Economist Daily Chart: IMF Influence - Light Weight BRICS

Today from The Economist's Daily Chart series:

How IMF voting shares compare with global economic heft

Many argue that IMF vote-shares (and the amounts countries are required to put into the fund's kitty) should reflect countries' relative economic heft. At the moment, however, that is far from being the case. Taken together, the economies of the European Union countries amount to just under 24% of the global economy. The economies of Brazil, Russia, India, China and South Africa together make up about 21% of world GDP. But the European countries have 32% of the votes in the IMF, while the BRICS have 11%. No wonder the BRICS' representatives to the fund issued a rare joint statement deploring Europe's lock on the top job at the IMF, which is made possible in part by the fact that Europe and America between them have nearly 50%of the votes in the IMF's board. Proportionately, sub-Saharan Africa, (excluding South Africa) is the most over-represented region, with 3.1% of the vote but a mere 1.35% of the world economy.

An important update to the debate regarding the distribution of influence in global economic governance... Could be useful!

Profile: IMF and World Bank (BBC News)

Very helpfully, the BBC News website has put together a profile page for the two most important institutions responsible for economic governance and development on a global basis: the International Monetary Fund and the World Bank.

This concise but useful guide provides an overview of the two bodies, a brief fact sheet, a profile of the institutions' leaders and an insight into issues arising from their work. The BBC profile is particularly useful in providing examples of the latter, both positive and critical. As you hopefully know, the policies and actions of both institutions have provoked protests world-wide, particularly on the occasion of IMF-World Bank summits.

Take a look: This is a convenient source for the revision of notes generated for these key, high profile institutions. The right sidebar also provides links to recent and current (!) news stories in which these examples can be explored in greater detail by motivated students.

G20 summit agrees to reform IMF

BBC Online brings news of a slight re-balancing within world economic governance—towards emerging economies—at the G20 Summit currently being held in South Korea: [link]

Finance ministers from the G20 leading economies have agreed reforms of the International Monetary Fund, giving major developing nations more of a say.

At a meeting in South Korea, they agreed a shift of about 6% of the votes in the IMF towards some of the fast-growing developing countries.

Those nations will also have more seats on the IMF's Board, while Western Europe will lose two seats. But the US will retain the veto it has over key decisions.

Such decisions require an 85% vote - Washington holds 17% under the IMF's weighted voting system.

The Guardian has more [link]:

Fast-growing emerging economies will get more clout at the International Monetary Fund under a landmark agreement clinched on Saturday that reflects a shift in global power from industrial countries.

Under the deal, more than 6 percent of voting shares at the Fund will shift to dynamic developing countries such as China, which will become the third-biggest member of the 187-strong Washington-based lender. Europe will give up two of the eight or nine seats it controls at any given time on the IMF's Executive Board, which will continue to have 24 members, according to a statement issued after a meeting of finance ministers from the Group of 20 leading economies.

As part of a wide-ranging package, the G20 also agreed to double the IMF's quotas, which determine how much each country contributes to the IMF and how much it may borrow from it. The quotas currently total about $340 billion. The IMF staff had argued for a doubling, which it said would put the fund "in a strong position to forestall or cope with potential crises in the coming years".

The G20 said the reforms would make the Washington-based lender "more effective, credible and legitimate". The governance reforms amount to an overhaul of the global economic order established when the Fund was set up after World War Two, prompting IMF Managing Director Dominique Strauss-Kahn to describe the agreement as historic. "This makes for the biggest reform ever in the governance of the institution," he told reporters.

The reduction in Europe's representation is less than the United States was seeking. However, Washington, which has a 17.67 percent share of IMF quotas will retain its veto on the Fund's most important decisions. These will continue to require a super-majority vote of 85 percent, according to IMF officials.

Without doubt, today's news represents an important update on World Governance (Unit 3) - should a question on the International Monetary Fund come up in the exams, this development would form a valuable current example!

Joseph S. Nye: The Future of Power

Joseph S. Nye,former US Assistant Secretary of Defense, Harvard University professor and author of The Future of Power, provides an up-to-date perspective on the "future of power" in our increasingly multipolar world:

Global government is unlikely in the twenty-first century, but various degrees of global governance already exist. The world has hundreds of treaties, institutions, and regimes for governing interstate behavior involving telecommunications, civil aviation, ocean dumping, trade, and even the proliferation of nuclear weapons.

But such institutions are rarely self-sufficient. They still require the leadership of great powers. And it remains to be seen whether this century’s great powers will live up to this role.

As the power of China and India increases, how will their behavior change? Ironically, for those who foresee a tri-polar world of the US, China, and India at mid-century, all three of these states – the world’s most populous – are among the most protective of their sovereignty.

