MercoPress. South Atlantic News Agency

Coming battle to reform IMF and World Bank decision making process

This week-end, ministers of finance and central bankers will meet with officials of the International Monetary Fund and World Bank in Washington to address the reform of the two global financial institutions, which were created by the United States and its allies to fund and guide economic development after World War II.

A few weeks ago, the leaders of the world's most industrialized countries, the G-20, promised a trillion US dollars in support for developing countries hit by the most severe global economic downturn in more than 50 years.

But financial experts say if the IMF is to succeed, its leadership - dominated by Western countries and Japan - needs to include poor countries and emerging economies like China, India and Brazil.

Usually and since their creation, the IMF chief is a European, while the head of the World Bank is from the US. Reformers would like to see the posts opened to the most skilled candidates, regardless of region. Also, the 185-member executive board of the IMF is weighted toward the West. Major decisions must have the support of more than 85% of the votes cast by the board.

Its members are allotted a different percentage of votes. The United States has 17% in effect giving it veto power, preventing other countries from reaching the 85% of the votes needed to pass significant policy changes. Twenty-five nations of the European Union have 32% of the vote; the combined voting shares of China, India, Brazil and Mexico are a little over 10%.

Two researchers at the Centre for Global Development in Washington want to change that.

A senior fellow at the Centre, Vijaya Ramachandran, and co-author Enrique Rueda-Sabater complain the power of board members is based on a combination of factors, including economic and geo-political influence. Some of the world's most populous countries, including Pakistan, and most important economies, like China and India, are underrepresented.

Ramachandran says this proposal would apportion voting shares to any countries that have either two percent of the world's population or two percent of global GDP. The new arrangement changes the balance of power in favour of those with large populations or large economies. The plan, she says, balances representation and effectiveness in a transparent manner.

Under the plan, the countries that do not make the two percent cut could be organized in regional blocs and be represented on the board by a leader chosen by member countries. Leadership could be held on a rotating basis. This, she says, would bring small and midsize countries to the table.

The development finance coordinator for ActionAid International in Nairobi, Soren Ambrose favours a “double-majority” system requiring a majority of member countries to approve significant decisions. This would be in addition to the system in use today.

Ambrose says under this plan, a wealthy minority could not overrule the bulk of member countries.

“For a major decision or policy changes to happen,” he said, “there should be a required a second vote requiring [majority of] countries. So it would be like U.N. General Assembly, where you would need a majority of countries in the IMF to support a proposal for it to pass, in addition to getting a majority of votes under current voting arrangements.”

The calls for change extend to the World Bank as well. One solution is supported by an NGO supporting reform, the Bretton Woods Project. It calls for a system of parity between members, where lenders and borrowers would each have an equal number of votes on the bank's executive board.