Aarhus University

Flawed Agents of the

Contemporary Global

Economic Governance: What role for the IMF, WB and WTO?

Balazs Ujvari 2011 Fall semester

1

Introduction

The paradox of our times can be stated simply: the collective issues we must grapple with are

of growing extensiveness and intensity and, yet, the means for addressing these are weak and

incomplete.1 The primary ‘means’ which have been dedicated to tackle contemporary

challenges confronting political leaders since the early 1990s is the political interaction of

transnational actors: the global governance.

Global economic governance encompasses the institutions, norms, practises and decision-

making processes that generate rules, guidelines, standards, and codes arise with the purpose

to manage the global economy. It follows that the emerging pattern embraces a rich mixture

of actors and processes. Vying for influence and control are powerful and less powerful states,

experts, transnational corporations, non-governmental organizations, international institutions,

and other actors. Each has a view of what should (or should not) be subject to international

regulation.2

Of the above mentioned actors in the global economic governance landscape,

intergovernmental cooperation (multilateralism) is unambiguously the most widely applied

approach by way of governments have responded to globalization3. Multilateralism emerges

because governments see it as a way to share and pool resources, reducing transactions costs

and enabling a concentration of the expertise and capacity necessary to achieve particular

kinds of international policy. In other words governments set up international institutions to

promulgate their national interests in a cooperative way. In doing so, they delegate some

power to international agencies of their own making. The result is multilateral agencies which

– in theory – ensure mutual benefits are gained from globalisation and the losses are

compensated.4

The existing multilateral institutions have undoubtedly made important contributions to the

unprecedented progress and economic growth that many countries have enjoyed since the end

of the Second World War. However, the challenges of globalization today cannot adequately

be handled by a system that was designed largely for the world of more than half a century

1 HELD, David (2005): Reframing global governance: Apocalypse soon or reform!

2 HELD, David – MCGREW, Anthony (2002): Governing Globalization, pp. 26

3 HELD, David – MCGREW, Anthony (2002):ibid, pp. 29

4 HELD, David – MCGREW, Anthony (2002):ibid, pp. 29-31

2

ago.5 It is argued that the world economy is currently looking more precarious, more unequal

and less governed than it has been in previous decades, which is in part because governance

within the global economy has not kept up with globalization and growth. Therefore,

globalization is having an uneven impact which current global arrangements seem to be doing

little to mitigate.6

This paper intends to emphasize one of – if not – the most significant drawbacks of the

present form of global economic governance. This shall be carried out through focusing solely

on three organizations which I think are the major pillars of the contemporary

intergovernmental cooperation in regulating the global economy: the International Monetary

Fund (IMF), the World Bank (WB) and the World Trade Organisation (WTO). Due to the

immensity of the topic in dispute which could be discussed on hundreds of pages, this paper is

exclusively concerned with the institutional nature of the above mentioned intergovernmental

organisations (IGOs) embracing three aspects of their operation: institutional role,

representation of countries and decision making. The aim of the analysis is to point out and

argue that the IMF, WB and WTO are alike flawed in terms of their current governance

structures and roles, accordingly ineffective at being the principal ‘agents’ of the global

economy.

The first chapter concisely reviews the establishment of the Bretton Woods Institutions and

GATT with a particular emphasis on their original mandate and the role they were taking

from the 1950s onwards.

The second chapter proceeds with highlighting the main problems of the present form of

global economic governance in the context of IMF, WB and WTO. The focus shall be put on

the shift in the roles they have taken and the activities they have pursued in the recent years as

well as the inequitable decision making process and representation system that has

characterized them.

The third chapter portrays the characteristic of effective global economic governance stressing

those common principles upon which the comprehensive, joint and simultaneous reform of

5 Yale Center for the Study of Globalization, 2011.

6 WOODS, Ngaire (2008):Governing the Global Economy: Strengthening Multilateral Institutions.

3

the three intergovernmental organisations should be based. A number of specific reforms

which may lead to higher degree of institutional efficiency are also outlined.

