The increasingly painful international crisis demands that our world leaders rethink the very foundations of global economic governance. This is no longer the time for incrementally upgrading the international economic and financial “architecture”, but one of those historical junctures where true leadership should emerge and make possible a major overhaul of the existing architecture. It is not only a question of how to overcome the current crisis – however dramatically urgent that is – but to imagine the new governance model of the global economy that should come out from the crisis. Such a model should aim for a much higher level of effectiveness and legitimacy than the one that brought us down to today’s dismal situation.
Effectiveness and legitimacy inspired the choices made by our forefathers at Bretton Woods in 1944, which reshaped the world order following the disintegration of international relations that had caused conflicts of unprecedented extent and consequences. Effectiveness and legitimacy should again guide nations in building up a new global and cooperative economic order that would be more inclusive, fair, and caring. Even though such a task would be more complex today than in 1944, it is nonetheless essential that our leaders walk the path that their predecessors traced six decades ago and renew their obligation to engage all nations willing to join in international cooperation. Letting self-selected, exclusive, non-representative country groupings determine what is best for all in the world is likely to portend new arrogance on the part of the strongest, feed resentment from the excluded, and cause a lack of reform ownership and hence weak reforms.
Global economic governance: The IMF and World Bank must lead
Reform of global economic governance should be based on the principle that global decision making on international economic matters should take place within the Bretton Woods institutional framework, the only existing universal system of multilateral economic relations. The reform should place the Bretton Woods system at the core of international cooperation for achieving financial stability and economic development and make its governing structure more effective and responsive to its universal responsibilities.
The International Monetary and Financial Committee of the IMF and the Development Committee of the World Bank and IMF should become the forums where ministers and governors effect global financial and development policy cooperation. They should be transformed into Governing Councils of their respective institutions, granted formal voting power, and entrusted with the responsibility to hold the two Executive Boards to account for their performance. Also, as political entities with (quasi) universal representation, the Councils should coordinate the activities of all major agencies operating in their relevant policy areas. They should ensure coherence to international economic policy cooperation. Country groupings should operate within their framework.
The two councils themselves should undergo major adaptations to become more effective and representative. Member country constituencies of the IMF and the World Bank would have to be reconfigured into a smaller number of chairs, eliminating single country constituencies, having European countries adopt a strategy eventually leading to a single chair, and facilitating the adoption of regional criteria for the re-composition of constituencies. Quotas should be recalculated using criteria that would achieve a fairer distribution of voting power and voice, and double majority rules should be introduced to facilitate stronger consensus building in deliberation. The Executive Boards of the two institutions should be made independent and accountable and, the accountability of Managements should be strengthened by making them accountable to their respective boards for their performance and by suppressing the “dual” responsibility of the IMF Managing Director and the World Bank President (as board chair and as chief executive officer).
These proposals are elaborated in the note titled Reforming Global Economic Governance: A Proposal to the Members of the G-20, recently submitted by the ‘Group of Lecce” to the Members of the G20, for their consideration as they prepare to meet at the forthcoming London summit of 2 April.
Editors’ note: Established in early 2009 at the Scuola Superiore ISUFI, under the auspices of the University of Salento, Lecce (Italy), the “Group of Lecce” consists of academics and practitioners in international law, finance and economics with an interest in the development of democratic and effective institutions of global governance. Initially, the group has limited its contribution to proposals aimed to strengthen economic and financial multilateralism by reforming the governance of the IMF and the World Bank. Moving forward, the group will broaden its mandate: it will monitor policy developments following the G20 summit deliberations and contribute ideas and further proposals on specific aspects of global economic and financial governance with the purpose to solicit governments’ policy actions supportive of democratic and effective international institutions of global economic governance. The group will consequently expand its composition to include foreign scholars, network and create international contacts to promote dialogue and ideas. It is open to participation of experts who share its basic principles – as enshrined in the proposal – and who wish to support its mission.
The members of the group are: Biagio Bossone (coordinator), international financial consultant, former member of the Executive Boards of IMF and World Bank, and Adjunct Professor of International Financial Relations; Susanna Cafaro, Professor of European Union Law; Saverio Di Benedetto, Researcher of International Law; Raffaele De Giorgi, Professor of Theory of Law; Nicola De Liso, Professor of International Economics; Maria Chiara Malaguti, Professor of International Law, International financial legal expert, and consultant to the Italian Ministry for Foreign Affairs; and Liboria Maggio (secretary), PhD student in Law and Economics.