Shining a light into the murky world of global financial governance

by Joseph Markus

Seattle Anti-Globalisation Protests, 1999

In the wake of the bailout of Greece it’s worth reflecting, for a moment, on just who the shadowy organisations are that rule the international financial world, at least for the down-and-outs and the still-developing.

The final agreement over Greece was shaped by a number of different factors, amongst them German belligerence, but relatively under-scrutinised has been the role the International Monetary Fund—one of the core international financial institutions (IFIs)—has played.

Unlike the institutions of the European Union, which are, at least in theory, accountable to a demos—through European elections, the supranational jurisdiction of the Court of Justice of the EU, and through national stake-holding in the EU Council and Commission—the IFIs are not directly accountable to anyone other than their main funders.

The first thing to note is that the leaders of the IMF and World Bank Group have always been, for the IMF, a European, and for the World Bank, an American. This convention has not died away, despite pressure following the resignation of Dominique Strauss-Kahn last year. Robert Zoellick, President of the World Bank, has announced he will be stepping down at the end of his term. There has been some speculation that Bill Clinton (or even Tony Blair) may step in to take the role. It will be interesting to see whether there is an open competition this time round.

Second, the countries which have the most influence over funding and policy decisions are those which provide the bulk of the funding. These are the countries that are awarded the larger voting shares and those which enjoy the greatest number of Governors. It is telling that out of the 24-member group that make up the Board of Governors, due to their low voting shares, a group of 24 principally Francophone, African states share a Governor, as do a group of nineteen, principally Anglophone, African countries. Another particularly interesting exercise is to compare the respective voting weights of different countries. So on one side is the US—the country with the highest votes share in the IBRD section of the World Bank—with 15.85% of the total (at least, at the 2010 realignment). India, by contrast, the world’s most populous democracy, enjoys only 2.91%. The population of the US is around 307 million. The population of India is 1.21 billion or so, on its way to four times the size of the American public. The disparities are stark.

Perhaps the fix for this is worse than the current situation. We may need to drastically expand the number of Governors in order that every state can feel that they have some control over the process and there remains the further issue that a country executive is hardly equal to democratisation. But as a first step, it seems sensible to try and expand the influence of those states which make most use of the services provided by the IMF and World Bank, especially considering that funding conditionality remains commonplace.

So far I’ve not mentioned the World Trade Organization (WTO). This body has a role slightly different to that played by the other IFIs but it, by no means, has any less influence or effect. The trade ideals which it embodies (something Antoine Cerisier covered in his piece) has a tendency to work to the advantage of those nations that are ‘already on their feet’ in trade terms. It doesn’t assist nascent economies to expand, it simply allows interested economies (interested, that is, in the markets which WTO membership requires opening) to export and invest, and to sap wealth.

The WTO works in the way of an old-fashioned international organisation. It is strictly inter-governmental, in the sense that decisions are taken by permanent government delegations which remain in Geneva on a permanent basis.

On its face, this might suggest that, under a one-member-one-vote system, developing countries (which outnumber the developed) might hold the advantage. Yet they don’t. The WTO operates, rather than through formalised voting, on the principle of consensus—decisions are passed if no member present formally objects at the meeting. The disparity exists in the way in which many of the poorer countries cannot afford to maintain any or any large enough permanent delegations to properly engage in the day-to-day business of the WTO. And if you’re not in the room where decisions are taken, you play no part (and your interests will not figure) in those decisions.

One study—not available online or freely—has suggested that the average developed country delegation is 7.38 while the average for a developing country is 3.51. And even this figure masks differences: Bangladesh may have only 1 delegate, while India may use 6. It’s also important to remember that the WTO schedules many different meetings, many of which overlap, everyday and there can be a practice among some of the wealthier members to schedule several key meetings at the same time.

One final problem in the WTO is the use of informal processes—’Green Room’ meetings—to force consensus as a fait accompli onto later meetings. Only a select number of country delegations will be invited to these meetings, which obviously limits the type and scope of views that will be expressed. The fact that decisions are still taken in the smoky back-rooms leading off the corridors of power is deeply concerning in an age where transparency and fairness are viewed as important principles.

Lastly, it’s worth pointing out that unlike nation-states (or even large multi-national corporations), there are no external—human rights—standards that directly apply to any of the IFIs. The World Bank and IMF Articles of Agreement do not allow those organisations to consider the impact of human rights on their work (except in so far as human rights are relevant to economic issues), and they are not subject to review by an outside body. The same is true of the WTO, although in recent years its dispute resolution mechanisms have gradually been incorporating into specialised world trade law the ideas of environmental and human-rights sensitivity. But, it should be noted, this has been against the vociferous opposition of members.

So these are the organisations that are silently dictating the future(s) of many different parts of the world, in amongst them Greece. There are a number of other questions—the stuff of future posts—that arise from all this: among others questions relating to the democratisation of global governance. Nevertheless, it is always helpful to think openly about those things that are opaque and hidden from clear view.

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