Washington – When the annual meetings of the World Bank and International Monetary Fund got under way this week, the agenda ranged from ongoing talks about “currency wars” between countries to how to maintain progress on poverty reduction in the face of economic crises, to reforming the mandates and governance of the Washington-based international financial institutions.
Very few of the issues have been sorted out this weekend – or are likely to be – but limited progress seems to be being made.
On IMF governance reform, IMF Managing Director Dominique Straus-Kahn said Saturday that the questions on the table are several-fold, from the number of seats on the institution’s board and the number of votes allotted to each country to how the managing director is selected.
“I think that an agreement will be found in the coming, let’s say, weeks – days, maybe weeks,” Strauss-Kahn said, noting that there are “still some divergent views” between countries.
The composition of the IMF’s board and the number of votes allotted to the countries represented there were set following World War II and still largely reflect the relative economic weight of countries at that time. With the rise of China, India, Brazil and other countries, however, there have been increasing demands for rebalancing countries’ say in the IMF’s day-to-day operations.
Those demands finally bubbled over in August when the U.S. made good on threats to use its veto power over the size of the IMF board to demand a larger voting share for emerging economies – thus cementing the issue’s importance amongst the laundry list of topics to be discussed here this weekend.
The IMF has come out in favour of giving these developing countries more influence, and Europe therefore is under increasing pressure to relinquish some of its seats and votes, a move the European countries have resisted. European countries currently hold about a third of the seats on the board, despite accounting for an increasingly small portion of the global economy.
“Europe is denying developing countries their rightful say in how the global economy is run. That’s not acceptable,” said Oxfam’s Pamela Gomez following Saturday’s press conference. “It’s absurd that the whole of sub-saharan Africa – 43 countries – has just two seats on the IMF board. Europe needs to give up at least five of its nine board seats.”
Asked where compromise negotiations currently stand, Strauss-Kahn said that “a large part of the gap has been bridged, but there is still a large list of questions on which countries need to agree.” Stating the obvious, he joked that there is “only one obstacle – agreement between members.”
Strauss-Kahn’s comments came following the meeting of the IMF’s International Monetary and Financial Committee (IMFC). The communiqué that resulted from that meeting Saturday welcomed “the extensive and ongoing work by the Fund on the review of its governance and mandate.”
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It said the IMF has made progress toward resolving outstanding issues relating to quota and governance reforms, including increasing the “voice and representation of emerging markets and developing countries on the board and developing an open, transparent, and merit-based process for selecting the heads of the IMF and other IFIs.”
Traditionally, the head of the IMF is from Europe and the head of the World Bank is from the U.S., but some countries, NGOs – and the Strauss-Kahn himself – have questioned whether that should remain the case.
“I think that is one important part of the governance reform, and I think it has been accepted,” he said at the annual meetings’ opening press conference Thursday. “The idea has been accepted, the so-called agreement between the U.S. and Europe for the leadership of the two sister institutions has to disappear. I think that on that principle, everybody agrees. The question is how will it be implemented. That is another point.”
These discussions over the rebalancing of power in the international financial institutions come against the backdrop of the rebalancing of power in the world economy which World Bank president Robert Zoellick has spoken about numerous times in the past year.
Zoellick picked up these themes again at that Thursday press conference, saying that the world economy can no longer be thought of as North-South, with countries in the global south depending on knowledge and investment from those in the north.
But he also noted that, particularly due to the financial crisis, donor countries need to not let up in their funding of the Bank’s effort to support key programmes in developing countries. By ensuring that the Bank’s International Development Association, its fund for the world’s poorest, is replenished this and future years, “we could immunise 200 million more children, extend health services to over 30 million people, give access to improved water sources to 80 million more people,” he said.
Meanwhile, discussions between the finance ministers, central bankers, NGO experts and businesses executives gathered in Washington this week have also focused on what some have referred to as a “currency war” brewing – or ongoing – between countries, where one country might lower the value or their currency in order to make their exports more affordable on the world market.
Asked whether dissuading countries from taking action to lower the value of their currency might be used as a bargaining chip in giving certain countries an increased voice on the IMF, Strauss-Kahn said no, noting that being a major economic power – and having more say in the running of the IMF – implicitly carries a responsibility to safeguard the stability of the world economy.
“The biggest members of the institution are the ones on which the stability of the system relies,” he said Saturday. “Countries who want to be high on that ranking [of voting share] have to take more responsibility for economic stability.”
“The currency war cannot be used to hold IMF reform hostage. The Fund can’t do its job unless emerging economies are at the table,” said Gomez.
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