Global Policy Forum

Harry Throssel

"The Ministry of Plenty concerns itself with starvation" - George Orwell, 1984.

It's common knowledge the International Monetary Fund, World Bank, and World Trade Organisation have a big hand in the distribution of the world's wealth, in deciding who's rich and who's not. But who are they and who controls them?

For starters 48 per cent of voting power at the IMF is in the hands of eight executive directors representing their own countries (USA, Japan, Germany, France, United Kingdom, Saudi Arabia, China, and the Russian Federation) while the other 176 member-states have 16 representatives with virtually the same voting power. At the WB the same executive nations apart from China again hold nearly half (46 per cent) of voting power. In the WTO, although all 144 member nations theoretically have a say, actual decision-making occurs in the "green room" - the small group meetings convened by the director-general and heavily influenced by Canada, the European Union, Japan and the United States. None of the countries listed above is in the southern hemisphere, and none is a 'developing' (poorer) country.

Not one member of the boards of directors in the IMF is a woman, and 92 per cent of board members at the WB are male. By convention Europeans select the director of IMF and the US government selects the head of the WB. 'Other countries and critics rightly brand the process as undemocratic and insufficiently accountable', the United Nations Human Development Report 2002 [HDR] comments.

Incidentally, to belabour the point, the five permanent members of the United Nations Security Council are USA, France, UK, Russia and China.

These decision-making arrangements are particularly important considering that eradicating, or at least alleviating, poverty in developing countries is part of the specific mandate of these finance and trade organisations. But in the past three decades or so global economic inequality has increased, and there has been very little change in the pattern of gross poverty, especially in the hardest hit regions of the world, according to recent United Nations and other research reports.

BRETTON WOODS

The IMF and WB were created by the Bretton Woods Agreement of July 1944 in New Hampshire, USA, during discussions on the international economy following the disastrous Great Depression of the 1930s and the wreckage of the Second World War. According to Daniel Yergin and Joseph Stanislaw 'a vast development enterprise was born. It was made up of government donor agencies, private foundations, international development banks, universities, and research institutes, along with ministries of finance, industry and development. Amid this constellation, one institution was central - the International Bank for Reconstruction and Development, otherwise known as the World Bank. The WB was created to coordinate the awesome job of economic reconstruction in postwar Europe'.

According to HDR 'the IMF would provide resources to any country facing temporary balance of payments difficulties.(while) the WB would help channel investment to countries for postwar reconstruction and development'.

Historian Eric Hobsbawm commented 'US supremacy was, of course, a fact. The political pressure for action came from Washington, and where opinions differed, the US view prevailed. The WB and the IMF became de facto subordinated to US policy'. He pointed out that in 1950 the USA alone 'contained 60 per cent of all the capital stock of all the advanced capitalist countries [and] produced 60 cent of all their output'.

John Pilger wrote 'What followed (World War II) was the simultaneous defeat and recolonisation of the European empires by American capital. A government-subsidised production boom during the War left the world's wealth in American hands. Bretton Woods marked the American conquest of most of the world', and later 'the Bretton Woods Agreement gave America's military and corporate establishments unlimited access to minerals, oil, markets, and cheap labour. The WB and the IMF were invented to implement this strategy. Their base is Washington, where they are joined by an umbilical cord to the US Treasury. Their members' voting power is determined by their wealth: thereby America controls them'. Frederic Clairmont wrote 'What Bretton Woods bequeathed to the world was a lethal totalitarian blueprint for the carve up of world markets'.

In 1947, the General Agreement on Tariffs and Trade (changed to World Trade Organisation in 1995) was created as a framework for reducing trade barriers by periodic bargaining. The WTO's main objective is 'the establishment of rules for Members' trade policy which will help international trade to expand with a view to raising living standards'. John Gray described the philosophy of the WTO as policies and measures which ensure self-regulated markets 'are the only organising power in the economic sphere'.

Susan George argued 'GATT negotiations are intended to sidetrack debt reduction proposals. They offer indebted country governments the carrot of increased investment and access to Northern markets in exchange for continued docility in playing the debt repayment game. "Free trade" sounds, perhaps, fair and democratic but will inevitably place further strains on the environment and on working people everywhere'.

