Unnoticed by the press and the demonstrators in Prague, G6 (G7 minus Japan) governments last month quietly buried efforts to reform the way in which heads of the IMF and the World Bank are selected. The governments thus reneged on promises to make the institutions more open and accountable. As a result, European governments and the US will find themselves on weaker ground in calling for developing countries to reform their ways.
Earlier this year, there was a political furore when Germany nominated Caio Koch-Weser for the job of managing director of the IMF and the US vetoed him. Germany then came up with Horst Kohler, who got the job. The rest of the world began to ask: why should Germany get to appoint the head of the IMF? And why should the US get a veto? It was widely agreed that the heads of global organisations such as the IMF should not be selected in this backroom manner. Indeed, the IMF announced a working group to review the selection process.
The challenge of reforming the selection process is not an impossible one. Since the Bank and the Fund were created at Bretton Woods in 1944, the leadership of both institutions has been in the gift of the US and west European governments respectively. A change in this state of affairs requires the US, Britain, France and Germany to take a lead and relinquish their anachronistic privilege. There are several reasons why they ought to do this.
First, these same countries have been leading the calls for the Bank and the Fund to become more accountable and transparent. They have also demanded this of the other member governments of the international institutions. Reforming the leadership of the Bank and the Fund would, if nothing else, set a good example.
Second, the president and managing director of the Bank and the Fund are visible symbols of global economic governance. The issue of how they are selected has come to the fore at a time of growing unease about these institutions. The demonstrators at Prague and Seattle were not all anarchists; many were citizens concerned about poverty, development and democracy. They want the international institutions to become more accountable. Their aspirations probably cannot all be met. But as regards the top jobs in the Bank and Fund, they have a case.
The present process fails any standard of good governance. It is part of a history which has now been superseded. The institutions started with about 50 governments as members; they now have more than three times that number, and most of their work is focused on developing countries. It is not even the case that the richest western countries provide most of the capital for the two organisations: the G7 provides less than 5 per cent of the capital of the Bank, which is now largely self-financing, and the US, Britain, France and Germany provide just over one third of the capital of the Fund.
Yet since the Asian financial crisis, the G7 countries have determined that developing countries must meet certain codes and standards of economic behaviour if economic stability is to be preserved and aid is to continue to flow. The task of developing and imposing these standards has been entrusted mainly to the Fund and the Bank. To perform this task-which often means imposing unpopular controls on countries-the institutions need credibility and legitimacy.
At present, developing countries get virtually no say in the election for the two jobs. A formal vote is taken, but in old Soviet style, their choice is limited to either supporting or not supporting the US-backed candidate in the Bank, and the European-backed candidate in the IMF.
Given that the international financial institutions are providing global public goods including high quality research and policy advice, the demand for an election which permits countries to elect the most technically competent and universally acceptable candidate to the top job is hardly a radical one.
A final reason for reforming the selection of the heads of these organisations is more political. The IMF and the World Bank are situated in Washington, a stone's throw from the US government. The heads of these agencies play a crucial role in defining the thin line which separates the organisations from US foreign and economic policy objectives. A strong head of the Fund and Bank can mediate, negotiate, cajole, and persuade US administrations to listen to other members. This matters not just for good public relations, but for their effectiveness, too.
Pushed by several developing countries, Japan did at least raise the election issue in Prague. But the US had buried the issue before the annual meetings by letting it be known that it would not open up the top job at the Bank to any genuine election among member states. If the US does not budge, it is difficult to imagine the Europeans doing so on the IMF.
In their final communiqu? at Prague, the world leaders "noted" the work of the committees reviewing the selection process of the heads of the IMF and the World Bank. In effect, the US and the European governments have killed off the issue for some time to come. The onus is now on these governments to explain how this squares with their commitment to greater accountability and transparency in international organisations. n