1. The premises of global economic governance

After World War II, a set of institutions were constructed – reflecting primarily the interests

of the United States – through the rhetoric for enhanced management of the world economy as

means to promote prosperity and peace via economic renewal. Unlike the economic

nationalism of the 1930s, the new system rejected bilateralism that led to a shift in approach

to global economic management: the multilateralism.

The system rested upon domestic political economies that were interventionist. There was no

automatic adjustment as in the gold standard nor was free trade unrestricted. The goal was to

create a system that had liberal attributes, but did not undermine domestic stability. The order

could be termed ‘embedded liberalism’ based on Keynesian principles denoting both the

underlying liberal principles and the historic compromise with labour that permitted state

intervention to secure domestic interests.7

The International Monetary Fund was designed to promote international monetary

cooperation through supervising, consulting and collaborating on monetary problems. It was

also intended to facilitate world trade expansion and thereby contribute to the promotion and

maintenance of high levels of employment and real income. Furthermore, the IMF would

ensure exchange rate stability to avoid competitive exchange depreciation as well as eliminate

foreign exchange restrictions and assist in establishing systems of payment for multilateral

trade.8

The World Bank (also known as IBRD - International Bank for Reconstruction and

Development), at the outset, was primarily in charge of assisting in the economic and

industrial reconstruction of Europe, as well as promoting industrialisation in developing

countries, by facilitating the investment of capital for productive purposes. Unlike other

specialized United Nations agencies, the bank raised funds through private financial markets

and received donations on a regular basis from the world’s wealthiest countries. Therefore,

7 O’BRIEN, Robert – WILLIAMS, Marc (2010): Global Political Economy, pp. 129

8 DAMMASCH, Sabine (2007): The System of Bretton Woods: A lesson from history.

4

the institution’s major role would be to act as a mediator between governments in need of

financial resources for the purpose of development and reconstruction; and to provide funds at

low interest rates to national governments. 9

As an important point of reference when discussing the recent function of these institutions, it

is notable, that one of the substantial ‘conditions’ in coming to agreement for the

establishment of the Bretton Woods institutions was paradoxically to protect the national

sovereignty of those countries who resort to the resources of both IMF and World Bank. The

original IMF Articles of Agreement adopted in 1945, for instance, clearly protect the national

sovereignty of borrower countries by allowing them to pursue their own economic and

political goals.10

Although the need for a comparable international institution for trade to complement the IMF

and the WB was recognized at the Bretton Woods conference, the attempt to create the

International Trade Organization failed. Instead, the General Agreement on Tariffs and Trade

(GATT) came into effect in 1947 on a provisional basis with the main purpose of reducing

barriers to international trade which would be achieved through the reduction of tariff

barriers, quantitative restrictions and subsidies on trade via a series of different agreements.

The system, nevertheless, was simply about negotiating market access at the border for trade

in goods and driving countries towards the path of free trade.11

Once again, the process preceding the Bretton Woods conference and the conference itself

was not free from ambiguity. Taking a critical glance at the procedure may reveal the

historical roots of today’s global economic governance problems. The substantive agreements

had been negotiated prior to the conference dominated by the US and UK who only involved

a selected group of countries. Therefore the conference itself was rather about presenting

previously drafted proposals that reflected the interests of the most powerful countries, than

coming to agreement in an equitable manner involving all shareholders. Subsequently, the

allocation of quotas happened in a way which was favourable to developed countries allowing

them dominance (primarily to the US due to its veto power) in both the IMF and the WB. This

9RUGER, Jennifer Prah (2005): The Changing Role of the World Bank in Global Health, American Journal of

Public Health, 95:1. 10

SOLIMANO, Andrés (2000): Can Reforming Global Institutions Help Developing Countries Share More in

the Benefits from Globalization? 11

NAYYAR, Deepak (2002):The Existing System and the Missing Institutions.

