Sundaymail EditorItai Choto
There is a dire need for the modernisation and democratisation of the governance system, including a revision of the quota and voting system.
The end of the 20th century is still characterised by geopolitical fluidity and socio-economic effervescence that lead us to challenge the sovereignty of states.
Global economic governance has become increasingly institutionalised, greater interdependence and manifestations of transnational harm have resulted in intensified efforts to coordinate outcomes at the global level.
Criticism of the World Bank and the IMF encompasses a whole range of issues, but they generally centre on concerns about the approaches adopted by the World Bank and the IMF in formulating their policies and the way they are governed.
This includes the socio-economic impact these policies have on the population of countries who avail themselves of financial assistance from these two institutions and accountability for these impacts.
The centrality of the article lies on the premise that the World Bank and IMF governance structures provide clear levers through which materially powerful states exert influence and how lower-income states’ dependence on resource flows from the Bank and Fund mean that inequality is hard-wired into these arenas of global economic governance.
There is little doubt that these organisations are used by the powerful nations as selective instruments for gaining foreign and domestic policy objectives.
This view squarely relegates the World Bank and IMF to the role of convenient tools for use by their member countries.
The key issues under discussion are the democratic (or rather non-democratic and non-participatory) processes of the World Bank and IMF policy-making, and the appropriateness (or rather inappropriateness) of the World Bank and IMF policies.
There is a dire need for the modernisation and democratisation of the governance system, including a revision of the quota and voting system.
The World Bank was created in 1944 previously known as the International Bank for Reconstruction and Development, originally established to support reconstruction efforts in Europe after the Second World War.
The bank later shifted its attention from reconstruction to developmental assistance. It offers loans with low interest rates and longer repayment plans.
The IMF is designed to maintain currency exchange stability by promoting international monetary co-operation and orderly exchange arrangements as well functioning as a lender of last resort for countries experiencing financial difficulties.
The end of great-power ideological rivalry has produced unity in the pursuit of systemic stability and greater international cooperation under the auspices of the World Bank and the IMF and other international mechanisms.
The outcome is greater international social control by “great” powers.
Entities like Yugoslavia, Somalia, Angola, Rwanda, and so on, have at some point lost social control through the state (political society), a rejuvenated and ascendant Bank and Fund, and a dominant rich North in cooperation exercise their hegemonic functions.
The existence of power politics, the frequency of informal manipulation and the possibility of forum shopping by powerful states put important limits on the autonomy of these organisations.
Aspects of the IMF’s formal design that make it appear to be autonomous and that allow it to exercise considerable discretion, also make it vulnerable to control and influence by a “super” power that enjoys an organisational advantage.
Leading states exert control over the Fund through informal participation, in a way that is similar to the way minority shareholders can effectively control publicly held corporations.
Their ability to participate informally in the decision making process amplify their advantage.
The present configurations of both organisations are not shaped to act in multilateral approaches that encompass a cooperative outlook of equity in partnership.
World Bank and IMF governance structures are dominated by industrialised countries. Decisions are made and policies implemented by leading industrialised countries – the G7 – because they represent the largest donors without much consultation with poor and developing countries.
Decision-making at the Fund reflects each member’s relative economic position. Administratively ultimate decision-making authority in the WB is vested in a board of governors.
Five countries with the largest number of shares in the World Bank’s capital stock – the US, Germany, France, Japan and the UK appoint their own executive directors.
The Bank has a weighted voting system which recognises the differences among member’s holdings system and protects the interests of the leading states that make more substantial contributions to the Bank’s resources.
While it represents 186 countries it is run by a small number of economically powerful countries, because they select the leadership, their interests dominate the agenda.
Reforming the representation of developing countries within the fund is critical.
These countries’ economies represent a large proportion of the global economic system, but this is not reflected in the decision making processes through the nature of the quota system.
This system of voting power distribution through this quota system institutionalises borrower subordination and creditor dominance and in the process negates the principle of equity.
Formal voting rights set the policy of the organisation and create parameters within which informal influence is exercised, which consist of decision making and special access to information.
I argue that emerging markets were or are encouraged to adjust their policies and implement structural reforms in line with universal standards and codes that were and are largely Anglo-American in content, even though they had and have very little, if any impact into the design of these standards and codes.
Both institutions have been criticised for intervention rather than co-operation.
This intervention rather than cooperation has left unaddressed the economic storms which besiege small economies; the brunt of globalisation.
Through intervention states in particular the developing nations are progressively losing their individual identities, rights and obligations vis-à-vis civil society, in the wake of external impositions.
Loan conditions based on the ‘Washington Consensus’ focus on liberalisation of trade, investment and the financial sector-deregulation and the privatisation of national industries.
I am not urging towards an egalitarian quasi-socialist approach to world economics, but I do argue that such conditions may result in the loss of a state’s authority to govern its own economy as national and economic policies are predetermined.
This shift in the regulation of national economies from state governments to a Washington based financial institution in which most of these developing countries yield very little power erode the principle of sovereignty and multilateralism.
Reinvigorating the IMF and the WB to make globalisation more inclusive will require rebuilding the multilateral character of each institution.
Emerging and other economies need to be fully engaged. Greater cooperation between economies is a critical element in a reformed international monetary system to optimise global welfare.
The status quo has the US as the centre of gravity and as such economic and monetary policies are shaped to suit domestic interests.
Whether US structural power is in decline or not is a hotly debated subject and answers will generally depend on definitions that are normatively loaded.
That said, the US is no longer the world’s largest creditor, it now the largest debtor.
Global financial stability no longer depends exclusively on US decisions or its ability to work in concert with allies such a in the G7 – it now depends equally on decisions made by other holders of reserves.
While policymakers have demonstrated a willingness to weave grand dreams of a global order secured through institutions, these dreams have invariably been halted by the timeless realities of state interests.
I am not advocating for the abolishment of these organisations, they remain an important cog in the international system.
Without them the socialisation process that comes with membership of an organisation, which one does not control, will be eroded, however, sweeping changes are needed in the architecture of global economic governance and significant reforms have to be made in the IMF and WB.
A significant redistribution of voting power should be the overarching objective of the reform.
Itai Choto is a Zimbabwean based in the United Kingdom
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