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Papers from Public Seminar 'Whose Rules Rule? The IMF
and World Bank at 60'
Organised by Debt and Development Coalition
Dublin, 22nd June 2004
Struggling to be heard - Democratising the World Bank and IMF
Presentation by Olivia McDonald, Christian Aid UK
I want to start by highlighting two Christian Aid reports looking at greater accountability on IMF and World Bank decisions. First, is a report we produced with Afrodad looking at how parliamentarians, MPs and members of civil society in developing countries could be involved in examining World Bank loans to their countries. We want to increase this involvement on the ground in conjunction with partner organisations. Secondly, and this is what I am going to concentrate on today, is a report we did last September, called - Struggling to be Heard, Democratising the World Bank and IMF. We started with the governance agenda which is increasingly being promoted by the World Bank and IMF - that poor countries need to improve accountability, transparency and participation in their countries in order to have better growth and better polices. Then we said: 'hang on a minute, that is fair enough but what about your accountability, what about your transparency, what about participation in your organisation?.' We did some research looking at the structures of these two organisations and it's quite clear that they are far from democratic.
Under-representation of Developing Countries
I'd like to show how developing countries are under-represented in the
World Bank and the IMF. When the World Bank and IMF were launched a large
proportion of the world was still colonised so it was never envisaged
these bodies would have as many member countries as they now do. But as
more and more countries have become individual members the governance
structure hasn't actually changed. Rich countries still hold the bulk
of the power. Firstly, we can look at how voting operates. I am going
to talk about the two organisations together because while they are separate
organisations, the voting system is the same in both institutions. 97%
of the voting power is allocated according to economic wealth so a rich
country like USA gets 15% of the vote and Malawi gets less than 1%. The
remaining 3% is divided equally with every country getting a basic share
in the organisation. I don't think you have to be a mathematics genius
to work out that things are skewed against poor countries like Malawi.
Another important issue is that both institutions have a system of qualified
majority voting, which means that a high percentage of votes is needed
to get certain important decisions through. Which in effect means that
even if the poor countries all sat together and said we want to challenge
the policies of these organisations that are affecting our economies,
they could never do it.
The second important issue to look at is the way that seats are allocated on the executive board. The executive board is the small group people who are involved in the day to day management of the institution. There are 24 directors on each executive board. Seven of those people represent one country - the UK, the USA, Japan, Germany, Saudi Arabia and Russia each have one seat. The rest of the world shares the other17 seats. So you end up with a situation where Africa has 2 seats on the board, that is 2 people representing 44 countries whilst for the UK you have 1 person representing just the British. Again this doesn't seem particularly democratic. There is also the question of how countries are grouped together - each seat will represent a range of different countries and some of the combinations are quite bizarre. For instance Switzerland is in a constituency with countries from Eastern Europe including Poland, Serbia Montenegro and Azerbaijan amongst others. As you can imagine, the situation of Switzerland is somewhat different to that of Azerbaijan. Also, looking at Ireland - Ireland is in a constituency with 15 other countries including some of the former British colonies including Antigua, Bahamas, Jamaica in the Caribbean, as well as Canada. As Canada is the richest country in that constituency, the executive director who leads the constituency is Canadian. So the voice of Ireland might be excluded in this process as well.
Another important issue that underlines how undemocratic the structure of these organisations is, how their leaders are chosen. The IMF managing director is always European and the World Bank president is always American. These leaders are selected in negotiations between America and Europe. Which means if there is an excellent development specialist from Malawi who would have a lot to give, s/he can't be selected. It also excludes people from Japan or Saudi Arabia who are also rich countries.
How Decisions are made
I will now look at how the structures of the organisation basically crowd
out low income countries' influence on the decisions made by the institutions.
The structures of the organisation make it difficult for civil society
and for parliamentarians in rich and poor countries alike to scrutinise
the decision making process. Because the IMF and World Bank are organised
more like a company than an inter-governmental organisation most decisions
are decided behind closed doors. There is a complete lack of transparency
on how decisions are made e.g. which countries voted for which decisions.