5

approach would lead to increasing concerns about the effectiveness of multilateral institutions

with regards to permitting the representation of interests for less powerful countries and

applying appropriate, equitable decision making processes. The following chapter proceeds

with taking a closer look at these sources of inadequacy as well as identifying other factors

that account for the failure of the contemporary scheme of global economic governance.

2. Why are the IMF, WB, and WTO flawed?

The previous chapter has indicated the roots and the main ‘pitfalls’ of the contemporary

economic governance together with the characterization of the nascent system that Richard

Peet describes as follows: ‘In the second globalisation of the late twentieth century, US

institutions have come to precariously manage international economic relations, with the US

dollar as the currency of account, Wall Street as the main centre of political power and

Washington, DC as the corresponding centre of political power…The second globalization

learns, however, from the collapse of the first globalization in the Depression of the 1930s,

that nationally based institutions cannot suffice…Hence Bretton Woods, the IMF, the World

Bank and the WTO…greatly influenced, but only partly disciplined, by American political-

economic and political militaristic power’.12

In other words, the initial structures of managing

international relations among states after World War II reflected political motivations rather

than any unfeigned commitment to setting up a comprehensive framework for governing the

global economy on an equitable basis.

Henceforth I shall argue that the above described approach has maintained its existence and

undermined the effectiveness of the contemporary global economic governance. In doing so,

my focus shall continue to be put on the IMF, WB and the WTO with regards to their shifting

role (compared to the original mandate), decision-making process as well as equal

representation of member states.

2.1. Changing institutional role

Over the course of half a century the roles of three core institutions have undergone drastic

transformation in response to changes in the economic realities and the dominant economic

12

PEET,Richard(2007): Geography of Power: The making of Global Economic Policy, pp. 24-25

6

thinking. As a result of the shift to the floating rates system in 1973, the relatively tranquil

Bretton Woods approach of fixed exchange rates with infrequent adjustments gave way to

much greater exchange rate variability. After the abandonment of the Bretton Woods system,

the IMF and the Bank evolved into agents of structural reform for debt-ridden developing

countries, with loans as inducement and conditionality as the weapon.13

The noteworthy point

here is that, as opposed to their original mandate (described above) both institutions have

moved beyond their original mandates. Consequently, they have failed to protect national

sovereignty disabling countries to maintain their own political and economic interests.

The IMF has moved – You contends – closer to development financing embarking on a path

of structural reforms for the borrowing countries, thus stretching its mandate by arguing that

these reforms would strengthen the countries’ prospects for growth and thereby reduce

exchange rate instability and the need for IMF assistance. As chief architect of adjustments

programmes, the Fund incorporated a whole range of structural reforms. 14

In Joseph Stiglitz’s

– formerly the chief economist of the World Bank – words, the Fund operates more like a

bureaucratic cabal than an international rescue team. In theory, the IMF supports democratic

institutions – Stiglitz charges – in the nations it assists, whereas in practice, it undermines the

democratic process by imposing policies.15

The World Bank, on the other hand, began to grant loans for balance of payments support and

introduced structural adjustment lending. Furthermore, in an effort to tackle the deepening

economic problems of developing countries, it launched in earnest its programme of reforms

to eliminate structural rigidities and improve incentives. The structural adjustments loans

differed from past lending modalities in their focus on balance-of-payments rather than on

specific projects or sector reforms, and introduction of explicit and detailed stipulations, as

well as greater commitment on the part of the Bank to enforce these.16

The shift towards development financing and structural reform in the IMF and the increase in

the role of the World Bank for balance-of-payment support and policy reform led to an

overlap in their activities. Simultaneously, the views of these institutions on developing

13

YOU, Jong Il (2000): The Bretton Woods Institutions: Evolution, Reform and Change. 14

YOU, Jong Il (2000): ibid. 15

DOYLE, Michael (2005): The liberal peace, democratic accountability, and the challenge of globalization. 16

YOU, Jong Il (2000): ibid.

