The Hindu Business Line : Rumblings at Bretton Woods

The World Bank and IMF annual meetings, just concluded over the weekend in Washington D.C., were held against the tense backdrop of leadership issues and ongoing reforms at the two Bretton Woods Institutions (BWIs) that are meant to reflect the dramatic shifts in economic power over the past decade. For the past few years, and especially in the run-up to the selection for top posts, newly emerging economies such as India, Brazil and South Africa, together with economic pow erhouses Russia and China, have been pressing for a greater voice in the management of the two institutions, a volley that has so far been deflected by the US and European Union. At the recently concluded meetings, however, India and China’s finance ministers separately underlined the need for greater representation for the new growth countries. Those voices have come not a day too soon.

Ever since the US and the EU set up the BWIs more than six decades ago, they have exercised control by nominating their representatives as heads of the institutions. For a little over five decades that convention, never written into the charter of either BWI, went unchallenged, principally because it was based on the economic strengths of the two largest economies that not only contributed the majority of the funds but also framed the provisions for the institutions’ programmes. That unwritten convention with its non-transparent methods of selection, restricted as it is to American and European candidates, has been increasingly challenged by the emerging economies that have been weaned on the philosophy of openness and growth that the BWIs disseminated among developing countries. With the borrower-developing countries now becoming prosperous, their dependence on the Fund-Bank decreasing, developing nations have been urging the World Bank and the IMF to practise what they preach. Fifteen years ago India sought aid from the IMF when its reserves fell to a billion dollars; ten years ago, Russia went begging to the IMF. Today, both countries have become economic powerhouses and so want a greater voice in the power structures through more voting rights and a democratic and transparent selection of candidates for the top posts.

Attempts to redistribute voting powers in the twin institutions have been half-hearted, and India and China made clear their dissatisfaction at the recently concluded meetings. The Bretton Woods twins are operating in a world of dispersed economic power and bilateral assistance flows from non-West economies with bulging foreign exchange reserves. China and Russia are building bridges to the poorest parts of Africa that traditionally would have relied on the World Bank for development assistance. Unless they reform, the IMF/World Bank may lose their relevance sooner than they think.

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