IMF, World Bank seek new legitimacy
- Published: 13/10/2013 at 09:49 AM
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The IMF and the World Bank held annual meetings this week in Washington under a cloud of financial constraints and questions about their legitimacy as bulwarks of the global economy.
IMF Managing Director Christine Lagarde speaks at the Development Committee October 12, 2013 at the World Bank in Washington, DC
The 188-nation sibling institutions will turn 70 next year in a global economy less and less dominated by the United States and Europe, as Brazil, China, India and other emerging-market economies muscle their way onto center stage.
With all eyes fixed this week on the US budget crisis, the grand reception of the world's finance leaders in the US capital spared the International Monetary Fund another uncomfortable debate on the damaging effects of the austerity it imposes, particularly in the eurozone.
But the IMF's imbalanced representation once again was glaringly clear: the emerging economies have complained for years that their relatively small voting rights in the institution insufficiently reflect their real power in the world economy.
China, the world's second-largest economy, has only slightly more weight than Italy at the IMF, which has been headed by a European since its creation in 1944.
A governance reform has been in the works for three years but its implementation has been blocked by the effective veto of the United States.
IMF Managing Director Christine Lagarde could only display her impotence in deploring once again that a "major member" had not yet approved the 2010 reform.
But on Friday, she hammered home the point -- saying "we must be even more representative and mirror these shifts" -- while still having no way to twist the arm of the IMF's largest stakeholder.
"That is clearly a longstanding problem," said Jacob Kirkegaard of the Peterson Institute for International Economics in Washington.
The IMF "is out of date," he said. "It's basically a credibility problem and it's going to get worse over time."
The big emerging BRICS economies -- Brazil, Russia, India, China and South Africa -- brimming with impatience, have launched their counter-offensive: the creation of their own monetary fund.
The BRICS fund is expected to be finalized in 2014, Brazilian central bank chief Alexandre Tombini said Friday.
The stagnant reform process underscores "the deepened democratic deficit of the institution and the need for a profound transformation of the Fund," Argentina's finance minister, Hernan Lorenzino, said Saturday.
Even Austria's National Bank Governor Ewald Nowotny, speaking as a representative of Austria, Turkey and six central and eastern European countries, said they were "disappointed about the slow progress of the reform."
The countries "consider it important -- not least for the legitimacy and credibility of the IMF -- that the quota and governance reform is implemented within the agreed timeframe," he added.
Despite criticisms, the IMF still is a crucial crisis-fighter. Currently involved in four rescue programs in the eurozone, it remains at the center of the global economic network for its role as guardian of budget orthodoxy.
World Bank: more pressing challenges
The World Bank, the behemoth of development, is facing more pressing challenges.
Since taking the helm of the institution in July 2012, Bank President Jim Yong Kim has steered it toward the goal of ending extreme poverty by 2030 and a vast internal restructuring to fight compartmentalization and a "culture of fear" among staff.
"A development institution can't operate effectively when its clients are confused" by its organization, he said.
Ivory Coast Prime Minister Daniel Kablan Duncan said it was "courageous for them to look at things as they are," pointing to certain "weights" on the Bank.
The anti-poverty bank is facing new competition in the development sphere, including from the private sector, China and foundations, which threaten to reduce its key turf in Africa.
And, in the coming months, it will be asking its member nations to donate to the International Development Association, the Bank's fund for the poorest countries.
Kim, a physician, announced a diet budget for the Bank, seeking to trim the institution's annual operating budget by $400 million to $4.6 billion in three years.
Budgets for travel and facilities will be reduced, and the Bank's 10,000-strong worldwide workforce will not be spared.
The Bank will "strategically review our staffing," Kim said, in remarks likely to rattle staff.
This new broad strategy received explicit support from the United States on Friday, but may spark opposition from some other member countries.
"The question it poses is crucial: How can it assure that it is more flexible without lowering quality standards? There's going to be a lively debate among member countries," said Nicolas Mombrial of the Oxfam development group.
About the author
- Writer: AFP
Position: News agency