7

countries were seen as progressively converging that resulted in the ’Washington Consensus’

that still features their activities in many of the developing countries.17

The transformation of the GATT into the WTO also represented a paradigm shift. The GATT

system – as written above – was simply about reducing barriers to trade through negotiations.

In sharp contrast, the WTO seeks to impose binding multilateral disciplines with a common

enforcement mechanism, on domestic economic policies.18

In other words, the trend which

has been seen since the foundation of organisation is to regulate sovereignty away from

national governments to a global model of regulation (deregulation) that predominantly

reflects the developed countries’ interests. Accordingly, likewise the IMF and WB, there has

been a shift from the original mandate (GATT) towards the incorporation of particular areas

into the WTO’s own regulatory system.19

Besides that, the liberalisation has laid on a highly unbalanced basis. It follows that the

process tends to be more dynamic in those areas (e.g. services and property rights) which

account for the interest of developed countries, particularly those of the US and the EU.

Contrarily, areas constituting the interests of developing countries (e.g. agriculture, textiles

and movement of labour) remain restricted. Hence, the concept of WTO-led trade

liberalisation – in contrast to the classical neoliberal argument – appears far from being

universally beneficial, as the least powerful nations have experienced increasing

marginalization from the world trade rather than a rise in their share of it.

As I have pointed out above, the cooperation between the WTO, IMF and WB seems to have

been on the rise. The shifting role of the IMF and WB towards promotion of structural reform

programmes and other liberalization reforms as conditions on loans, can be seen as a ‘means’

of reinforcing WTO trade liberalization objectives.20

This cooperation, however, rather

appears to be a cabal of powerful actors in the global economy following an agenda of

convergence. It encompasses the extension of a flawed model of development based on trade

liberalisation via the WTO’s accession requirements as means leading to growth and poverty

17

YOU, Jong Il (2000): ibid. 18

NAYYAR, Deepak (2002): ibid. 19

LUNDE, Leiv (2000): Coherence or dissonance int he international institutional framework: Overlapping

Responsibilities. 20

ROWDEN, Rick (2001): IMF-WB-WTO – Synthesis Report.

8

reduction; and the penetration of national borders to eliminate alternative models of

development on the grounds of national interests and needs.

2.3. Representation of member states

Despite the dramatic change in the institutional role of the Fund and the Bank, their

governance structure has not undergone significant transformation over the previous

decades.21

One of the main problems multilateralism faces in the contemporary world –

argues Held and McGrew – is that not all governments accept that their interests are best

pursued through interstate agencies such as the IMF and the World Bank. The most powerful

states in the world economy enjoy the luxury of being able to ‘shop around’ for the arena in

which they can best achieve their ends. Sometimes this means turning their back on

multilateralism and pursuing their goals through private-public alliances, regional, unilateral

or multilateral means. So too, developing and emerging countries argue that they are

underrepresented and ill-served by these organizations, which too often act like ‘rich men’s

clubs’.22

It is obvious – suggests Helleiner – that current governance arrangements for the global

economy do not even remotely reflect the democratic principles that most analysts and

countries espouse, at least in their theory and rhetoric. Until now, such global economic

governance as exists has been profoundly undemocratic. The people of the developing

countries, accounting for over 85% of the world’s population, are severely under-

represented.23

The Fund and the Bank are alike headquartered in Washington, DC, and are owned by their

187 member countries. The majority – approximately 40% – of all votes are held by just 7

countries (the G7). The US holds the largest share at nearly 17%, which provides the country

with the ability to veto policies that do not serve US interests. Votes are allocated according to

financial strength (‘one dollar one vote’), resulting in those financially powerful countries

determining the monetary, economic and development architecture of the global economy.24

21

LE FORT V, Guillermo (2005): Issues on IMF Governance and Representation: An Evaluation of Alternative

Options. 22

HELD, David – MCGREW, Anthony (2002):ibid, pp. 29-30 23

HELLEINER, Gerald K. (2000): Markets, Politics and Globalization: Can the Global Economy Be Civilized? 24

MAKWANA, Rajesh (2005): Decommissioning the IMF, World Bank and WTO.

