Too opaque for comfort

There is a serious mismatch between global realities and the World Bank's governing structure

Published: Monday 31 October 2005

Too opaque for comfort

-- The World Bank (wb) has 184 member countries, but only one, the us, selects its president. In March 2005, the Bush administration anointed Paul Wolfowitz -- architect of the 2003 us invasion of Iraq -- to this critical post. This appointment has reinforced the perception that the us views the wb as an instrument to underwrite its geopolitical and economic interests.

Since its founding in the aftermath of the Bretton Woods agreement of 1944, the wb has by unwritten custom always had a us citizen at its helm. As economist Catherine Gwin notes, "This prerogative was initially granted not only because the us was the Bank's largest shareholder but also because it was the key guarantor and principal capital market for Bank bonds". us control, it was reasoned, would instill confidence in Wall Street -- the New York-based financial hub of the us -- to invest in securities: a principal source of wb funds. However, capital markets have long since gone global, and the Bank has diversified its portfolio. But the wb' s institutional grid has not undergone any change. As Devesh Kapur, associate professor of governance, University of Texas, usa, points out, "Less than a quarter of the current members of the International Monetary Fund (imf) and the World Bank were present when structures of these institutions were crafted. Developing nations joined gradually over the years, but did so as rule takers rather than rule makers. ... With the passage of time, the mismatch between the antiquated structures of multilateral institutions and their larger global environment has increased -- and so have tensions".

Obsolete structure The wb is structured like a publicly held corporation: the largest shareholders possess the most votes. But the us -- the single largest shareholder with 16.4 percent of votes -- is the only member that can veto important decisions. And, just seven countries (us, uk, Germany, France, Italy, Canada and Japan) possess 43 per cent of the voting power.

24 executive directors represent the Bank's 184 members. They oversee the day-to-day operations of the wb, approving all lending operations, policies, strategies and budgets. Five of these directors come from the us, Germany, France, Japan and the uk: the Bank's five largest shareholders. Three chairs are awarded to China, Russia and Saudi Arabia. The remaining 176 member governments have to make do with 16 "multi-constituency" offices. This governing structure creates major inequities. For instance, 46 sub-Saharan African countries -- targets of 464 wb projects -- hold only 5.4 per cent of the voting shares on the wb' s board and just two directors represent the region.

It's no surprise that civil society groups all over the world recognise an urgent need for greater democracy in the governance of the Bank and other global financial institutions. Borrowing countries have also argued likewise. The economic liberalisation programmes followed by many countries since the late 1980s have made governance reforms at the Bank even more necessary. The liberalisation programmes have been accompanied by greater interference by the Bank in affairs of borrowing countries. As the international relations expert Ngaire Woods notes: "[t]his new, wide-ranging domain of advice and conditionality directly affects a broad swathe of policies, people, groups and organizations within countries. Yet, the imf and the World Bank were neither created nor structured to undertake or be accountable for such far-reaching activities". Even the Bank's last president, James Wolfensohn noted that the way the institution chose its leader was deeply flawed. However, despite pledges to the contrary, the us government pursued a highly secretive process in selecting Wolfowitz: no disclosed criteria, no lists of candidates, no process for concerned citizens to engage. Leaks and rumours were the only way citizens could gain an idea of who would assume the reins of this powerful multilateral institution.

The choice of the wb president is far too important to be left in the hands of one country. In recent years, the Bank has increasingly prescribed "good governance" as the core element of its lending programmes. The institution -- and the us government -- would be well served to take some of its own medicine.

Bruce Jenkins is with the Bank Information Centre, Washington dc , usa. N ancy Alexander is with the Citizen's Network for Essential Services, Washington dc, usa

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