Old order in a new world: World Bank fails to respond to multipolarity
13 April 2011
"If 1989 saw the end of the ‘Second World’ with Communism’s demise, then 2009 saw the end of what was known as the ‘Third World’. We are now in a new, fast-evolving multipolar world economy – in which some developing countries are emerging as economic powers; others are moving towards becoming additional poles of growth; and some are struggling to attain their potential within this new system."
Speaking a few days prior to the 2010 Spring Meetings in Istanbul, Zoellick argued that the advent of “a new, fast-evolving multipolar world economy” required fundamental reforms of the World Bank itself, not least in terms of the balance of power between developed countries and emerging powers.
At the core of these ‘fundamental reforms’ were a package of allegedly wide-ranging proposals on voice reform. The objective of these proposals was to enhance the voice and participation of developing and transition countries (DTCs), particularly through an increase of their voting power. If the “economic and political tectonic plates are shifting” so too must the World Bank, Zoellick explained.
On the one-year anniversary of these voting power reforms, DIIS releases a report that addresses the extent to which the reforms undertaken measured up to Robert Zoellick’s rhetoric: to what extent may the voice reform process be said to have reshaped the governance of the World Bank so as to bring it in line with the realities of the global economy? The main findings of the report are rather discouraging:
First, the voice reform process accomplished a total shift of voting power of 4.59 percentage points from developed countries to developing and transition countries (DTCs). This was a modest voting power realignment, both in view of the various options considered in the negotiation process and from the perspective of the alleged objective of realigning voting power with the realities of the rapidly evolving ‘multipolar’ world economy. So small were the shifts of voting power (for the vast majority of countries) that one observer depicted the voice reform as ‘compromises of the third decimal point’.
Second, and closely related to the first point, ‘voting power to GDP’ ratios in the World Bank remain unbalanced despite the oft-cited principle that voting power should ‘largely reflect economic weight’. This means that a number of small European countries and a few large DTCs have disproportionately large amounts of voting power, while several dynamic emerging market economies, including not least China, continue to be significantly under-represented.
Third, despite repeated assurances to the contrary, low-income countries as a group lost voting power in the second phase of the voice reform process, thus eroding some of the gains they made in the first phase. This reflects a general pattern in which the interests of the poorest countries were increasingly marginalized in the course of the voice reform process. The culmination of this trend was the decision not to undertake an additional increase of basic votes as part of the second phase of the voice reform, which meant that the share of basic votes in total votes remains only roughly half of what it was when the World Bank was established in 1944.
Fourth, the voice reform process has made no headway with respect to the future shareholding reviews that shareholders have agreed to undertake every five years. On the contrary, part of the bargain made was that the quota framework which informed the voting power realignment specifically cannot be a point of departure for the 2015 shareholding review. A number of crucial issues – such as whether the overall objective of future shareholding realignments should be voting power parity between developed countries and DTCs, and whether and how IDA contributions should be recognized in future IBRD shareholding – therefore remain unresolved.
This leads directly to the fifth and last finding of the study, and one of its key policy recommendations. The fact that member countries have a veto over any decrease in their relative share of World Bank (IBRD) shareholding, through the pre-emptive rights guaranteed in the Articles of Agreement, was and will be detrimental to any process of adjustment of World Bank governance to the rapidly changing realities of the global economy. A change of the Articles on this point is essential, therefore, to its future viability.