The mandate of the WB quickly expanded from its original purpose of raising finance for reconstruction in war-battered Europe to finding capital in developed nations to invest in the infrastructure of developing countries. Its first loan (to Chile) was made in 1948 and by the early 1950s its focus had fully shifted to development in the third world.

HDR reports on the change: 'Today the IMF and WB lend exclusively to developing and emerging economies. Furthermore, their loans are linked to conditions that increasingly impinge on the domestic policies of the state'. The result is that lending countries 'enjoy increased decision-making power and use it to expand the conditions they impose on borrowing countries, while the latter experience the conditions as externally imposed and therefore outside their own control'. This can be 'particularly worrisome' when there is considerable difference of opinion on policy advice, and when the risks associated with the advice are mostly carried by the people of the borrowing country.

REPRESENTATION

HDR is concerned that membership of these world economic bodies excludes true representation of their client countries. The IMF and WB will not be able to do their jobs effectively, the Report says, if they continue to reflect the balance of power at the end of the Second World War. 'In reality, consensus decision-making seldom gives voice to marginalized actors', because 'consensus' decisions are underpinned by the realities of power and the knowledge of which countries can veto or push final decisions.

Members of the IMF do not have equal voting power. Voting weights are based on two components: each member has an equal set of 250 basic votes that come with membership, and the second component is a percentage of votes that reflect economic size. Therefore voting strength favours rich economies: the USA has 17 per cent of voting power, Germany 6 per cent, UK 5 per cent, compared with, for example, one group of 23 sub-Saharan African countries with a total voting power of only one per cent.

Since its formation 58 years ago the IMF, like the WB, has grown from 44 member-states to 184, including many transitional economies. 'The point here is to make decision-making more transparent and accountable and to increase the voice of developing countries in shaping those decisions' argues HDR.

As it is, economic advice and loan conditions reflect the interests of the most powerful members, that is wealthy developed countries, thus the need for greater participation by their borrowers, developing countries. 'The negative symbolism of a closed, secretive selection process based on privilege in institutions committed to greater accountability and transparency is obvious', says the HDR, 'the selection [of board members and other representatives] needs to be opened up and made more definite regarding the candidates' views on the vision for the organizations'.

HDR advocates restoring voting strength for developing countries in the WB and the IMF by increasing the proportion of basic votes allocated to each member. Another step would be increasing the number of seats for developing countries on the executive boards - including more female representation at the highest levels - and involving them in the selection of the institutions' presidents. These reforms 'would also change perceptions away from a continuing suspicion of external domination to one where developing countries feel greater ownership and responsibility for decision-making'.

ACCOUNTABLE

There's also the need to make the institutions more accountable, not just to board members but to the people affected by their decisions. Specifically this means ensuring transparency about and evaluation of rules, decisions, policies, actions.

The WB adopted an information disclosure policy in 1993, and by 2001 had expanded the policy to include release of documents on the Heavily Indebted Poor Countries initiative and Poverty Reduction Strategy Papers including summaries of board discussions. A revision of this policy in September 2001 further extended information available to the public to include a greater number of project-related documents.

At the IMF, where most information was previously inaccessible to anyone outside the walls of the institution, research is now published on the organization's website along with considerable documentation on work with individual countries. The IMF is also pressing governments to permit more publication of policies and agreements with the IMF.

But serious gaps in transparency remain, reports HDR. The most noticeable are: minutes of WB and IMF executive board meetings are not published, votes are not taken and so cannot be recorded or publicized, and therefore citizens of member countries (or interested outsiders) cannot hold executive directors or their governments accountable for their policies.

There is also a need for independent assessments of what organizations are doing. 'It is not only difficult for the public to judge how well or poorly an organization is undertaking its responsibilities, it is also impossible for outsiders to offer support to insiders who recognize the need for change'. Publication of critical reports could stimulate public attention and external pressure for change, helping to overcome lack of interest or vested interests within the organization.

HDR advocates judicial-style accountability, which goes beyond transparency and offers a more active, participatory form. 'Just as tribunals, ombudspersons and other processes permit citizens to hold governments accountable in national settings, international counterparts are emerging to hold international organizations accountable'.

However, while judicial-style accountability can publicize wrongdoing and encourage organizations to reconsider decisions, there are limits, particularly for developing countries. Not everyone is in an equal position to use the procedures, so some developing countries have relied on Non-Government Organisations in industrial countries to help fund and present their cases, which risks skewing the work towards issues of most concern to people in rich countries and leaves out of the loop those in the developing world who have not attracted the attention of NGOs.

