WASHINGTON: Developing nations have issued a statement strongly condemning the “democracy deficit” in two of the most powerful wardens of the current global economic system, the World Bank and the International Monetary Fund (IMF). During the joint meetings of the governors of the two Washington-based institutions, the Group of 24 (G24), which operates as an association of minority shareholders in the IMF and the Bank, said that the lack of representation of poor nations and developing countries was alienating the two financial institutions from their clients.
“Ministers note that the BWIs’ (the Bretton Woods Institutions) governance structures have not evolved in line with the increased size and role of emerging market, developing, and transition countries in the world economy,” said the statement by finance and economy ministers of the G24.
The World Bank and the IMF were established in Bretton Woods in the US state of New Hampshire by the victors in the Second World War, and have since exercized an enormous influence on borrowing nations — especially in the developing world.
“The role of small and low-income countries in the decision-making process is extremely limited,” said the statement.
“Ministers stress the need for concrete actions to reduce the democratic deficit and enhance the voice and participation of developing countries in decision-making at the IMF and World BankàThey express disappointment that no progress has been made on this issue.”
The ministers complained that the current under-representation of developing countries in the IMF and the World Bank Executive Boards undermines the legitimacy and effectiveness of these institutions.
Decision-making in the two financial bodies is far removed from the principle of one country-one vote.
The 46 sub-Saharan African countries, for example, have only two executive directors representing them at the World Bank and IMF, while eight northern nations have one executive director each.
Directors from countries of the Group of Seven (G7) most industrialized nations now control more than 60 per cent of votes at the Bank and Fund, while the US administration has veto power over any extraordinary vote that requires a supermajority vote of 60 per cent or more.
The Bank and IMF each have 184 board members from developed and developing countries and 24 members who represent countries or groups of nations.
That system has deprived more populous nations like India and China, which combined represent more than 2.3 billion people of the world’s near seven billion people, of an influential say while giving countries like Britain, France and the United States greater clout.
Developing countries, civil society groups and the activist community have also criticized the selection process of the heads of the two institutions, arguing that it gives rich nations a monopoly on nominating and selecting the leaders of the two institutions.
Traditionally, a European has led the IMF while the World Bank presidency is given to a US citizen.
The G24 ministers urged that that the two institutions develop a new quota that would give greater weight to measures of gross domestic product in terms of purchasing power parity, and take into account the vulnerability of developing countries to commodity price movements, the volatility of capital movements and other external shocks.
“In order to strengthen the voice of small and low-income countries, basic votes should be increased to restore their original share of total voting power,” said the statement.
During a briefing with reporters on Friday, officials from developing nations complained they were not consulted on the nomination of the US arch-hawk Paul Wolfowitz by President George W. Bush to the post of the World Bank president. Wolfowitz, the number two official at the US Defence Department, takes office on June 1.
“I was not consulted as concerns the nomination of Mr Wolfowitz, so I cannot say whether I am satisfied or happy about it,” said Paul Toungui, the finance minister of Gabon.
Although the matter is now decided, the issue of transparency and fair representation remains unresolved, he added.
“There is no sense in looking backwards in our rearview mirror,” he said. “We have to look forward. Looking forward, we want to strive to ensure that the positive claims and urging of the G24 so as to have greater transparency in the BWIs will take place, and that one day the situations will be far clearer for everyone concerned.”
The officials also complained that the issue of fair representation has been on the table for many years with “very little progress.”
The developing nations argue that the current system was created at a different time in world history, and is no longer relevant to today’s reality.
Then, the United States, which holds decisive power in the two institutions, was the largest creditor nation, and the largest source of capital exports. Today, it is the world’s largest debtor country, and is absorbing 80 per cent of international capital flows.
In 1944, at the time of the two institutions’ creation, the G7 industrial countries accounted for most of world output of goods, while today, they account for less than half. Today, developing and transition economies account for some 84 per cent of the world’s population and the same proportion of world output as the developed countries, measured in terms of purchasing power parity.
Even in terms of currency reserves, developing countries hold considerably more than the richest industrialized countries.
“So the current system of governance is completely out of line with economic realities, and what is happening as a result of this is that people are moving away from the institutions,” said Ariel Buira, director of the G24 Secretariat.
“This in the end will come to pass because otherwise institutions will become irrelevant, and it took a lot of effort to create them, and we do not want to destroy them.”—Dawn/The InterPress News Service.