9

Thus the existing global economic system places developing countries squarely at the mercy

of G7 foreign interests, notwithstanding the WB and the IMF are much less reliant now on

wealthy country contributions than they were in the weak of their foundation. As repayments

of existing loans constitute a significant proportion of the World Bank’s income, the case for

developed countries’ dominance of the World Bank and the IMF board has weakened.25

The WTO is, constitutionally, a democratic organisation with an equal share of votes

distributed to all the 144 member nations regardless of their economic power. Yet the

developing nations – who make up three-quarters of the WTO membership – still find

themselves unable to exercise their democratic rights in WTO global trade negotiations.26

The

top body is the Ministerial Conference, which meets every two years. The day-to-day

workings of the WTO are carried out by the General Council, which conducts its meetings in

the WTO headquarters in Geneva. Membership of the General Council is open to

representatives from all its members. The General Council also meets in the guise of the

Trade Policy Review Body and the Dispute Settlement Body (DSB). Below the General

Council are the Councils for Goods, Services and Trade Related Aspects of Intellectual

Property Rights (TRIPS), along with Committees that report directly to the General Council.

In theory, representation at all three levels is open to all members of the WTO.27

Concluding the above written arguments, it can be clearly seen that the representation of

member states is far from being truly equal in each of the three core institutions, especially in

the IMF and the WB. In contrast to them, the WTO is a so called one-member-one-vote

organisation. One, however, cannot deem its voting mechanism even-handed in terms of the

share of influence on decisions among developed and developing countries, until the applied

decision-making process of the organisation is analysed. The next chapter proceeds with

taking a closer look at the way how decisions are made in the discussed IGOs.

2.3 Decision making process

Likewise the determination of voting power, the decision making on key global economic

issues remains highly concentrated in the major industrial powers and the main international

financial and trade institutions which they control. The selection processes for the leadership

25

HELD, David (2004): Global Covenant: The Social Democratic Alternative to the Washington Consensus, pp.

66-67 26

MAKWANA, Rajesh (2005):ibid. 27

NARLIKAR, Amrit (2001): WTO Decision-Making and Developing Countries.

10

of key multilateral financial institutions show zero regard for the principles of due process

that at least, to some degree, are found within democratic nations or even within many large

private corporations.28

The very first phase of the decision making process is to set the agenda which may already be

highly influenced the most powerful states, usually the G7 countries. They also have

considerable influence over determining the framework within which a certain issue will be

discussed and designating the appropriate existing body to engage in it. Within institutional

framework, the major influence is held by the same countries that enforced the issue to the

agenda.

In the two Bretton Woods institutions, the staff fills a crucial part in influencing the agenda. It

prepares everything that comes to the board as it works with governments in tailoring

conditionality proposals to be enforced. The staff is overseen by the head and senior

management of each organization. In theory the whole Executive board elects the head of

these organizations. In practice, however, the World Bank traditionally gets a president

nominated by the United States whereas the IMF Managing-Director nominated by Western-

Europe. Accordingly, the overall perspective of any successful candidate is never incongruent

with views of the major appointing shareholders. Their powers derive from the fact that the

head of both the IMF and World Bank chairs Executive Board meetings, sets agenda, directs

discussion, and sums up at the end. Looking at the chain lower down, it is notable that IMF

and World Bank personnel are not hired according to formal or informal quotas to ensure that

all countries are represented. Nevertheless, the meritocracy of a non-nationality-based

appointment system that attracts well trained graduates from the world’s top economics

department leads to a paradox as the overwhelming majority of them can be found in most

powerful member states (North-America and Western Europe). Consequently, the ideological

mindset of the institutions is reflected at all levels of their organizational structure that ensures

accordance on most issues.29

The formal voting power, in case of both the IMF and the WB, is determined by a formula

assigning primary weight to economic strength with the result that their governance is by far

the least democratic of the major multilateral organizations. Whereas developed countries, as

