Global financial governance: whose ownership?

Business Economics, April, 2004 by Hossein Askari

Surveillance can be effective in achieving its objectives as a postmodern mechanism to create a world economic community if, and only if, each member state, no matter how small, feels it has a role and ownership of the policies of the institution. This gets to the heart of legitimacy in rule making and the governance of the IMF.

National governments constitute the membership of the IMF and the World Bank. Although each government is a member of the IMF's Board of Governors, its number of votes is almost proportional to its financial participation (International Monetary Fund 2004). Thus, the larger and richer the country, the more power it has in IMF decisions. The World Bank's governance is somewhat more complex, with each of the four component institutions being slightly different from one another, but has a similar end result: dominance by rich, industrial countries (World Bank 2004).

Additionally, the convention of nominating a U.S. citizen as the World Bank President and a European as the Managing Director of the IMF has helped to ensure that the policies and perspectives of industrial countries are predominately reflected in the agenda of both institutions and senior staff. Industrial countries have also a disproportionate share of senior staff positions, which, despite recognized integrity and independence, could influence the analytical outcome as a number of these senior staff members eventually return to service in the country of their nationality. Thus, the predominance of industrial countries in determining the research agenda and its implementation is conducive to bias.

The dominance of industrial countries in governance has been reinforced by their leverage as donors of concessional resources and by the rise of deliberative groups of industrial countries, especially the Group of Seven (G-7), thus giving these countries the ability to predetermine and to dominate policy decisions in the IMF and the World Bank before a consensual decision is reached by the entire membership. The recent influence of the G-7 in rule-making functions, particularly in the IMF, has led to criticism that efforts at rule making are exerted only to protect the industrial country creditors rather than developing country debtors. Assertions are made that the new rules, procedures, processes, and systems proposed to achieve stability in the international financial system will carry neither legitimacy nor creditability and therefore cannot be sustainable unless they are owned by those who have to implement them, namely, the developing countries. Ownership means that developing countries must participate fully and effectively in the decision-making processes of the IMF and the World Bank.

The role of developing countries in the global economy has grown considerably since the share structure in the World Bank and the IMF was established after World War II. Moreover, today all lending of both institutions is directed to developing countries. The disproportionately weighted voting structure as well as the unrepresentative procedure for the selection of top management of these institutions is no longer defensible. As the former Secretary of the IMF Executive Board, Leo van Houtven, has argued effectively, the creditor countries should hold a majority share in the IMF in order to sustain financial confidence in the institution. But the present imbalance, where "24 industrial countries control 60 percent of the voting power, while more than 85 percent of the membership--159 out of 183 IMF members--together hold only 40 percent of the votes," is not equitable and "is seen as evidence of the lopsidedness of governance of the international monetary system" (van Houtven 2002, 65-66). A "consensual decision" of stakeholders can bring about a far more equitable quota distribution while allowing the creditor countries to remain majority shareholders.