The recent IMF and World Bank spring meetings have confirmed the upgrading of the G-20 to the premier forum for global cooperation. In contrast to the flamboyant meetings of the past, the G-7 held only a very discreet dinner that went almost unnoticed. So let’s examine the main issues that were discussed at the meetings last weekend and developments of this past week.
At a full-day meeting last Friday, G-20 finance ministers began the initial phase of their adopted mutual assessment process by looking into the implications of their respective national policy frameworks. The discussion was mainly interlocutory and aimed at preparing the groundwork for the G-20 summit in Toronto in June, when leaders will be considering a starter set of policy options to implement.
This is the first multilateral exercise conducted on a global scale; one that includes the IMF as a trusted and strategic advisor but that, de jure and de facto, falls outside of the IMF’s own statutory framework. Not surprisingly, there were attempts to build a bridge between the IMF’s own ministerial committee (IMFC) and the G-20 through some ad hoc joint meetings on Friday and Saturday.
This has prompted some observers to propose the creation of a new IMF decision-making ministerial committee made up of the G-20 finance ministers. This would have the advantage of adding a constituency-based dimension to the G-20, thereby increasing its legitimacy and representation in light of the over 170 countries that do not have a seat at the table. This idea was also discussed and debated among participants at a recent high-level conference on the G-20, hosted by Brookings, the Korea Development Institute and the Centre for International Governance Innovation.
Clearly, for the above proposal to be feasible, the IMF’s membership would need to show remarkable progress on quota realignment and composition of its executive board in order to give a greater say to the world’s lesser-represented regions. But it would also need to significantly sharpen the accountability of the executive board’s constituencies, which is currently non-existent. Quite significantly, the G-20 has “urged the IMF to deliver the quota and governance reforms” by the time its leaders meet in Seoul in November.
The IMFC has reviewed the internal work done by the IMF on the reform of its mandate, which appropriately was the topic of discussion at a Brookings-IMF conference last week. The idea is to provide the IMF with more traction among member countries by upgrading its legal, financial and institutional framework. As noted by an IMF official, the articles of agreement never refer to the word “financial” except when it comes to the institution’s own financial accounts. This is increasingly at odds with the expanded focus and responsibilities of the IMF vis-à-vis the global monetary and financial system.
The World Bank
At Development Committee meeting, President Robert Zoellick secured support for his proposed capital increase, which will add $5 billion of paid-in resources and an overall increase in its capital base (including callable capital) of $86 billion. This will likely increase pressure on the World Bank to link its lending volume to better results on the ground, which has been a long-standing call of several the bank’s donors and shareholders. However, the capital increase needs to be complemented by a sharper vision of the bank's future, which should ideally leverage on a wider debate among shareholders and stakeholders alike.
The capital increase also shifts around 3 percent of the voting power from industrial to developing countries, whose overall voting share has now risen from 44 to 47 percent. This means that in a few more years from now the two groups of members will broadly achieve parity as far as their respective voting power is concerned.
Just a few days after the meetings, markets in Europe tumbled amidst evidence that the Greek crisis has now spread to other countries in the euro area, such as Portugal and Spain. An indirect confirmation that the Greek crisis is becoming “systemic” is the recent conference call between President Obama and German Chancellor Merkel, in which the White House pressed the Europeans for a timely and resolute response, exactly the opposite of what the Europeans have offered so far. It would appear that we are in for more and larger IMF programs in Europe in the weeks to come, and not just in Greece.
The Greek crisis is yet another example of how the globalization of financial and economic activities may quickly transmit shocks from one country to the others. This also highlights the fundamental asymmetry between the scope of today’s financial and economic activities and the underlying institutional framework. The first have become increasingly global but the second have remained national and, as Europe shows, not even regional.