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Are the Bretton Woods institutions reformable?

Date
Time (GMT +01) 12:00 13:15

Speakers:
Alex Wilks
, Bretton Woods Project
Dr Ngaire Woods, University College, Oxford
David Peretz, independent consultant
Chair:
Sir Tim Lankester

Alex Wilks opened by stating that he believed that the Bretton Woods institutions were reformable. However, he said it was important to ask 'In response to whose agenda?' and 'Who benefited?'. The people who drew up the plans for the World Bank and IMF - Harry Dexter White and Maynard Keynes - envisaged multilateral institutions in the true sense, making funding decisions based on neutral, analytical criteria. However, it rapidly became clear that the US planned to take charge, and this situation continued. Reform could take place, but would need US support. It was interesting in the current context that the US Treasury Secretary asked his senior adviser to develop the proposal for new international financial institutions just one week after the Pearl Harbour attack. The US was shocked out of a period of isolationism into military and institutional engagement with the world. Would the same happen again?

2. US influence on the IMF and World Bank was certainly not all malign (they had championed the Bank's information disclosure policy and Inspection Panel, for example), but it was doubtful that they would champion genuine multilateralism and democratisation. Indeed, the Bank itself was rarely willing to ruffle the feathers of the big five countries (including UK) which had permanent representation on its Board.?

3. Certainly, reform was needed, and desired by developing countries, to increase accountability. For example, 47 Sub-Saharan countries only had two representatives on the World Bank Board. In addition, the Bank was criticised for: ignoring the global causes of poverty; an undue focus on macro-economics; insufficient transparency (for example in publishing Project Appraisal Documents and Country Assistance Strategies); and undue institutional complexity. The mandate had become overly complex, and the Bank badly needed to focus on areas of comparative advantage. The calls for greater focus through reform seem to produce little beyond conferences and consternation' (Alex Wilks quotes Jessica Einhorn, former World Bank Managing Director, in Foreign Affairs).

4. In conclusion, Alex Wilks acknowledged that the Bank and Fund had implemented some genuine reforms. However, these had been too much led by rich countries, and had left the institutions with too many objectives and programmes

5. Dr. Ngaire Woods emphasised that we needed global institutions to deal with issues like the global slow-down, the management of global capital markets, debt crises, and world inequalities. How should such institutions be governed? Self regulation, as advocated for the private sector, was not appropriate, given diverse interests and stake-holders. Governance by experts, as found, for example, in the Financial Stability Forum, was unattractive for the same reason: it removed the essential political dimension from the difficult decisions about priorities and trade-offs. Governance by 'coalitions of the willing' was exclusionary. Thus, a multilateral approach to governance was essential.

6. Ngaire Woods agreed with Alex Wilks that reform was necessary, particularly in order to secure genuine legitimacy. This was more needed than ever, as the BWI delved ever more deeply into the governance and policy of individual states, advocating 'forceful and far-reaching reforms', and providing leadership with respect to capital market crises. Key elements of reform have already included: greater transparency and monitoring; judicial-style accountability like the World Bank's Inspection Panel for the IMF. Further reformers should consider: applying corporate governance principles, provisions for professional responsibility (opening the way to professional negligence cases); greater participation by developing country governments; more use of Committees within the IMF (e.g. the Committeee of Interpretation, where every country had one vote); and decentralisation of research and monitoring functions to individual developing countries.

7. Would reform happen? Two conditions needed to be met. The first was a set of good ideas, of which there were many. The second was a crisis to force change. Probably more crises would be need to secure US engagement, to encourage European countries to press for large-scale reform, and to encourage developing cuntries to use their voices effectively.

8. David Peretz, spoke as an independent. He provided a written summary of his intervention. The Bretton Woods institutions certainly were reformable and had already re-invented themselves several times since they were established 55 years ago, in response to changing circumstances. The original functions of the Bank and Fund were to oversee a global fixed exchange-rate system to provide temporary balance-of-payments support and long-term finance for public sector investment at a time of near-universal exchange controls, and near-zero private capital flows. We now have global financial markets. There is no shortage of private finance for good sound investment opportunities - in the public or private sector - wherever they are. There are no exchange controls in the advanced countries, and increasingly, few in emerging markets. The Bretton Woods' fixed exchange rate regime has broken down. Our understanding of what makes for economic success has changed, too. Now macroeconomic policy - still the area of the IMF's expertise - is seen to be largely about controlling inflation. Important, necessary for growth - but not in itself the driver of growth or successful development. Good structural policies - the area of expertise of the Bank - are seen to be the drivers of growth and development, and indeed as necessary for long-term financial stability. And growth itself is seen as necessary but not sufficient for poverty reduction.

9. David Peretz argued that there were important changes underway: recognition of the importance of country ownership; an understanding of the complexity of the development process; and a move from secrecy to transparency, in both he World Bank and the IMF. Further change was needed, of course. David Peretz pointed particularly to: closer Bank/Fund co-operation; a clearer demarcation between programmes designed to tackle short-term crises, and those needed for successful long-term development; and also issues of representation and accountability - both of institutions to their shareholders and accountability of shareholder Governments to their Parliaments and electorates. As a practical example, he pointed out that votes on the BWI Boards were weighted by GDP, currently using nominal figures. Chanign to Purchasing Power Parity figures would double the developing country share of the vote. Presentation notes

10. A number of points were raised in the discussion:

  1. On policy, some felt that the BWI policies were still very unsatisfactory. For example, the World Bank appeared to be doing too little on growth and growth-enhancing institutions, and to be neglecting the need for much larger resource transfers. This was disputed by others, who pointed out that the World Bank had called for a doubling of aid flows, and was currentlty engaged in negotiations for the latest IDA replenishment, with a target in excess of $US 20 bn.

  2. On the actions of the Ban at country level, one participant thought it had a monopoly of power, which was used to bully developing countries. The notion of a monopoly was disputed, by others, who argued that there was very close consultation among donors at country level.

  3. On governance, again, some observers thought that the US stranglehold had not been broken: for example, a committee had been set up to investigate the selection process for the President of the World Bank, but the US had refused to surrender its right to appoint the President. Others argued that the committee had achieved other things, for example, a process for agreeing the job description and capabilities required for the post.

  4. Various proposals were made to improve the sense of ownership and accountability of the BWI. Scrutiny by parliamentary select committees was one idea. Recording and publishing votes at Board meetings was another

Simon Maxwell / Diana Evans

Description

During this event the Bretton Woods institutions were discussed to discover whom it benefitted.