Is there a democracy deficit at IMF?<\/p>\n
Sugeng Bahagijo, Deputy Executive Secretary, International NGO
\nForum on Indonesian Development (INFID), Jakarta,
\nsugeng@nusa.or.id<\/p>\n
Currently, reforms at the International Monetary Fund (IMF)
\nare underway, including on the debt front. But for the developing
\nand poor countries, the reforms are missing one big issue: The
\ngovernance questions. The existing formal decision-making is far
\nfrom democratic: it lets only the G-7 or G-10 steer the IMF;
\nwhile developing and poor countries practically have no say in
\nthe design, policies and programs of IMF. Unless those democratic
\ndeficits are soon to be addressed, the current reforms do not
\nhave credibility.<\/p>\n
After five years of financial crisis in 1997, and the failure
\nof the IMF program to assist indebted countries on its economic
\nrecovery, the IMF is said to have gone under numerous reforms.
\nHow far have the IMF reforms genuinely assisted the poor and
\ndeveloping countries?<\/p>\n
One way to check how far the reforms of the global financial
\ninfrastructure are, is to watch closely how the IMF proceeds. The
\nbenchmark to be used is the governance issue: Whether Jakarta or
\nBuenos Aires or Istanbul has equal say in the IMF, as does
\nWashington or Tokyo? The activist said that unless this
\ndemocratic deficits are being solved, the ongoing reforms of the
\nIMF are just another \"old wines in new wineskins\".<\/p>\n
The IMF is one of the most important players in the crisis
\nprevention and management business. The IMF is supposed to be
\nable to detect the likely crisis. It should be able to function
\nas an earlier warning system of the global financial world. It is
\nsupposed to inform the market and its members about impending
\ncrises. The IMF is also given the huge power and resources to
\ndeal with such crises. The market uses IMF as one of most
\nimportant benchmark in decision-making. Its members expect that
\nin time of crisis, The IMF will lend their hand at a minimal
\ncost, not maximum.<\/p>\n
The international community, G-7 in particular, and the IMF
\nleaders have admitted the need to reform the institution. Recent
\nUN conferences -- Financing for Development (FFD) in Monterrey
\nand WSSD in Johannesburg -- all acknowledged the need for
\nreforming global financial design and governance. The active
\nparticipation by developing countries in Monterrey and WSSD in
\nSouth Africa shows what is at stake.<\/p>\n
How is the decision-making process being reformed so that
\n\"ownership\" is not merely a slogan? How could the inclusive
\ndevelopment be put into reality? The crisis in Turkey and
\nArgentina is the latest case which shows the limits of IMF
\ninterventions and the current reforms.<\/p>\n
Some progress is there, but they should be broader and faster
\nthan the current move.<\/p>\n
It is true that we have seen several moves initiated by the
\nIMF leadership, including the establishment of the Independent
\nEvaluation Office, the proposal for a Sovereign Debt
\nRestructuring Mechanism (SDRM) by Anne Krueger and the refocusing
\non poverty reduction as its goals, especially in the poor and
\ndeveloping world.<\/p>\n
For the developing countries, there is a lot of hope on the
\nthree initiatives. The type of IMF programs, the debt crisis and
\nthe poverty impact of the crisis are all relevant questions.<\/p>\n
Partly as a result of criticism from many quarters, the
\nevaluation office is expected to provide the IMF with second
\nopinions and critical input, i.e.: Whether the program and
\npolicies are working and successful, or are the Fund's policies
\nand programs simply failing? Indonesia is part of the program
\nbeing evaluated, together with Brazil and South Korea.<\/p>\n
Krueger's SDRM proposal is basically recognition that the
\nexisting debt mechanism (Paris Club among others) is inadequate
\nand therefore the world needs a better one. The Krueger proposal
\npromised an efficient and predictable sovereign debt resolution.<\/p>\n
One missing agenda of the current reform process at the IMF is
\nthe questions of governance. How much the poor and the developing
\ncountries steer the design and the policies of the Fund? Can the
\ndecision-making at the IMF could be reformed to reflect greater
\ninterest and needs of the developing countries? And finally, what
\nwould it entail for those changes to occur?<\/p>\n
Voting systems at IMF are determined by the volume of capital
\ncontribution rather than a one-country-one-vote system like the
\nUN. Neither does it take into account the size of the population,
\nor the severity of poverty. This system is modeled on the 1940s
\neconomy. Because of the size of its economy, the U.S. alone holds
\n17.29 percent, and the G-10 industrialized countries as a bloc
\nhold 52 percent. While the 172 other countries hold the other 48
\npercent. Indonesia, for instance, has less than two percent of
\nthe votes.<\/p>\n
The decisions are made based on 85 percent of votes. It is
\nobvious that the 10 industrialized countries can outvote the 172
\npoor countries. As Evans and Finnemore aptly stated, \"voting
\npower is structured so that the Fund is incapable of taking any
\naction that industrialized countries feel contradicts their
\nnational interest or the interest of private actors based in
\ntheir jurisdiction.\" (Organizational Reform and the Expansion of
\nSouth Voice in the Fund, G-24 Discussion Paper, 2001).<\/p>\n
The Executive Directors (EDs) are the day-to-day power-
\nholders, while the Board of Governors at the top of the ruling
\nbody, meet only twice a year. The EDs, together with the IMF
\nstaff, decides programs and policy, including which countries are
\nto be assisted, how much will be committed, and what kind of
\nconditions will be applied. The Executive Directors consist of 24
\nmembers, 13 from rich countries and 11 from the developing world.<\/p>\n
It is true that the developing countries are represented at
\nthe IMF and World Bank. But is insufficient in terms of their
\nability to meaningfully steer the direction of the IMF and the
\nglobal economy.<\/p>\n
Moreover, as the developing and poor countries will be the
\nmajority of IMF patients, and as such they will be the one to pay
\nthe risks and the costs. The policies and programs need to be
\nfully shaped and endorsed by them. Otherwise, it would repeat the
\nold paradigm where Washington (or London) consensus is the source
\nof the economic doctrine. Again, the kind of economic reform
\nbeing proposed is important. Yet, equally important is the issue
\nof participation of the developing and LDC countries.<\/p>\n
One may do well by reading a paper by Griffith-Jones and
\nOcampo's What Progress On International Financial Reform (2002).
\nTrue that there is partial progress in few areas, but it
\nconvincingly shows the need for broader and deeper reforms than
\nthe current one.<\/p>\n
It suggests that current reforms \"suffer four serious
\nproblems\": (1) there has been no agreed international agenda and
\nthe current priorities are mostly set by few industrialized
\ncountries; (2) progress is imbalanced, and most of it is on the
\nlevel of developing countries, while less progress is on
\ninternational and regional; (3) some of the progress could easily
\nbe stopped and reversed as a result of the opposition from
\ndeveloped countries; (4) insufficient participation by developing
\ncountries.<\/p>\n
It is also clear that the weaknesses on the side of the
\ndeveloping countries' capacity in policy negotiation are also
\npart of the problem. As in football, it is the time for Jakarta
\nor Istanbul to stop playing a passive, defensive style. It is
\ntime to put more skill and effort into playing \"total football\"
\nala Holland or aggressive one ala British soccer.<\/p>",
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