IMF voting power to be altered

By the time dust settles on the global financial crisis, the two Breton Woods institutions - the World Bank and the International Monetary Fund - control will have equally settled in a different shape.

Developing countries will be grateful because they will have gained a greater say on how the two are managed. Meeting on Thursday and Friday last week in Pittsburgh, United States, the G20 leaders agreed to make the two institutions “more representative by increasing the voting power of countries that have long been under-represented in the world financial bodies.”

G20 membership represents the 20 developed and developing countries that control 85 per cent of the world economy.
In a joint communique, the leaders called for a shift in IMF voting by at least 5 percentage points from developed to under-represented countries - mostly China, India, and Brazil.

“We agreed to a significant increase of voting power for under-represented developing and transition countries in the World Bank,” the communique further read. The changes to be formally adopted in 2011 will alter the current IMF voting power of 57 per cent in favour of industrialised countries and 43 per cent for developing countries to almost 50-50.

“The shift of at least 5 percentage points in voting power is the largest increase ever seen in the IMF’s voting structure and is likely to see China overtake old European powers Britain and France which have long resisted the move,” said the draft communique obtained by Reuters.

For the past 63 years, the two have been the most important financial institutions in the world to a point of dictating how fast a country or region develops. They were repeatedly used by the developed countries, who currently have a controlling voting power, to harass developing countries by imposing “unreasonable” conditionality on financial assistance given to them.

In an agreement that borders on cartel-like behaviour, nomination of leaders of the two institutions is currently shared between the United States and European Union. The head of the IMF has always been a European, while the president of the World Bank has always been an American.

Advance reforms

That is now bound to change. The G20 also agreed that the heads of the two institutions should be selected based on qualifications and not nationality. It was in Washington on November 15, 2008 when the leaders agreed to advance reforms of the Bretton Woods Institutions to reflect changing economic weights in the world as a way of increasing their legitimacy and effectiveness. 

“In this respect, emerging and developing economies, including the poorest countries, should have greater voice and representation,” the Washington communique read. The need to increase the two institutions’ legitimacy and effectiveness was as a result of realisation that the developing world had started to avoid seeking help from the two.

Financial crisis

Except for the brief period in the late 1990s, when the World Bank advanced money to countries hit by the Asian financial crisis, it is noted to have gradually become less of a bank and more like one of many aid agencies serving only the poorest countries.

“It’s a cause for real concern that the IMF was not the first port of call for some emerging market economies when they were first hit by the liquidity crisis,” Centre for Global Development president Nancy Birdsall says in an article published on the organisation’s website in November 2008.