The Panel noted the important role that the IMF and World Bank play in the world economy, and the frequency with which their operations are criticized. It asserted that the Fund does little to influence the macroeconomic policies adopted by its major members with a view to bringing the interests of the smaller countries to bear. It went on:
|
Conditionality is another perennial source of complaint from borrowing countries. The basic principles of Fund conditionality and of directing Bank lending to countries with a good policy environment are widely endorsed. But concerns are frequently expressed about the breadth of Fund conditionality, the perceived arrogance of its staff, the application of a one-size-fits-all approach to policies, and insensitivity to political realities. The current effort by the Fund to prune back conditionality to its macroeconomic core is welcome. Both the Bretton Woods institutions face a particular challenge in reconciling the concept of country ownership of policies and strategies, on the one hand, with that of lending only where the policy environment is favourable, on the other. Dialogue with the United Nations might be helpful in keeping the process from degenerating into one of simply lending to only those countries that claim to ‘own’ policies the Bretton Woods institutions are known to favour. Another possibility would be to use panels of ‘wise men’ drawn from the borrowing country’s surrounding region; such groups played a useful role in the allocation of aid during the Alliance for Progress of the 1960s. |
| The importance of their mandates makes the governance of both Bretton Woods institutions a key issue. Both the IMF and the World Bank are governed under a very different voting structure from the one-country, one-vote arrangement that prevails in the United Nations. Both organisations instead have a system in which a country’s voting weight (in both the governing board and, more important, the executive board) depends upon its quota, which in turn is determined (and periodically renegotiated) against the background of a formula that reflects the country’s weight in the world economy. Some decisions require a supermajority vote, of either 70 or 85 per cent, in order to pass. This in effect gives the developing countries, acting collectively, a veto over such decisions. But the size of the United States’ quota allows it to veto unilaterally any decision that requires an 85 per cent majority. This includes decisions to amend the Articles of Agreement as well as, most important, changes in quotas and allocations of SDRs. |
| The practical impact of this voting structure is to place decisionmaking power firmly in the hands of the industrial countries (although the developing countries did use their collective veto once, in 1994). This has been a perennial source of criticism among those who regard the one-country, one-vote arrangement as more democratic. The question can, of course, be posed as to whether it is really democratic to give the same voting power to a country with a population of 100,000 as to one with a billion citizens. However, the standard objection to this proposal does not rest on a philosophical debate about what constitutes true democracy. Rather, it is that both organisations function because of the willingness of the industrial countries to commit substantial financial resources to them. It is a fact of life that creditors expect to control organisations in which they place money. Were the creditors reduced to minority voting status, the likelihood is that their support would be curtailed, which would emasculate the effectiveness of the Bretton Woods institutions. Acceptance of this reality should not, however, preclude the continuation of attempts to correct anomalies in their governance. |
This review of the problems of governance in the Bretton Woods institutions is incomplete in terms of both coverage and proposals for solutions. It does not touch on the fiasco that arose when the Fund last had to choose a new Managing Director, as a result of perpetuation of an outmoded convention that the MD (and the President of the World Bank) has to come from a particular region of the world. It makes no proposal to eliminate the anomaly of the US veto to which it draws attention. It fails to pinpoint the substance of the anomaly in voting power, which is less a general imbalance between developed and developing countries than it is an over-representation of Europe at the expense of Asia.