This weekend, finance officials and development NGOs from around the world will meet in Washington to discuss the world’s most pressing economic issues, such as the distribution of a trillion dollars in aid promised to the International Monetary Fund by the G-20 countries a London meeting a few weeks ago.
Also on the agenda is the reform of the two institutions, which were created by the United States and its allies in Bretton Woods, New Hampshire, to help fund and guide global economic reconstruction of World War II.
Vijaya Ramachandran is a senior fellow at the Center for Global Development in Washington, DC.“You have to go back in time,” she said, “the constitution of the Bretton Woods institutions is very much indicative of what the world looked like immediately following World War II; that is the sort of geo-politics it reflects-- not the current state of the world.”
The Need for Change
“There is a gross underrepresentation [on the boards of these institutions] of the dynamic emerging economies - India, China, Brazil and Russia. And the developing nations have small voting shares [on the boards] and feel the decisions that are being made by U.S. and Western Europe reflect the political power and influence of the 1950s or 1960s. There is a sense in the developing world that for the Bretton Woods Institutions to work effectively and to solve the issues they confront, the developing countries need to be better represented.“
A recent committee on IMF reform chaired by former South African finance minister Trevor Manuel recommended, revising the size of the vote on the executive board for poor and middle-income countries, and the lowering of the size of the vote needed to pass critical legislation from 85 % to as low as 70 percent.
Ramachandran says more sweeping changes are needed, “It’s not clear to me,” she says, “that these reports are going as far as they need to be going. There is also the issue of opening up the search of the head of the IMF and WB, making that an internationally competitive process where anyone irrespective of nationality be considered to run the institutions. The report talks about making the process competitive but does not mention the words 'without reference to nationality.'”
She adds “We need to push to get the efforts to a system that’s representative of where the world is, that draws upon the best talent from around the world. It can no longer be an enclave of US and Western European interests.”
She says that means some developed countries will have to give up some of the privileges they now enjoy on the executive board of the IMF, including small European countries. Analysts note for example that Belgium’s vote at the institution is greater than India’s which has a growing economy with hundreds of millions of people.The US would also be asked to give up its veto on the board.
Ramachandran says potential economic powerhouses like India and China are more likely to cooperate on some of the issues facing the IMF and the Bank -- like limiting greenhouse gases or providing emergency funds for the developing world -- if they have a stronger voice within the IMF and World Bank.