|A member of a Pakistani NGO holds up a sign protesting against IMF loans [EPA]
The top executives of the World Bank and the International Monetary Fund (IMF) – both Bretton Woods Institutions (BWIs) – have conspicuously decided not to attend the much-vaunted UN-sponsored Doha conference on financing for development.
The absence is all the more startling because there remains a clear need for a swift and broad-based response to the financial crisis.
Their failure to attend the summit certainly undermines both institutions' claims to leadership.
Some observers have interpreted this as a show of disinterest regarding the issues the poorest countries – especially those who did not participate in the G20 Summit on November 15 – may raise about international financial reform.
In 1944, as World War II appeared to be nearing its end, 730 delegates representing 44 countries signed the Bretton Woods system of monetary management.
This set rules for commercial and financial relations among the world's major industrial states which were to be applied in the post-war period.
Bretton Woods established the International Bank for Reconstruction and Development, a precursor to the World Bank, and the International Monetary Fund (IMF).
The IMF became the principle body entrusted to set up rules and guidelines for public international financial management.
Each signatory was obliged to enact a monetary policy and system of exchange dependent on gold value. In 1971, the US dollar replaced the gold value system.
Those who have studied the history of the World Bank and the IMF will understand that their absence from the summit fits into a framework that favours elitism and "club-based" decision-making over inclusive processes.
In the IMF for example, 23 developed countries carry slightly below 40 per cent of the vote; the same number carry some 42 per cent of the vote at the World Bank.
Some 60 or so per cent of the vote is shared by the remaining 160 developing countries.
However, because of the way votes are cast, board directors from developed countries effectively carry nearly 75 per cent of the vote, whereas developing country directors carry the rest, making the imbalance even more acute.
In the Financing for Development Conference held in Monterrey in 2002 (the Doha conference is to review the outcome of this conference), the BWIs were called on to increase the representation of developing countries on their governing bodies.
In mid-2008, the IMF made a decision to transfer 2.7 per cent of voting power from developed to developing countries, while the World Bank is currently undergoing a process that is expected to yield some reforms to their governance structures in 2009.
However, there are several problems in the way the IMF says it has addressed the issue of governance imbalance.
While conventional wisdom holds that voting power at the institution depends on how much countries contribute to the fund, the reality is more complex.
Voting power is determined by a formula that is supposed to reflect the weight of members in the world economy.
However, the quota formula developed at the time of the foundation of the institutions in the 1940s followed the political logic that the greatest voting power be awarded to victors of World War II.
Over time, further distortions to the quota formula have resulted in countries such as the Netherlands or Belgium receiving greater quotas than larger economies such as Brazil or Mexico.
Low income countries, the ones that are most affected and influenced by the IMF's policies, actually saw their voting shares over that time reduced.
Tinkered, not reformed
The IMF's internal process of reform merely tinkered with the quota formula rather than fundamentally overhauling it.
This should not come as any surprise since the reforms were approved by the same voting system which was at the heart of the need for transformation.
|Dominique Strauss-Kahn, the IMF managing director, did not attend the Doha summit [AFP]
However, the BWIs' decision-making flaws would not have been so pronounced had these insitutions adhered to their original, limited mandates.
But since the early 1980s, they began to get involved in domestic economic policy choices, leaning on the "power of the purse" and their role as "gatekeepers" for the money from the bilateral donors.
The ideological pursuit of a one-size-fits-all economic reform model became a trademark of the BWIs' joint approach to development, which they initially described as stabilisation and structural adjustment programmes.
This model was based on the belief in the logic of unrestrained market forces; accordingly, states were urged to resist planning or intervention activity in the markets.
In time, the model has been discredited by empirical evidence about its poverty reduction and development results, and by the words of prominent economists.
The BWIs have also used their skewed decision-making structure to promote reforms that substantially altered the social contracts which form the backbone of the relationship between the private and public sectors.
In 2002, the World Bank adopted a strategy for private sector development that would not only fundamentally reshape its programmes, but would also strongly influence the behaviour of regional development banks.
The strategy promoted participation of private sector providers in infrastructure, especially through private-public partnerships (PPPs) and a deregulatory approach towards foreign investment.
The new approach emphasised the role of public sector funding in supporting the private sector, and reducing its risks.
Paradoxically, this contradicts the logic used to justify the initial implementation of structural adjustments.
The 1980s model of reforms called for freeing the private sector from the state so it could engage in innovation and risk-taking as the engines of growth and wealth-creation.
Such reforms, it was argued, were necessary to avoid the inefficiency of a subsidised and deficit-creating government provision and protect public resources.
However, the 2002 strategy favoured subsidising the private sector at the expense of the public sector; these subsidies were usually allocated to the same services that the public sector used to provide.
Without the Monterrey Summit in 2002, it is unlikely that the BWIs would have made even the limited reforms that they have achieved so far.
In the same fashion, the Doha Summit has the mandate and the responsibility to pinpoint where progress has been absent, or insufficient.
One can understand, then, that with so little to show, the leaders of the institutions may have compelling reasons to simply avoid the conference altogether.
Aldo Caliari is the director of the Rethinking Bretton Woods Project at the Center of Concern in Washington DC. His project focuses on issues of international financial reform including debt and linkages between trade and finance.
The views of the author are not necessarily those of Al Jazeera.
Source: Al Jazeera