This is partly because of how the decisions are made. Instead of everyone
in favour saying yes, and all those against saying no, they reach a consensus
so the chair of the board sums up that, for example, it appears that the
board wants this controversial loan to go ahead in Malawi. This is a massive
problem because it means you can never find out who supported a decision,
who was against it, what did your executive director say, what did the
African executive director say. So you can't effectively challenge decisions.
Proposing Change
When people see how undemocratic these organisations are and the way that
they work in poor countries, it is easy to become disillusioned and wonder
if anything can be done. I want to recommend a couple of relatively small
reforms that could make a substantial difference. The first is on the
issue of voting. It seems perfectly fair that each country should have
a vote, one member one vote. But I recognise that it might be a long time
before this might become reality at the World Bank or IMF. You could,
however increase the basic vote that is divided equally among member countries
from 3% (currently) to, say, 19%. That would mean that if all developing
countries got together they could actually out vote the rich countries.
A reform like that would effectively remove the veto of the United States
and make the institutions more democratic. Secondly go to back to the
issue of seats, these should be distributed between countries more fairly.
The UK government supports one additional seat for Africa, instead of
2 people representing 44 countries they will have 3 people. As you can
imagine we don't think that is going far enough. There should be a total
shake up of the board of executive directors. There shouldn't be any single
country constituency for example. The leadership selection process could
be reformed quite simply. Each country should be able to put forward a
candidate and every country should have a vote. The selection process
might then pick leaders more because of their past experience than because
of political issues between America and Europe. Finally, the issue of
transparency on how decisions are made and how people here in Ireland
and people in Malawi can actually scrutinise those decisions. A fair system
of voting as I said earlier would help. But even publication of board
minutes would be quite a progressive step. We could then see why a certain
decision was made. In the UK we want our executive director to publish
the statements he makes at board meetings. Because if we see he said I
will support this damn being built for the following reasons, we can
at least engage with him on the decision. These are just a couple of recommendations.
There is quite a lot more detail in our report about this.
Opportunities on the Horizon
Reform is on the agenda both at governmental level and within civil society.
This September at their annual meetings, the World Bank and IMF will discuss
the road map for governance reform. Because the lack of voice for poor
countries and some middle income countries has been continually raised,
finally both institutions realise they are going to have to make some
changes. In September they will release a document showing step by step
what changes they propose which will hopefully lead to a more democratic
style organisation. This year a new IMF managing director was appointed
- selected by the Americans allegedly because his political party had
lost the recent general election in Spain and the Americans wanted to
show support for the outgoing party for Spanish support for the US in
Iraq? This seems a bizarre reason to choose the Managing Director of the
IMF. According to the UK executive director, while it wasn't possible
to change the leadership selection process for the IMF that quickly, the
UK is committed to change. So by next year when the selection of a new
head of the World Bank comes up, hopefully they will have had enough time
to make the process more democratic.
For civil society, these two opportunities (governance discussion in September and next year's selection of the head of the World Bank) are good campaigning opportunities When the selection of the World Bank president comes up next year, it will be an opportunity to pick nominees from key developing countries and maybe mount a big public campaign asking : 'So why can't this person from Brazil do the job?'. Another exciting opportunity at the moment is a petition which marks the 60th birthday of the IMF and World Bank this year. The plan is to get at least 60 MPs from at least 60 countries around the world to sign a petition stating MPs' concerns at policies being imposed on countries while parliaments have no say. This should be a good opportunity to get MPs involved in issues about democratisation,
To finish, I've tried to show that developing countries have very limited representation in these organisations; that it's very difficult for citizens to monitor and scrutinise decisions made at the executive board level of these institutions; and I've put forward a number of reforms, simple reforms that would help democratise the institutions, increase accountability, transparency and give opportunities for participation in decision making which would make the organisation more honest in their commitment to uphold good governance.
(Reports referred to:
Christian Aid and Afrodad: 'Owning the loan - poor countries and the
MDGs' 2004 Christian Aid 'Struggling to be heard Democratising the World
Bank and IMF' Sept 2003)
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