Last week, in Istanbul, on the occasion of the annual meetings of the IMF and the World Bank, I participated as a country official to the Small States Forum – the place where the smallest nations on earth meet to discuss economic policy issues of common interest. World Bank president Robert Zoellick intervened in one of the forum sessions for a brief presentation and a round of Q&A. I was ready to ask him a question, but the time was soon up after two distinguished speakers had filled it all with their (less than memorable) remarks.
The question I could not ask to Mr Zoellick was the following:
“You are the chairman of a multilateral institution, which by its own statute gives voice (directly or indirectly) to all its member countries, and you are here today at a forum whose main purpose is to reinforce the voice of the small states; How comfortable do you feel now that you have to deal with the leading body of global governance – the G20 – where, not only the small states, but also all countries other than the 20 have no say whatsoever on the group’s global decisions?”
The G20 and non-G20 nations
In fact, this question should not be primarily addressed to the president of the World Bank. It should be directed to the world leaders who do not sit at the G20 table and yet have all very quietly accepted the emergence of the G20 over the last few years, until the group finally proclaimed itself as “the primary forum for our international economic cooperation.” (G20, 2009)
Yes, the members of the G20 have selected themselves and assigned themselves the responsibility to lead the global economy, without really bothering about how to take into account the interests and the views of the rest of the world and evidently assuming that they possess the natural right to think and speak for all other nations by virtue of their economic might. It is interesting – if I may borrow some British understatement – to hear the silent acquiescence of the rest of the world (the informed public opinion, the active civil society organisations, the qualified experts of international relations, and the huge arena of progressive intellectuals) to the fast rise of the new exclusive club.
To be sure, the reasons of interest do not stop here. In a recent interview, the US Treasury Secretary has spoken of the Financial Stability Board (FSB) as “the fourth pillar” of Bretton Woods (Geithner, 2009). While recognising that the Bretton Woods institutions were born out of international treaties, Mr Geithner has referred to these treaties as “complications” that the G20 needs to avoid if it wants to achieve good solutions more effectively. But the complications underpinning the international treaties are not unnecessary obstructions to otherwise smooth processes. They are the inevitable price that international diplomacy has to pay to achieve the broad consensus and the legitimacy needed to create effective and truly multilateral institutions. This was indeed the progress that our forefathers accomplished at Bretton Woods sixty years ago. Besides, it really boggles one’s mind thinking that advanced democratic nations are even willing to fight wars to affirm their ideals worldwide and yet bear little patience when it comes to building up more democratic international institutions.
Why not a reformed IMF?
If this is the deep misconception that surrounds multilateralism today, it is no surprise that what the G20 has decided at its last summit in Pittsburgh dramatically fails the hope of those who aim for a more effective and legitimate system of global financial governance. As the only multilateral financial institution with universal representation, the IMF could have been picked as “the” place where international financial policy cooperation can be carried out, supported
- by an organisation that is resourced for and statutorily tasked with running financial surveillance in every country and globally and for assisting countries in crisis,
- by a board of directors that can in principle ensure that the institution pursues the interests of the international community effectively and consistently across member, and
- by a ministerial committee (the IMFC) – where all members are represented – that could in principle act as the country forum for policy dialogue and coordinate all the international agencies involved in financial policy.
Of course, reforms would have been required to make the IMF’s governing bodies more legitimate and better able to perform the above functions effectively. In this regard, comprehensive proposals have been submitted by the Group of Lecce to the Leaders of the G20, prior to their London and Pittsburgh summits, intended to reform the IMF in order to place it at the core of global financial policy.
Representation and the Financial Stability Board
The reality has been very different, however. The G20 has envisioned only minor changes for the IMF’s mandate and governance, while attributing significant responsibilities to the FSB. Yet, unlike the Bretton Woods institution, the FSB remains an agency with a very restricted membership (it mirrors that of the G20 and does not involve indirect representation of the non-G20 countries). Moreover, it does not bear accountability to the IMFC, which, as ministerial committee with universal representation, would be the only appropriate global governance body with oversight responsibility over international financial policy cooperation. The FSB has been asked to report periodically to the G20 Leaders, but this implies that it is not responsible to the broader community of world nations. Also, the G20 Leaders, as a group, do not necessarily possess the technical competence to engage the FSB on policy substance (Kawai and Pomerleano, 2009).
In any event, since the FSB has taken such a prominent role, the greatest contribution that its highly experienced and reputed chairman Mario Draghi could make would be to persuade the Leaders to make the agency as participatory and transparent, and its membership as open, as possible.
Regrettably, the world – after the greatest financial meltdown of the last eighty years –remains very distant from the true spirit of Bretton Woods, which – ironically – has so often been invoked early during the crisis to inspire a high profile reaction from our leaders. A huge opportunity has been lost.
Editors’ note: The author speaks for himself only. His opinions do not involve the institutions to which he is associated.
G20 (2009) Leaders’ Statement: The Pittsburgh Summit, point 19, September 24-25
Geithner, Timothy (2009) “Geithner: ‘L’era del controllo globale’,” Il Sole 24 Ore, 6 October, p.7.
Kawai, Masahiro and Michael Pomerleano (2009) “International financial stability architecture for the 21st century”, VoxEU.org, 31 July.