Time to Break the Golden Rule

As the incumbent president of the World Bank Robert B. Zoellick prepares to complete his five-year tenure in July this year, nominations have been announced to succeed him. Given the fact that emerging developing countries have increased their international clout with gradual shift of center of economic gravity to them, some able and first rate candidates have also been fielded representing such countries. Whether all the emerging economies of the twenty-first century in which they account for significant percentage of world economy and sizeable global population, will be united behind one potential candidate to represent them and break the so-called gentlemen’s agreement followed in selecting the chief of the World Bank is still uncertain.

The golden rule so far adhered to since the inception of the global financial organizations, otherwise known as the Bretton Woods institutions, in choosing the president of the World Bank and the managing director of International Monetary Fund (IMF) is that the American and European nominees get those slots. The election for these posts are apparently held but the reality is that on account of majority of voting shares enjoyed by the U.S. and European countries, there is almost zero possibility for non-American and non-European candidates to win the top-most positions in world’s premier financial institutions.

Calls for introducing suitable reforms in global economic governance especially in the selection procedures of World Bank president and IMF’s managing-director have not been new. Such clamors were frequently heard before and more recently last year when then managing-director of IMF Dominique Strauss Kahn had resigned owing to sex scandal and his successor had to be chosen. Although the world community and the emerging and developing countries, in particular, had an opportunity to break the golden rule by fully backing one competent third world candidate to fill the post of IMF chief, it was unfortunately squandered as no single nominee was proposed to represent developing countries. Consequently, the former French finance minister Christine Laggard got the coveted post reinforcing the unjust golden rule of having a European head of the IMF.

In the present race to lead the World Bank a few notable candidates have been presented. Some of them represent the developing countries. One of them is an insider with working experience with the World Bank and another one is equally capable hand full of developmental experience of UN. Do they have the chance to set a new precedent in world’s old financial institutions that have shaped the global economic architecture and governance for more than six decades? It is less likely that the precedence will be ignored as Obama administration has not been willing to give an opportunity of leading the World Bank to emerging and developing countries. President Obama’s nomination of Jim Yong Kim for the World Bank presidency substantiates this prediction.

Against this backdrop the fourth summit declaration of the BRICS (Brazil, Russia, India, China and South Africa) countries issued on March 29, 2012 at Delhi carries some significance. In that declaration BRICS call “for a more representative international financial structure, with an increase in the voice and representation of developing countries and the establishment and improvement of a just international monetary system that can serve the interests of all countries.”

Conforming to this the Nobel laureate and world famous development economist Joseph E. Stiglitz in his recent commentary “Whose World Bank” has reemphasized the need for changing the gentleman’s agreement and the introduction of merit-based selection process in an international development institution such as the World Bank. He favors both the nominations of the Nigerian Ngozi Okonjo-Iwela and the Colombian Jose Antonio Ocampo whose credentials are undisputedly established on the basis of their diplomatic skills and professional expertise. The Nigerian lady has had served as the World Bank director besides holding the post of her country’s finance minister. Similarly, Jose Antonio Ocampo has gained firsthand experience as an Under Secretary-General of the UN taking charge of economic and social affairs. Moreover, his professorship at Columbia University makes him more suitable for the said job.

The above explanation is not meant to undermine the American nominee Dr. Jim Yong Kim, who has contributed as a development professional having worked with UN/AIDS but is it not right time to review the anachronistic precedent of imposing the decision of the countries wielding greater voting shares on the selection of global institutions like the World Bank and the IMF.

It is a foregone conclusion that should the Europeans toe the American line as expected when the latter’s choice of French finance minister was supported by the U.S. for heading the International Monetary Fund, Jim Kim will grab the post of World Bank president considering the majority of votes belonging to them. With its 16% of voting shares the U.S. can easily gather simple majority which is 50% assisted by the Europeans. In choosing the president of the World Bank super majority of 85% is not required and simple majority is enough to get elected.

Notwithstanding the ground reality there is a pressing need for enhancing the flow of development finance to emerging and developing countries. As rightly pointed out by the BRICS countries the World Bank should give greater priority to mobilizing resources and meeting the needs of development finance and reduce lending costs and adopt innovative lending tools. Seen from the prism of Nepal, a Least Developed Country, such reorientation of policy is essential.

Furthermore, the new leadership of the World Bank must commit to transform the bank into a multilateral institution that truly reflects the vision of all its members. Current economic and political reality must get reflected in the governing structure of the Bretton Woods institutions. Let the world leaders realize this and start working to help shift the World Bank from an institution that essentially mediates North-South Co-operation to an institution that promotes equal partnership and overcome an outdated donor-recipient dichotomy.

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