28

HELLEINER, Gerald K. (2000): ibid. 29

WOODS, Ngaire (2006): Bretton Woods Institutions

11

defined by the World Bank, account for only 17% of voting strength in the United Nations,

24% in the WTO, and 34% in the International Fund for Agricultural Development (IFAD),

they account for 61–62% in the World Bank and IMF.30

The 187-member executive board of

the IMF is weighted towards the West. Major decisions must have the support of more than

85% of the votes cast by the board.31

Despite the reform of quotas that has recently come into

effect, the United States remains to have 17% ensuring its veto power, preventing other

countries from reaching the 85% of the votes needed to pass significant policy changes.

Twenty-seven nations of the European Union have 31.3% of the vote whereas the combined

voting shares of China, India, Brazil and Mexico are slightly under 15%.32

The WTO’s case is deceptive. As it has already been indicated above, all member states have

one vote, thereby allowing equal status to all members irrespective of trade shares or general

economic size. Nevertheless, the reality is that the decisions are more likely to be made

through consensus that not only deprives developing countries from making full use of the

equal status; in fact, at times it may be found to actively work to the detriment of developing

countries. Firstly, the consensus decision-making means simply that no decision is formally

objected to by any member present at the meeting. However the key assumption here – asserts

Narkilar – is presence in the meeting; the consensus-based decision-making procedure

ascribes considerable importance to having a permanent presence, such that is composed of

national representatives endowed with necessary knowledge.33

Developing countries,

however, often fail to take part in the WTO’s decision-making processes due to the lack of

permanent representation in Geneva.

The second problem – argues Narkilar – with the process of consensus decision-making is

that it is conducted through open discussion i.e. if a country wishes to reject a proposal, it

must do so openly and clearly in front of other members present. As often stressed by

developing countries, they often fear the consequences of expressing their objections publicly

(given their reliance upon international aid, IMF and World Bank assistance), and thus choose

the alternative option of remaining silent. As the absence of objection is seen as consensus,

developing countries ultimately end up acceding to decisions that they actually have problems

with. Thirdly, the goal of consensus has often been used by some developed countries to

30

HELLEINER, Gerald K. (2000): ibid. 31

MercoPress (2009) 32

International Monetary Fund (2010) 33

NARLIKAR, Amrit (2001): ibid.

12

practice small-group consultations that exclude many developing countries and exert bilateral

pressures on them outside the WTO forum in the name of reaching the multilateral consensus

in WTO meetings.34

This is the so called “Green Room” meeting whereby the dominant

economic powers such as USA, Canada the EU and Japan (also known as Quad) very clearly

establish the agenda before a round of trade talks. The Quad – argues Makwana – then

selectively invites a group of developing nations to meeting where the key decisions are made

about which issues will be open to negotiation in the formal talks, and a declaration is drafted.

During the formal talks, nations can only agree with or less likely block the predetermined

proposals. This structure effectively ensures the exclusion of the majority of the world from

influencing the international trade agenda. Therefore, the global South’s ability to make trade

work to their benefit is severely interfered.35

The bias and disquiet of these negotiations is reflected by the frequent collapse of trade talks

in the eventual submission by developing countries to further open their markets to the

dominant nations and the inability of ‘quad’ nations to live up to their pledges to remove their

own protectionist measures.36

The conclusion to be drawn here is that democratic and equitable decision making as well as

cooperation between the North and the South appear to have been missing within the IMF,

WB and the WTO. Therefore, these institutions can hardly turn out to be successful at

addressing global issues such as poverty and inequality and to be accountable pillars of global

economic governance.

