Typical street scene in Santa Ana, El Salvador. (Photo: iStock)
IMF Survey: Reforming How the World Cooperates
March 19, 2007
- Decision making at the global level needs reform
- Many international institutions date back to post-Second World War period
- Group of Twenty could assume greater role
Most of today's international institutions were created after the Second World War.
According to Colin Bradford, a grand bargain between the United States and Europe may be necessary to break the stalemate on global governance reform. (Photo: Michael Spilotro/IMF)
Book Forum
Although their mandate to promote global cooperation remains as important as ever, their governance structures still reflect the world of 1945. Colin Bradford and Johannes Linn, both of the Brookings Institution, have just finished editing a new book entitled Global Governance Reform—Breaking the Stalemate. They shared their thoughts on how to reform decision making at the global level at a March 6 book forum organized by the IMF.
In his opening remarks, Linn said that globalization is proceeding at a rapid pace, resulting in the meteoric rise of emerging market countries such as China and India. At the same time, new challenges—including global warming, pandemic bird flu, the potential for severe financial crises, and the rising threat of terrorism—have emerged. These changes have left the world's international organizations struggling both for legitimacy and for practical ways to address the new problems.
Most of the world's international organizations are part of the United Nations "family." There is the United Nations itself and its Security Council, the World Health Organization, the International Monetary Fund, and the World Bank. What all these institutions have in common is that the United States and Europe hold dominant positions—and the United States often wields veto power over much of international decision making. To efficiently and inclusively take on new tasks, these international institutions, in Linn's view, are therefore in urgent need of reform.
Linn explained that he and Bradford had initially approached the issue of global governance reform from the perspective of summit reform—how to move beyond the current G-7 group of industrial countries to create a summit diplomacy that is both effective and representative. But they soon realized that "you couldn't discuss summit reform without going into the trenches of the individual institutions." As a result, their book looks at reform proposals for the IMF, the World Bank, the World Health Organization, and the United Nations before tackling the issue of summit reform. Interestingly, however, their work "in the trenches" made them even more convinced that the key to organizational change at the international level is to reform the way world leaders arrive at common decisions.
A grand bargain
The IMF's official historian, James Boughton, himself a contributor to the book and the moderator of the book forum discussion, noted that the debate on the IMF has become more focused in recent years. Calls to close down the Fund have largely died down, as have proposals to merge the IMF with the World Bank, a move Boughton likened to folding the Federal Reserve into the U.S. Treasury. Professor Alan Meltzer's suggestion to have the Fund concentrate solely on crisis lending also seems less relevant today, as does former IMF Economic Counsellor Kenneth Rogoff's proposal that the
Fund get out of the lending business altogether.
Bradford said the IMF was off to a good start with Managing Director Rodrigo de Rato's ambitious reform agenda known as the medium-term strategy. He noted the "somewhat surprising development that one of the most conservative institutions in the galaxy of international institutions—namely, the IMF—seems to be proceeding first and at a faster pace" than the other international organizations. But much more needs to be done. To make the Fund more effective and representative, and building on suggestions put forward by politicians and other scholars, Bradford said the IMF should
• revise its quota formula to include criteria that focus on GDP adjusted for purchasing power parity, financial flows, and population;
• reduce the number of chairs on the IMF Executive Board from 24 to 20 or fewer. This should be done by consolidating Europe's representation—which is currently spread out over eight chairs—into one or two chairs to make room for more chairs representing emerging market and developing countries; and
• base the selection of the IMF's Managing Director solely on merit without regard to nationality. The IMF's Managing Director has always been a European, and the President of the World Bank has always been an American. There is broad consensus that this tradition should be abolished and that the leaders of the two institutions should be chosen from a global pool of applicants.
Although none of these proposals are new, Bradford and Linn suggested that pushing them forward will require a grand bargain between the United States and Europe. Because Europe will be asked to give up de jure influence by accepting a substantial reduction in its voting power in the IMF and the right to name the institution's Managing Director, the United States should reciprocate by giving up its veto right over decisions requiring an 85 percent majority, as well as its right to choose the head of the World Bank. As Bradford put it, "these steps are necessary to convince world public opinion—politicians in other countries, peoples in other countries—that the institutions are serious about breaking the control that Western industrial countries have had over them for the past 50 years."
From G-7 to G-20
According to Bradford, "breaking the stalemate of global governance reform and institutional reform depends first and foremost on summit reform." Deciding what should be on the agenda of the international organizations—and deciding how they make decisions in the future—ultimately comes down to political choice. The G-7 currently functions as the world's de facto steering committee. But even though it recently began inviting some emerging market countries to participate as observers in its meetings, this group lacks the legitimacy it would take to tackle the global problems of the 21st century.
To remedy this, Bradford and Linn propose vesting new power in the G-20, an informal group that includes emerging market countries like India, China, South Africa, and Brazil, as well as some of the G-7 members, including the United States, Germany, and Japan. The G-20 has taken on an increasingly prominent role in recent years, including with respect to promoting reform of the IMF. Its diverse membership represents 90 percent of the world economy and about two-thirds of the world's population, making it a more legitimate decision-making body than the G-7, they said.
Boughton agreed that having the G-20 assume the mantle of the G-7 would be an important step forward. But he warned that the G-20 would, over time, become formalized, as has happened to all the other "Gs" before it. And, with a more formal setup comes a stiffness that stifles debate and creative problem solving, two things that are acutely needed in the world right now.
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Global Governance Reform contains essays on the IMF, the World Bank, the United Nations, summit reform, global health governance, and global environmental governance. Below are a few selected quotes. "The current benign economic and financial environment will not last and will be seen to have been a temporary lull in Fund lending activity, as has often been the case in the past. The IMF will continue to have an important role to play as a lender in the inevitable future crises."mdashhere "The IMF has not yet developed a reputation as a breeding ground for financial talent that is as strong as its reputation for macroeconomic experience. The Fund is now working to overcome its late start in this area, which is one of the key challenges identified in the strategic review." mdashhere "It is surprising how far the World Bank has strayed, in spirit at least, from its original conception. Today the Bank has `borrowers' (the developing countries) and `nonborrowers' (the advanced countries). The Bank's mission is now framed explicitly as reducing global poverty—not as supporting and encouraging global prosperity and security through trade and investment in an open, liberal economy."mdashhere "Accompanying the sweeping changes in the public health landscape—even the name has changed, from international health to global health—has been the entry of new players and institutions, each rushing to fill a perceived gap or weakness in the global health architecture. As a result, the design of global health governance, as it exists today, is the product of chaotic, opportunistic growth."mdashhere "While it conceives itself as the apex of global consultation and decision making, the G-8 [the G-7 plus Russia] is a forum of the eight industrialized countries that were the dominant powers of the mid-20th century. By excluding the major emerging powers of the 21st century, it has become increasingly ineffective, unrepresentative, and illegitimate."mdashhere "While it conceives itself as the apex of global consultation and decision making, the G-8 [the G-7 plus Russia] is a forum of the eight industrialized countries that were the dominant powers of the mid-20th century. By excluding the major emerging powers of the 21st century, it has become increasingly ineffective, unrepresentative, and illegitimate."mdashhere Colin I. Bradford Jr. and Johannes F. Linn |