| Jaimini Bhagwati: A North Atlantic monetary fund? |
| The process of selecting the next IMF managing director should transcend North Atlantic considerations |
| Jaimini Bhagwati / June 17, 2011, 0:29 IST |
In the last one month there have been several commentaries on who should or would be the next managing director (MD) of the International Monetary Fund (IMF). An IMF press release dated May 20, 2011 stated that the “nomination period (for the next MD) shall commence on May 23, 2011 and will close on June 10, 2011” with the objective of “completing the selection process by June 30, 2011”. These tight deadlines have shifted the focus to support for individual candidates, rather than on the development of an impartial process by which a widely acceptable candidate would be appointed as MD.
The chief executives of the IMF and the World Bank have always been European and US nationals, respectively, since the two institutions were set up in the mid-1940s. In the light of the rising shares of Asian and Latin American countries in global gross domestic product (GDP), commentators have suggested that the heads of the IMF and the World Bank should no longer necessarily be European and American. However, according to the May 20 IMF press release, shortlisting of candidates will take into account the Fund’s “weighted voting system” and the final selection could be by a “majority of votes cast” even though the objective would be to reach a consensus.
The voting shares of the G20 members of the IMF and the International Bank for Reconstruction and Development (IBRD) are shown in the table. The table also lists the percentage shares of G20 countries and the EU27 in global GDP in 2010 as well as the projected percentages in 2016. These IMF projections show that by the end of the next MD’s five-year term, i.e. by 2016, the US and EU shares in global GDP would be substantially lower. However, under Section 2(c) of the IMF’s Articles of Agreement, members can block any proposed change in quotas (voting percentages are directly proportional to quotas) with just 15 per cent of the vote.
Europe and the US together command nearly 50 per cent of the votes in the IMF and if they agree on the choice for the next MD, the views of the other members would probably not matter. In this respect, the IMF and the World Bank are more like corporations where the views of the majority owners tend to prevail. Effectively, the consensus decisions in these two institutions are implicitly driven by the voting strengths of the member countries concerned.
Developing countries have played along with the polite fiction that the IMF and the World Bank are equitable across all members since they receive development funds and financial support at times of balance of payments crises. In the past, these institutions also had widespread influence because of the high quality of analysis carried out by their professional staff. There was, however, valid criticism that their thinking tilted towards the “Washington consensus” and that recruitment of staff favoured those who have a finishing degree from the US.
On balance, given the multiple constraints imposed by member governments, the research and lending policies of the IMF and the World Bank have been usually impartial. However, their positions on issues tinged by political sensitivities have been invariably driven by “North Atlantic” considerations. To that extent, these two institutions could be categorised as the economic counterparts of the North Atlantic Treaty Organisation except that their membership has gradually become global. For instance, China joined in 1980, about eight years after Nixon’s trip to China in 1972, and Russia became a member in June 1992 after the break-up of the Soviet Union in 1991.
|
SHARE OF GLOBAL GDP* AND IMF/IBRD VOTE |
vote
(%)
vote
(%)
global GDP*
in 2010
share of global
GDP* in 2016
