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Deck chairs on the Titanic Finance ministers and central bank governors of the G20 rich and developing nations,[1] meeting at Xinghe in China last weekend, have called for reforms to improve the governance and operations of the IMF and the World Bank. The debate has focused on the national quotas determining the Institutions’ voting rights, which are currently based on a system of weighted voting that is heavily skewed in favour of the richest industrialised powers. Some of the wealthiest economies in the G20 – including those of Japan and the EU– are now demanding to change the existing weighting to reflect the increasing strength of their economies, but their concern is for their own national interests only, and they remain deeply divided over how even this small degree of reform is to be achieved. However, a general agreement to ‘rebalance’ the quota system has apparently been reached, and the G20 announcement stresses the importance of making concrete progress on the issue by the time of the World Bank and IMF annual meetings in Singapore next September. In so far as this communiqué draws attention to the outrageous voting system that obtains within the two institutions, it must be welcomed. But in view of the urgent need for their radical reform, it is difficult to applaud such an inadequate and self-seeking call for action. What is required is not a realignment of the system to reallocate power among the richest, but the creation of a new democratic voting process that will give a voice to the views and needs of the majority of the world’s population. At the moment, the poorest countries, on which the policies of the Bank and Fund impact most heavily, are virtually unrepresented. The whole of Sub-Saharan Africa has fewer votes in the IMF (4.61%) than France (4.96%), the UK (4.96%), Germany (6.01%) or Japan (6.15%), and less than one-third as many as the US (17.14%). Ethiopia, with a population of 67.2m has 0.18% of the votes in IDA[2], well below Iceland (0.23%), which has just 284,000 people. In the IBRD[3], Nigeria, with 132.8m people, has fewer votes than Denmark, with 5.4 million. Overall, the developed countries, who have less than 14% of the world population, have a substantial overall majority of the votes in the IMF (60.4%), the IBRD (57.0%) and IDA (60.1%) The composition of the Executive Boards of both institutions makes this lack of representation even worse. While five developed countries have their own Directors in both institutions, some developing countries are further disenfranchised by a constituency system in which an Executive Director casts the votes of all the countries he or she represents as a single block. Thus the Commonwealth Caribbean countries find themselves represented in both the IMF and the World Bank by a Canadian Director in a constituency overwhelmingly dominated by Canada and Ireland, while Kazakhstan, Belarus and Turkey are represented by a Belgian Director in a constituency dominated by EU members. In the World Bank, seven constituencies include both developed and developing countries – all of which currently have Executive Directors from developed countries (Belgium, Spain, Netherlands, Canada, Italy, New Zealand and Switzerland). As a result, only 9 of the Bank’s 24 Executive Directors are from countries eligible to borrow from the Bank. From a democratic viewpoint, it is clear that this situation is wholly deplorable, and that a marginal realignment of rich country voting allocations cannot serve to make it acceptable. A radical reform of the voting system is obviously, and urgently required. However, in view of the damaging effect of World Bank and IMF policies in the past, we would call for much more significant changes, specifically the removal of both institutions from the global policy-making process. For a more detailed description of our views on this issue, see ‘Alternative Structures to the IMF and World Bank’ by David Woodward. [1] The G20 comprises Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the UK and the US [2] IDA is the branch of the World Bank which lends only to low-income countries at concessional interest rates. [3] The IBRD is the branch of the Bank which lends at commercial interest rates, mostly to middle-income countries |
