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Multilateralism in action

Written by Simon Maxwell

A renewed commitment to multilateralism may be one of the benefits of the financial crisis. Coordinated action by Governments and Central Banks is one indicator of change. There are others.

For example, Douglas Alexander (the UK Secretary of State for International Development) gained a victory in Washington at the weekend, securing agreement that the next President of the World Bank should be appointed through open competition, rather than simply through US nomination. The Guardian reported that ‘Douglas Alexander, brokered a deal to throw open the post to candidates from any country. Backed by European governments and developing countries, Alexander overcame resistance from the US and Japan’. Good job. This is a long-standing item on the multilateral reform agenda.

There are other moves afoot. Robert Zoellick, President of the World Bank, announced in his speech to the Annual Meetings that he has appointed a High Level Commission chaired by former Mexican President, Ernesto Zedillo, to consider modernisation of World Bank Governance. The Communique from the Development Committee also contained important commitments on reforms to enhance voice and participation, including an additional Board seat for sub-Saharan Africa. The relevant paragraph previews additional changes and commits the Bank and its shareholders to change by 2011:

‘The package of reforms enhancing voice and participation of all developing and transition countries (DTCs) in WBG governance and work, brought forward by the Bank’s Board, addresses many aspects of voice and participation in light of the Monterrey Consensus. This is an important first step in the ongoing process of comprehensive reform. This package includes both concrete immediate steps and commitments to further work. An additional Board seat for Sub Saharan Africa on the Bank’s Board will be created. DTC voting shares in IBRD and IDA will increase, giving special emphasis to smaller members. Further realignment of Bank shareholding will be taken up by the Bank’s Board in an important shareholding review that will develop principles, criteria and proposals for Bank shareholding. The review will consider the evolving weight of all members in the world economy and other Bank specific criteria consistent with the WBG’s development mandate, moving over time towards equitable voting power between developed and developing members. The Board would develop proposals by the 2010 Spring Meeting and no later than the 2010 Annual Meetings, with a view to reaching consensus on realignment at the following meeting. There is considerable agreement on the importance of a selection process for the President of the Bank that is merit-based and transparent, with nominations open to all Board members and transparent Board consideration of all candidates. In addition, Bank Management has committed to continue enhancing diversity of management and staff and decentralizing decision-making. We asked the WBG’s Boards and Management to take prompt action to implement this agreed first step. We look forward to the periodic reports on progress and future proposals for a subsequent realignment of Bank shareholding as part of comprehensive reform.’

More generally, Robert Zoellick made ‘Modernizing Multilateralism and Markets’ the theme of his speech, with a strong plea for multilateral solutions to current problems. The most innovative idea is for multilateralism as network rather than as institution. He said:

‘The New Multilateralism, suiting our times, is likely to be a flexible network, not a fixed system.  It needs to maximize the strengths of interconnecting actors, public and private, profit-making and civil society NGOs.’

In practical terms, he recommended an alternative to the G-7: not a fixed number or membership, but a flexible group, built around the existing G-7, with a new Steering Group including Brazil, China, India, Mexico, Russia, Saudi Arabia, South Africa.  Importantly, though, ‘this Steering Group would not be a G-14. We will not make a new world simply by remaking the old.  It should be numberless, flexible, and over time, it could evolve.  Others may be added, especially if their rising influence is matched by awillingness to help shoulder responsibilities.’

Perhaps not surprisingly, Zoellick offered the World Bank, along with the IMF and perhaps the WTO, as the coordinating secretariat for this new initiative.
Meanwhile, of course, Gordon Brown has been pursuing his agenda for reform of the multilateral system, most recently on 13 October. Speaking at Reuters, he said:

‘we must build a new Bretton Woods, a new financial architecture for the years ahead. This crisis demonstrates beyond doubt that a global capital market requires much stronger global cooperation and supervision and we need to ensure that we have an effective global early warning system to alert us across continents to economic and financial risks, we need globally accepted standards of supervision that apply equally in all countries, we need stronger arrangements for a cross-border supervision of global firms, and if we have learned anything, much stronger institutions for cooperation and concerted action in a crisis. So the IMF and Financial Stability Forum should act as an early warning system, focused on crisis prevention rather than crisis resolution.  We need what global companies themselves have asked for – coordinated supervision to end the mis-match between global capital flows and only national supervision, and that is why by the end of the year I believe we should implement the proposals agreed by the companies themselves for colleges of supervisors to oversee cross-border financial institutions.  And action for financial stability should be accompanied by wider international cooperation on oil and energy policy and on macro-economic policy such as that which began last week with a coordinated European and American action on interest rates that should extend to Asia and to the rest of the world where it is necessary.’

Personally, I think all this is encouraging. As I remarked in a blog written back in June, momentum is building for reform of the international system. My one regret is that the role of the United Nations has not been more prominent. My own view is that the future of one institution is not independent of the future of others. If there is to be a new Bretton Woods conference, it should look at the totality of the global architecture. Thus, the UN would have a particular comparative advantage where issues required:

  1. Engagement by nation states;
  2. Universality;
  3. Political legitimacy;
  4. Formal accountability; and
  5. Inter-linking of political, economic, social and normative frameworks.

Our public meeting on 14 October with Jacques Diouf, the Director General of FAO, illustrated how important it is to have joined-up thinking, in this case on the food crisis – and also brought out the key role the UN can play.

The other leg of the multilateral system is, of course, the EU. As we have seen during the financial crisis, Europe works best when it works together. I will have an article in Europe’s World, probably on 20 October, which argues that the development agenda is moving rapidly in Europe’s direction, and that there will be opportunities for change in 2009.