PROMOTING DEMOCRATIC PRINCIPLES IN THE WTO

WTO claims to base its work on 'Non-discrimination, transparency and predictability' and that 'decisions are made by the entire membership, typically by consensus', but while most countries have a seat at the WTO, the backroom deals among powerful states that underpin 'consensus' have led to frequent complaints. The WTO is accused of being one of the least transparent international organizations, largely because few developing country members are able to participate effectively. In reality conclusions are reached by the General Council and major decisions endorsed at ministerial conferences held every two years.

In 2000 as many as 15 African countries did not have a representative at WTO headquarters in Geneva (where it has a staff of 560), while Mauritius, a very small country, had five. The WTO has responded to these disparities by seeking to establish a technical assistance unit to help developing countries with negotiations.

WTO decision-making processes require serious reform, says HDR. First, consultations, discussions, negotiations and decisions need to be made truly transparent, participatory and democratic. Second, the WTO should be clearly impartial, not taking sides with more powerful countries at the expense of developing countries, who in fact form the majority of members, and who should be enabled to voice their interests and exercise their rights. In addition, developing countries should be better represented in the WTO secretariat, especially in senior positions. Third, there should be much greater transparency in the WTO's democratic processes because 'Deepening democracy at both national and global levels has the potential to transform the lives of the world 's people'.

HDR says many parliamentarians and politicians seem ignorant of important WTO negotiations, even when their countries are compelled to change policies - sometimes substantially - based on WTO agreements. Recently, however, civil society groups from both developing and industrial countries have become heavily involved in WTO issues. Labour unions and groups focused on development, poverty and the environment have sought to use the WTO to further their causes. The WTO is 'feeling their influence, not so much as a result of NGO activity within the WTO but because of highly public criticism levelled against it' which, for example, closed down the Seattle meeting. In 1993 in Bangalore, India, a rally of 500,000 farmers pledged to defy the WTO's Uruguay Round agreements. Twenty-five farmers' groups in France held large protests against the WTO's agriculture agreement. Environmental and consumer groups have highlighted threats to environmental and food safety standards from WTO agreements. As a result of these and other efforts, the WTO secretariat and many WTO members have begun to work with civil society organizations more directly, contributing to dialogue on policy and negotiating processes within the WTO.

A MODEL FOR INCLUSIVENESS IN NEGOTIATION

The HDR describes a negotiating method which was used to give all participating countries a fairer say during negotiations under the Convention on Biological Diversity from 1996 to 2000.

At one stage, as the target date for concluding the negotiations neared and the differences among the contending parties still looked wide, there were fears the talks would break down. But a combination of innovative methods and an active, impartial chairperson allowed a successful conclusion to be reached.

Juan Mayr Maldonado, Colombia's minister of environment, introduced the new methods when in February 1999 he took over as chairperson of the Cartagena conference on Biosafety, and continued to use the same methods at further consultations in later years. The main features of the methods involved:

- the formation of the like-minded group, bringing together participants by their interests and positions, rather than by geography or income. This innovation enabled most of the developing countries to caucus while those who held a different position could join another group. This was a departure from the norm, in which developing countries come under the single umbrella of 'the Group of 77 and China';

- selecting representatives from each group to act as spokespersons, with the number of spokespersons depending on the number of members in the group. This approach allowed for a more equitable representation of views;

- allowing all member countries to be present during negotiations, even though the negotiations were carried out among the group spokespersons. Thus the meetings were transparent and open to the participation of all members;

- encouraging the participation of NGOs. In Vienna the chairperson met separately with NGOs and industry. In response to NGO requests for access to the negotiations, instantaneous audio reception was provided in a 'spillover' room next to the government consultation room. Thus NGOs and representatives of international organisations were able to follow the discussions. In the Montreal session all observers, including the media, were able to sit in on the plenary sessions.

These new arrangements brought the complicated, often contentious, negotiations over the protocol to a successful conclusion. They helped strike an effective balance between three sometimes competing priorities: allowing all members to participate, enabling negotiations among many countries to flow within time constraints, and ensuring transparency and openness so that members could have the information needed to follow the discussions. The approach also improved the flow of information to NGOs and increased NGO involvement.

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