CHAPTER THREE - REFORMING THE BRETTON WOODS INSTITUTIONAL FRAMEWORK:
FROM ADAPTATION TO ACCOUNTABLE "REINVENTION"

8. MORE REPRESENTATIVE AND DEMOCRATIC GOVERNANCE

Finally, institutional reforms must address the governance structures of the IFIs. While the IMF and the World Bank have near universal memberships, their voting structures still represent past patterns of economic and political dominance more than equitable representation based on current realities and future trends. In the IMF, for example, each member gets an allotment of 250 votes, plus one vote for each 100,000 SDR of its assigned quota. But more than economic size is involved in this assessment. The developing-country experts who appeared before the Committee were especially critical of the increasingly unrepresentative nature of largely-unreformed weighted voting systems. Ariel Buira, Deputy Governor of the Bank of Mexico, in his testimony of 1 May, argued that based on the importance of national economies, it is hard to justify a situation in which, for example, Brazil, Spain and Mexico have smaller quotas and therefore fewer voting rights in the IMF than Belgium, The Netherlands and Switzerland. Such imbalances which disadvantage emerging-market countries are perceived increasingly as a major defect contributing to the present "dysfunctioning" of the overall system. A recent survey of the global economy by The Economist magazine gives support to this position with its observation that: "developing countries should have about 40% of the IMF's quotas ¾ exactly in line with their economic weight. But the distribution is wildly out of line. Asia is grossly underrepresented, with only a 9% share of quotas, compared with a 17% weight in the world on the basis of output, trade and reserves." 24 Addressing the problem of representativeness, John Loxley suggested :

. . . a tenfold increase in the basic bloc, so the basic allocation would move from 3% of total votes to 30% of total votes. The U.S. individual vote would drop from 17% to 13%, so it would lose its power of veto. The G-7 would drop its strength from almost 45% down to 33%. I think that would give us a fairly quick and easy way of strengthening the democratic nature of the international institutions, if there were that kind of interest. [21:12]

In the case of the World Bank Group, John Kirton wondered why it was necessary to have everything headquartered in Washington DC, and headed by an American national (in effect, as in the case of the Bank's next president, James Wolfensohn, designated by the U.S. president). And Gerald Helleiner observed from both long experience and recent anecdotal evidence, that for all the IFIs talk of "ownership" of lending programs by borrowing countries, in practice the real decision process is still one that is made-in-Washington, despite the high transaction costs for developing countries of negotiating IFI agreements. [16:26]

In addition to NGO calls for democratization of the institutions, several other witnesses indicated that parliamentary channels should be used more to help fill the "democratic deficit" within international organizations like the Bretton Woods institutions that, for better or worse, exercise governance functions affecting national economies. In Washington, John Williamson endorsed the idea of institutionalizing a multilateral parliamentarians' working group to monitor IFI performance and review issues. (The Chairman of the Committee attended such a multinational parliamentarians meeting on the IFIs, organized by a U.S. Congressman in Washington in November 1994. That group expressed a strong interest in pursuing the idea, although the subsequent turnover in the Congress may change that.) Professor Stephen Gill of York University argued for a reform that would raise the question:

How far and under what conditions can some democratic surveillance of the international financial institutions occur . . . One mechanism for it could be groups of parliamentarians actually exercising rights of review and scrutiny in a comprehensive way. Then they could really inquire into how decisions are made and under what conditions. [23:49]

Bringing full circle the issues of reforming the institutions' fundamental goals, streamlining and shaping up their practices, and making them genuinely representative and politically accountable, John Kirton made a powerful and extremely relevant case to the Committee:

We face a problem of obsolescent purposes, of outdated patterns of representation, and of inadequate procedures, and in some ways most fundamentally the question of inadequate political control by heads of state and government to address the reform challenges.

It is the latter point that I think points to the importance of the G-7 Summit in prompting a close scrutiny and an actual reform of the international system. [16:10]

Accordingly, the Committee recommends that the G-7 Task Force, in reviewing comprehensively IFI mandates, structures and practices, explore ways to make the governance of these institutions more representative of the respective contributions of their member countries to the world economy. In addition to examining the weighted voting structures of the IFIs, the Task Force should also seek ways to increase democratic oversight of IFI decision-making through involvement by parliamentary monitoring groups. Appropriately in this regard, consideration should be given to creating a G-7 parliamentarians working group on Bretton Woods reform that would be able to meet periodically with members of the Task Force throughout the duration of its mandate.