Some argue that our current global institutions are sufficiently open and adaptable for China to find it in its own interests to become what Robert Zoellick, president of the World Bank, once called a “responsible stakeholder.” Others believe that China will wish to impose its own mark and create its own international institutional system as its power increases.

The countries of the European Union have been more willing to experiment with limiting state sovereignty, and they may push for more institutional innovation. But it is unlikely that, barring a disaster like World War II, the world will witness “a constitutional moment” such as it experienced with the creation of the United Nations system of institutions after 1945.

Today, as a universal institution, the UN plays a crucial role in legitimization, crisis diplomacy, peacekeeping, and humanitarian missions, but its very size has proven to be a disadvantage for many other functions. As the 2009 UN climate-change summit in Copenhagen demonstrated, meetings of 192 states are often unwieldy and subject to bloc politics and tactical moves by largely extraneous players that otherwise lack the resources to solve functional problems. As US Secretary of State Hillary Clinton put it recently, “the UN remains the single most important global institution…but we are constantly reminded of its limitations….The UN was never intended to tackle every challenge; nor should it.”

Indeed, the main dilemma that the international community faces is how to include everyone and still be able to act. The answer is likely to lie in what Europeans have dubbed “variable geometry.” There will be many multilateralisms and “mini-lateralisms,” which will vary by issue with the distribution of power resources.

For example, on monetary affairs, the Bretton Woods conference created the International Monetary Fund in 1944, and it has since expanded to include 186 countries. But the dollar’s global pre-eminence was the crucial feature of monetary cooperation until the 1970’s. After the weakening of the dollar and President Richard M. Nixon’s decision to end its convertibility into gold, in 1975 France convened leaders of five countries in the library of the Chateau de Rambouillet to discuss monetary affairs. The group soon grew to seven, and later broadened in scope and membership – including Russia and a vast bureaucratic and press apparatus – to become the G-8.

Subsequently, the G-8 began the practice of inviting five guests from the emerging economies. In the financial crisis of 2008, this framework evolved into the G-20, which boasts a more inclusive membership.

At the same time, the G-7 continued to meet on a narrower monetary agenda; new institutions, such as the Financial Stability Board, were created, while bilateral discussions between the US and China played an increasingly important role. As one experienced diplomat put it, “if you’re trying to negotiate an exchange-rate deal with 20 countries or a bailout of Mexico, as in the early Clinton days, with 20 countries, that’s not easy. If you get above 10, it just makes it too darn hard to get things done.”

He’s right, of course. After all, with three countries, there are three bilateral relationships; with ten, there are 45; and with 100 players, there are nearly 5,000. That is why, on issues like climate change, the UN will continue to play a role, but more intensive negotiations are likely to occur in smaller groups such as the Major Economies Forum, where fewer than a dozen countries account for 80% of greenhouse gas emissions.

Much of the work of global governance will rely on formal and informal networks. Network organizations (such as the G-20) are used for setting agendas, building consensus, coordinating policy, exchanging knowledge, and establishing norms. As Anne-Marie Slaughter, Director of Policy Planning in the US State Department, argues, “the power that flows from this type of connectivity is not the power to impose outcomes. Networks are not directed and controlled as much as they are managed and orchestrated. Multiple players are integrated into a whole that is greater than the sum of its parts.”

In other words, the network provides power to achieve preferred outcomes with other players rather than over them.

To cope with the transnational challenges that characterize a global information age, the international community will have to continue to develop a series of complementary networks and institutions that supplement the global framework of the UN. But if major countries are divided, it is unlikely that even network organizations like the G-20 can set the agenda for the UN and the Bretton Woods financial institutions to act upon.

In the immediate aftermath of the 2008 financial crisis, the G-20 seemed to help governments to coordinate their actions and avoid rampant protectionism. The world waits anxiously to see how it will perform when it meets again in Seoul this November.

LSE Video: New internationalism needed for new world order

18 months months ago today, a resource interesting for our current studies on Globalisation and World Governance surfaced on the London School of Economics website:

Global institutions such as the United Nations risk fragmenting unless they become more democratic and share greater power with developing nations, warns a LSE political scientist Professor David Held|.

Professor David Held points out that the world today is very different to the post-war era that gave birth to the United Nations in 1945. 'The world has changed dramatically. Power has diffused across the world' he says. "We have seen the rise of Asia and China and the rapidly developing BRIC countries (Brazil, Russia, India and China) and these are only partially, if at all, represented in many of our global institutions."

In this video, Professor Held claims that, given this transformed world, institutions such as the UN and bodies such as the IMF are flawed in two crucial ways: "Firstly, many have a system of representation that is anachronistic and too skewed to the old western powers that have had their own way for a long time. Their other flaw is that they depend for their finance on the good will of the powerful countries."