature of the new kid on the block, the G20 also continued (see Update 67) with African nations demanding a seat at the table, with Cameroonian Finance Minister Lazare Essimu Menye saying that: “there has to be at least one seat for nearly a billion Africans who need to be heard.”