3. Reforming global economic governance

The previous section argued that the current system appears to have been inefficient to

safeguard the world economy in an equitable manner and the need of an overhaul in the

global architecture. Despite the IMF, WB, and WTO clearly do not fulfil those roles that

would enable them to take the leading role in the fair regulation of the global economy, the

view is taken that the solution resides in the thoroughgoing reform of these institutions rather

than in ‘riddance’ of them. Accordingly, the last section shall propose reforms in the context

34

NARLIKAR, Amrit (2001): ibid. 35

MAKWANA, Rajesh (2005): ibid. 36

MAKSWANA, Rajesh (2005): ibid.

13

of the IMF, WB and WTO with regards to the above discussed problematic aspects of their

operation.

Before looking into specific reforms, let me briefly describe those core principles which

characterize the ‘good global governance’ drawing on Ngaire Woods’s viewpoint. First,

‘participation’ – asserts Woods – in decision-making and implementation has become a key

issue as it gives people a sense of ownership in a project and very real stake in its success. It is

more than simply involvement in an institution, it requires that affected parties have access to

decision-making and power so that they acquire a meaningful stake in the work of the

institution. Second, equally important is to ensure appropriate forms of ‘accountability’. In the

narrowest sense of the term, it requires that institutions inform their members of decisions and

also of the grounds upon which decisions are taken. Practically, this means having procedures

which ensure transparency and flows of information. Lastly, the third principle is ‘fairness’

which has two aspects: substantive and procedural meaning a legalistic notion that requires

rules and standards be created and enforced in an impartial and predictable way. In other

words, procedural fairness requires the processes of representation, decision making, and

enforcement in an institution to be clearly specified, non-discretionary, and internally

consistent.37

Nevertheless, it has to be articulated that those written above are just principles and do not

account for a comprehensive ideal solution, as it does not exist.38

These ‘prescriptions’,

however, ground for proposing those specific reforms which I think the IMF, WB and WTO

should undertake.

3.1 Reforming institutional roles

The overlap between activities undertaken by the IMF and WB is unavoidably to be

diminished. My viewpoint on their redefined roles reflects that of Ngaire Woods to a great

extent. Accordingly, the IMF could engage with international finance related issues serving as

a forum within which countries can forge mutually agreed upon and effective rules on

monetary and exchange rate issues and in which they can possibly pool reserves. The World

Bank, in turn, could focus on researching pragmatic and experience-based development policy

37

WOODS, Ngaire (1999): Good Governance in International Organisations, Global Governance 5:1. 38

DOYLE, Michael (2005): ibid.

14

advice and addressing the global constraints on development over which individual

governments have no control.39

The WTO’s role could be twofold. First, it could ensure that trade agreements mitigate the

current precariousness of the global economy. Second trade agreement could play a

constructive role in reducing global inequality by facilitating and supporting economic growth

and opportunities among communities and countries that are at present at the bottom.40

3.2 Reforms in representation and decision making

3.2.1 The International Monetary Fund and World Bank

The first ‘area’ where the exclusion of poor countries is to be eliminated is the headship of the

organization. If the Fund is to capture the confidence of emerging economies, the selection

process should be carried out through a more transparent process with more than one

candidate and applying a decision making rule which encourages consultation and

participation in the decision. Due to the shift in the Bank’s activities towards emerging

economies, there is no longer a reason to make the World Bank more accountable to the US

than to any other government. In other words, the sense that the Bank is tightly bound up with

the US political administration is to be diminished, that should result in the appointment of

non-US administration insiders as president of the institution.41

Furthermore, in order to reduce significantly the existing degree of representation distortions,

changes are necessary in the quota structure of the Fund. Given the size of the initial

distortions in the IMF, more frequent quota reviews would be required, increasing to every

other year the frequency of them. By so doing not only the quota structure would be more in

line with the participation in economic activity, but also the quota size could be more

representative of the current realities of the global economy.42

Whilst stakes in the World

Bank – that inherited a slightly modified version of the IMF’s quota structure – should reflect

the agency’s purposes: where the Bank fills the role of a coordinator of development

assistance, the relevant stakes are related to donorship. Furthermore, it is also crucial to set up

39

WOODS, Ngaire (2008): ibid. 40

WOODS, Ngaire (2008): ibid. 41

WOODS, Ngaire (2008): ibid. 42

LE FORT V,Guillermo (2005): ibid.

