Every two years, representatives of countries from all over the world gather in Washington, DC to elect two committees that partly rule the world on global economic policy. This year, the meetings are coming right up this weekend: October 8-10.
Usually, these elections just rubber stamp the same old usual suspects who have been running things for decades. But the 2008 Finance Crisis has obvious changes in world order. We are now living in a multipolar world, and the emerging market countries have arrived. This time around, they are going to be looking for a bigger share of global governance.
The committees I’m talking about are the Executive Boards of the International Monetary Fund (IMF) and the World Bank, two of the world’s most powerful international organizations. Who controls these institutions? Well, every member-country has some share of the votes, and with 187 countries as members, technically, the IMF and the World Bank are accountable to nearly all of the citizens of the world. But, in reality, the real governance is run by a handful of key countries.
Basically, you’ve got 187 member-countries that elect 24-member Executive Boards (one for the IMF and one for the World Bank). Do each of the 187 countries get one vote? No, no, no – this isn’t the United Nations. Rather, the share of votes is explicitly tied to economic size. So, the mighty United States has the largest share (16.74%), and tiny Tuvalu has the smallest share (0.012%).
But economic weight isn’t the only factor – politics also matter. You see, even though China has just surpassed Japan as the second largest economy in the world, this powerful country has a smaller vote share than France (3.65% vs 4.85%). Yeah, that’s right – France (GDP=$2.7 trillion) has more votes than China (GDP=$4.9 trillion). Think that’s out of whack with reality? How about this? Belgium (GDP=$470 billion) has 2.08% of the votes, but Brazil (GDP=1.6 trillion) has only 1.38% of the votes and India (GDP=$1.2 trillion) has only 1.88% of the votes.
Personally, I think it makes sense that votes reflect economic size. After all, the contributions to the IMF and the World Bank are also tied to economic size. If you give more money, you should get more votes. What’s out of whack is that the votes just don’t reflect current economic realities. Brazil, China, India, Korea,… and the list goes on… are all willing and able to contribute more, but, because this will translate into a smaller share of votes for advanced industrialized countries, like Belgium and France, they drag their feet.
What does it take to change the votes? An 85% supermajority of the current voting structure is required. Yeah, with over 15% of the votes, the United States has veto power, and so do the European Union countries when they coordinate and vote together.
But changing the votes is only part of the problem. In fact, you can be sure that the individual vote shares of the 187 member-countries are going to be revised over the next few days. The United States and the European Union recognize that this needs to change, and it is not news. Emerging market countries have been making small gains for years. So, in 2006, China had only 2.94% of the votes, and now it has 3.65%.
The real question is how these votes translate into seats at the 24-member Executive Board of Directors. Who are these guys? (Yeah, they’re pretty much all guys. See here.) For the answer to this question, and more exciting analysis of global governance, tune in next time at The Vreelander…
The IMF Executive Board