Last time at The Vreelander, we learned that votes for 187 member-countries countries at the International Monetary Fund (IMF) and the World Bank are out of whack with reality. Advanced industrialized countries have more than their fair share, while emerging market countries are under-represented. But that’s only part of the global governance problem. I think a bigger issue is how the votes of the 187 member-countries are put together to elect the 24-member Executive Boards of the IMF and the World Bank. Who are these guys (yeah, they’re pretty much all guys) helping to rule the global economy?
So, the Executive Boards of the IMF and the World Bank are basically mirror images of each other. Some of the Directors represent single countries – the "great powers" – while the "rest of the world" elects the remaining Directors (elections are held every two years).
At present, there are eight governments with country-specific Directors: the United States, Japan, Germany, France, the United Kingdom, China, Saudi Arabia, and Russia (in order of vote-share).
The "rest of the world" pools their votes into blocs to elect the remaining 16 Directors – and there are no rules. Here’s how things shape up (click the figures for a larger view):
Some things should strike you as strange. Like – why does the guy from li’l Belgium have more votes at the IMF than the guy from France? How on earth could tiny Denmark possibly have more votes than mighty China? And, um, over at the World Bank, the guy from Austria has the largest share second only to the United States??? Are ya kiddin’ me?
What’s going on is that some countries team up as a big voting bloc and elect a very powerful Director to represent their interests. So, out of a bloc of countries, which one gets to have a guy from their country be the leader?
Some groups allow the Directorship to rotate across all members – this is true for the two African Directorships. Other regional blocs are more "hegemonic," with only the most powerful countries in the bloc controlling the Directorships.
Why would a country give its political support to a hegemon?
The case of Spain involves colonial legacies. Spain currently controls an IMF Executive Directorship representing a group of Latin American countries. Spain shares control of this Directorship, alternating with Mexico (the Alternate Director) and Venezuela (the Director at the World Bank).
The Canadian bloc is more geographically diverse, but also follows colonial legacies. Canada partnered early on with Ireland, a fellow former colony of the United Kingdom. The Canadian bloc then took on other former British colonies of the Americas as they became independent and joined the IMF and World Bank.
Then there are blocs that do not exclusively follow regional lines. Iran, for example, leads a bloc at the IMF including Middle Eastern and North African countries, along with Ghana, which was recruited into the bloc in 1973.
Italy is a remarkable case. With more votes than either Saudi Arabia or Russia, Italy has enough votes to elect its own Directorship. Rather than go it alone, however, the government has formed a bloc including mostly Southern European neighbors – Greece, Malta, Portugal, San Marino, and Albania. The bloc also includes Timor-Leste, which is far outside of the regional pattern. By bringing together this coalition, the Director from Italy actually has a greater vote-share than does the Director from China.
The Directorships of the Netherlands and Austria-Belgium are even more outstanding. At the World Bank, they control, respectively, the third and second most powerful Directorships. The Netherlands bloc includes a group of non-obvious partners: Armenia, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Georgia, Israel, Macedonia, Moldova, Montenegro, Romania and Ukraine. Austria and Belgium represent Belarus, Czech Republic, Hungary, Kazakhstan, Luxembourg, Slovak Republic, Slovenia, and Turkey.
And then there is Switzerland. Since joining in 1992, Switzerland has held Directorships at the World Bank and the IMF. Currently, Switzerland represents a hodgepodge group including Azerbaijan, Kyrgyz Republic, Poland, Serbia, Tajikistan, Turkmenistan, and Uzbekistan.
How does Switzerland do it? My research indicates that foreign aid might be helping. This is straightforward political economy: trading money for political influence. Rich countries provide foreign aid to developing countries that offer political support at the World Bank and the International Monetary Fund.
How much Swiss foreign aid is due to Swiss-bloc membership? Consider some statistics from 2008. Total Swiss Official Development Assistance to independent countries was $758 million, and the 6 poor countries in the Swiss-bloc received about 94 million of this – or 12% of the total. Considering that the total population of these 6 poor countries (less than 60 million) accounts for less than 1% of total world population, getting a full 12% is, well, quite a large share of Swiss aid!
Back in 1992 when Switzerland first joined the World Bank and the IMF, the Swiss government worked hard to put together a coalition of other new members so that it could be elected to the prestigious Directorships. By leaving Italy to join Switzerland, Poland earned a promotion to Alternate Director for the Swiss. And the Swiss have maintained a commitment to providing foreign aid to the impoverished members of their bloc. This should come as no surprise to astute observers of Swiss involvement in international affairs. Some policy-makers are rightfully proud of the service they provide for their constituent countries. As they see it, the great power of holding Directorships at the World Bank and the IMF comes with great responsibility.
The question for emerging market countries is this: do they want to get into the game of putting together powerful blocs? I’m sure, for example, that China could put together a supporting cast of countries that would make it much more powerful than the Italian bloc.
The real question is probably this: do emerging market countries even care? See, Western European countries can play all the games they like to maintain their privileged position in global institutions. But if these institutions don’t reflect economic realities about which countries have real power, they may cease to be relevant. Emerging market countries may not yet have the power to take over the global institutions, but they are beginning to run things at a regional level. And thus they may be more interested in focusing their resources on regional institutions.
I will have a paper about this topic that will be coming out soon - co-authored with Raj Desai. For a preview of our views, click here.
As for the IMF and the World Bank, I refer to what I said in Part 1 of this series: they’re in a bind. If the power of the United States and Western Europe is reduced, these countries may be less likely to approve additional funding for the institutions. But if global governance fails to become more inclusive, emerging markets will (continue to) lose interest.
Perhaps this is the signature of a multipolar world, where no one is strong enough to dominate at the international level – and regional hegemons emerge. If this is so, I think a potential solution for the IMF and World Bank is to recognize the growing strength of regional organizations and find ways to engage and work with them.
