Decision-making at the IMF
The board of governors is the IMF’s highest decision-making body, and consists of one governor and one alternate governor from each member country, normally the minister of finance or head of the central bank. Although the board of governors has delegated much of its decision-making power to the board of executive directors, it retains significant authority, including the approval of quota reforms and amendments to the Articles of Agreement. The board of governors is advised by the International Monetary and Financial Committee (IMFC), the direction-setting body of finance ministers for the IMF, and the Development Committee (see below). The Development Committee is a joint committee of the board of governors of the IMF and World Bank, which is meant to advise the Bank and the IMF on critical development issues and the resources needed to promote economic development.
The IMF executive board, which is responsible for daily operations, is chaired by the IMF’s managing director and consists of 24 executive directors (EDs) representing member countries through constituencies. ED constituencies are divided according to quotas (see below), with some member countries representing only themselves (this is the case for China, France, Germany, Japan, Russia, Saudi-Arabia, the UK and the US), while other EDs represent a block of countries, or constituency. sub-Saharan Africa, for example, has two EDs representing 46 countries.
Although board discussions are generally not published and thus the positions of individual board members not disclosed, decision-making on the executive board is typically made through consensus with voting kept to a minimum. Votes on substantive issues need 85 per cent approval, granting the US (with its 16.52 per cent vote share) effective veto power over any major decisions.
The quota system
The IMF describes itself as a “quota-based institution”, meaning each of its members is assigned a quota when they join, which determines three specific things: 1) the amount of financing it provides to the IMF; 2) the amount it can borrow from the IMF, although exceptions can be made; and 3) its voting power on the board. This has often been referred to as a ‘one-dollar, one-vote system’.
The assignment of quotas is determined by a specific quota formula, broadly based on a country’s relative position in the global economy. The current formula consists of four elements: GDP (50 per cent), ‘openness’ (30 per cent), economic variability (15 per cent) and international reserves (5 per cent). Quotas are denominated in Special Drawing Rights (SDR), the IMF’s international reserve asset. The value of the SDR is based on a basket of five currencies — the U.S. dollar, the euro, the Chinese renminbi — from 2016, the Japanese yen, and the British pound sterling (see Observer Winter 2016). Historically, civil society has demanded a number of reforms in relation to IMF and World Bank vote shares, including the introduction of double majority voting, where major decisions require both shareholder and member state majorities, thus giving developing countries a larger part in decision-making (see At Issue, Double majority decision making at the IMF Implementing effective board voting reform).
The IMF is required by its Articles of Agreement to review its quotas every five years, so that the distribution of vote shares is adjusted to the evolving economic weight of the member states. Quota reviews address two main issues: 1) the size of an overall increase in quotas, meaning the size of the IMF’s financial lending power; and 2) the distribution of the increase among members.
In February 2020, the 15th IMF quota review was officially abandoned, after the US “failed to see the need for a quota increase” that would have likely redistributed vote shares in favour of China. Instead, it opted to increase financing to the Fund’s New Arrangements to Borrow, designed as a backstop to the Fund’s quota-based financing mechanism, undermining the notion the IMF is a quota-based institution (see Observer Summer 2019).
World Bank shareholding
Each of the four financial entities that make up the World Bank Group — the International Development Association (IDA), the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA) — has its own shareholding structure.
As is the case of the Fund, the board of governors is the highest decision-making body of the World Bank and consists of one governor and one alternate governor appointed by each member country. If the country is a member of the Bank and is also a member of the IFC or IDA, then the appointed governor and his or her alternate serve ex-officio as the governor and alternate on the IFC and IDA boards of governors. MIGA governors and alternates are appointed separately. Like the IMF, the board of governors has delegated most day-to-day decision-making to the four separate boards of executive directors that govern the four financial entities of the World Bank Group. The current boards of the World Bank Group consist of 25 executive directors.
Similarly to the IMF, member countries are allocated votes at the time of membership and subsequently for additional subscriptions of capital. While votes are allocated differently in each organisation, the five largest shareholders across the World Bank Group are the US, Japan, Germany, France and China. Seven of the 25 ED constituencies are made up of one member (the five biggest shareholders, as well as the UK and Saudi Arabia), whereas Sub-Saharan Africa is divided into three constituencies, and many Asian constituencies are crowded, for example, in comparison to European counterparts.
In 2010, Governors agreed a set of reforms meant to enhance the voice and participation of Developing and Transition Countries (DTC) in the World Bank Group, notably through an increase in voting power, and realigned shareholding in line with economic weight and development contributions. In 2018, a General Capital Increase was agreed for IBRD and IFC, resulting in the continued dominance of high-income countries over both institutions and the US and EU member states retaining an effective veto over major decisions at the IBRD. The replenishment of IDA in 2019 has maintained the US, Japan and the UK as the largest shareholders respectively.
While some of these reforms have resulted in improved representation for China, civil society calls have long been made for a reallocation of board seats and votes to ensure that all member countries are fairly able to represent themselves and that creditor and borrower countries have an equal allocation of voting shares. Proposals have also been made for having no more than ten countries per ED constituency, and for a rotation of board members among different countries in any given constituency (see Observer Winter 2018, Update 33).
A shareholding review for the World Bank Group is planned to take place in 2020.
Investment Dispute Settlement
The International Centre for Settlement of Investments Disputes (ICSID) provides facilities for conciliation and arbitration of international investment disputes. It is governed by the ICSID Administrative Council, which is made up of one representative of each of its 162 members states. Each member state has one vote on the Administrative Council and there is no weighted voting on any matter. Its main functions include passing rules of procedure for ICSID cases, adopting administrative and financial regulations for the Centre, and electing the ICSID Secretary-General. It plays no role in the administration of individual cases.
The president of the World Bank Group, David Malpass, is the chairman of the Administrative Council. Functions of this role include designating ten individuals to each of the ICSID Panels of Arbitrators and of Conciliators, constituting conciliation commissions and arbitral tribunals in certain circumstances, appointing ad hoc committees for annulment proceedings, and deciding proposals to disqualify a sole arbitrator, a majority of a tribunal, or a single member of a tribunal or commission.
Civil society has consistently raised concerns about significant bias within ICSID in favour of corporations and commercial interests (see Observer Autumn 2015, Bulletin 2013).
The gentleman’s agreement
The historic World Bank and IMF ‘gentleman’s agreement’ has ensured that the IMF managing director is always a European and the World Bank president a US national. While this is not prescribed in the Articles of Agreement of either institution, it dates back to the creation of the institutions in 1944, when membership of the IMF and World Bank was limited to 45 and 38 states, respectively, and European powers still retained colonies (see Inside the Institutions, What is the gentleman’s agreement?).
Civil society has long pointed out that the Fund and Bank continue to undermine their legitimacy by adhering to the gentlemen’s agreement, calling for a transparent, merit-based process (see IMFboss.com, WorldBankpresident.org). Nevertheless, leadership changes in 2019 at both the Bank and Fund saw the gentleman’s agreement maintained (see Observer Spring 2019, Autumn 2019).