Why bringing a 60-year-old up to date is in everybody’s interests
The IMF and World Bank urgently need to be more representative of their members to remain useful. But old habits die hard.
The new world order that is impacting on US political leadership is also relevant to the way the Bretton Woods institutions – the World Bank and the IMF – are governed. A lot has changed since July 1944, when the governments of 45 countries sought to build a framework for economic cooperation that would avoid a repetition of the disastrous economic policies that had contributed to the Great Depression of the 1930s.
Today, the economic and political environment surrounding the 184 member countries of the IMF/World Bank is vastly different.
The emergence of China, the changing shape of Europe and the disparate needs of the 47 African member states perhaps call for new, more diverse structures.
Are Europeans over-represented on the executive board of the World Bank, for example? With Europeans occupying eight out of the 24 executive seats, while Africans have two, there appears to be a clear case of structural imbalance.
Relevant representation at key decision-making bodies is critical if multilateral institutions are to be genuinely productive.
Not surprisingly the top five shareholders in the Bretton Woods institutions (the US, Japan, Germany, France, and the UK) vigorously hold on to their traditional roles. But in the recent selection of Spain’s Rodrigo de Rato to head the IMF, was it absolutely necessary to follow the tradition of choosing a European for the job and, as a result, was the best person for the job chosen?
Recently a group of prominent former policymakers suggested that the global macroeconomic role played over recent decades by the G7 (Canada, France, Germany, Italy, Japan, the UK and US) countries should be replaced by a new Group of Four (China, the eurozone, Japan and the US) and a council of 15 big economies.
They indicated that the G7 (representing directly only two of the world’s four major currencies) was in danger of sliding into ineffectiveness and needed to be restructured.
Like the G7, the IMF and World Bank also need to maintain effectiveness in a fast-changing global economy. But old habits die hard and no countries, especially ones in Europe, will want to give up hard-won power.
Proper representation, however, is essential, and at these annual meetings in Washington, participants need to address structural reform at the IMF and World Bank or face serious consequences in the future.