15

properly constituted, representative group to assess and propose a weighted voting structure

which makes sense of the stakes being relevant to the Bank’s own activities.43

Although

reforms have clearly been undertaken by both of them, the degree of accountability and

representation in the oversight bodies is to be enhanced.

The third decisive reform concerns the Board of Executive Directors of both the IMF and the

World Bank. The first mechanism to be changed is the way of taking the chair in the board.

Rather than a Managing Director chaired board, it should be led by one of its members as an

organ which oversees the Managing Director. A second step could be to reform decision

making to create an incentive for countries to consult across the membership, to end giving

veto rights to any country, and to act more genuinely by consensus.44

3.2.2. The World Trade Organization

In order to better overcome – argues Woods – the precariousness, inequality, and uneven

governance of trade in the global economy, at least three core changes are required. First, the

scope of trade talks should be limited together with resisting pressures from mercantilist

interests to push into new areas. Importantly, the progress is primarily to be ensured on the

elements which most affect poorer countries. Second, it is crucial to ensure that trade rules are

framed and applied in a way which permits poorer countries to industrialize and benefit from

globalization in a sustainable way. Finally the role of the WTO in monitoring and enforcing

trade rules particularly in respect of large markets is also to be strengthened.45

43

WOODS, Ngaire (2008): ibid 44

WOODS, Ngaire (2008):ibid 45

WOODS, Ngaire (2008):ibid

16

Concluding remarks

This paper began with the assumption that the governance of the global economy is far from

being effective as those multilateral institutions – that is inter-state agreements – which are to

form the backbone of the system are flawed in terms of their institutional role and nature

(governance structure, decision making).

As argued above, more than 67 years after the establishment of Bretton Woods institutions,

there has been still a lack of an institutional framework to debate global economic policies

and a corresponding regulatory system to support it. Indeed, these institutions have undergone

a wide range of alterations with regard to their roles so as to adapt to the contemporary

realities of finance and trade. However, this has not necessarily led to a more effective

coordination of the global economy, rather to a cabal of IGO’s to operate in support of the

interests of their main shareholders. Having reviewed the activities in which the IMF, WB and

WTO have engaged in, the way how decisions have been made and countries represented, it

can be argued that they appear to have been the means of benefiting rich industrial countries

rather than agents in reducing precariousness and inequality in the global economy. Although

they are formally cooperative agencies which member countries own and which they

voluntarily join, real ownership belongs to a selected group of developed countries. To ensure

this privileged status, biased voting mechanisms are used which may appear equitable on the

surface (e.g. WTO), developing countries are, however, never enabled to threaten the interests

of the main shareholders as the formula is based on economic strength.

In spite of this ‘distortion’, my stance is that an effective form of global governance can be

achieved via the overhaul of the existing multilateral institutions, due to their membership,

expertise and experience; rather than the ‘liquidation’ of the system. Equally importantly, any

initiative to reform these institutions should be simultaneous and comprehensive designating

new role to each of the three in governing the global economy. Although, there is no – and

probably there will never be – universally approved pattern of global economic governance,

the reform of ‘agents’ surely has to embrace the following principles: access to decision

making and power, accountability, and substantive and procedural fairness. The risks of not

so doing include increasing poverty, rising conflict, and instability in areas of the world which

are already the subject of intense geostrategic concern as well as decreasingly stable global

financial system.

17

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