print    send   Correct 

Paul Wolfowitz’s resignation as President of the World Bank is not solving the serious deficit of legitimacy of governance systems at international financial institutions, particularly, of leadership selection at the World Bank and International Monetary Fund (IMF). The succession processes must be debated again in light of the need to review the World Bank and IMF selection process under broader criteria. Otherwise, both institutions will walk at an even faster pace towards a legitimacy crisis that will leave them further incapacitated to act as moderate forces in international finance.

The crisis in Wolfowitz’s management of the Bank is rooted in an obsolete selection process that excludes in practical terms the absolute majority of member countries of both institutions and reduces the selection to an agreement between Europe and the United States, allowing the first to select the IMF Managing Director while letting Americans select the President of the World Bank.

The deficiencies of this selection process became even more notorious upon the appointment of Paul Wolfowitz by President George Bush – to the discontent of most of his European allies. Wolfowitz’s ties with the so-called Republican hawks – the hard-line of conservative ideologists close to President Bush and strong critics of multilateralism and the UN – did not make him an appropriate candidate for heading an organisation whose agenda precisely requires the capacity to think the world beyond the borders of US geopolitical interests.

Moreover, the responsibility of having been one of the main promoters of the strategy that led to the war on Iraq represented an additional complication. All this was broadly discussed by the specialised media, being the object of protests by networks of civil society organisations worldwide as well as the reason for intense (and failed) diplomatic negotiations aimed at finding a less disagreeable candidate. The episode involving a wage increase in favour of his sentimental partner – in clear and astounding violation of the internal rules and guiding principles (not always being strictly followed, but that is another story) for World Bank policies in poor countries – was the last straw that broke the camel’s back regarding mounting nonconformities within and outside the Bank since the beginning of Wolfowitz’s tenure.

Therefore, succession processes must be debated again in light of the need to review the World Bank and IMF selection process under broader criteria. Otherwise, both institutions will walk at an even faster pace towards a legitimacy crisis that will leave them further incapacitated to act as moderate forces in international finance. Recent statements made by Venezuela regarding the breaking up with these institutions, the creation of regional banks and the growing independence of developing countries with respect to resources granted by these institutions are already clearly pointing in this direction.

The current process is obsolete and fails to reflect the changes that have taken place in the world over the last fifty years. Even formal rules failed to be complied with in the election of the World Bank President, since the “gentleman’s agreement” between Europe and the United States cancels the role of the Bank’s own Executive Board, made up by representatives of shareholders, that is to say, member countries, in the selection process.

Wolfowitz’s resignation should be taken advantage of to propose a broader discussion on World Bank governance mechanisms and transparency, thus answering challenges in at least three crucial fronts. In the first place, to recover the active role of the Bank’s Executive Board in the selection process. The current agreement between Europe and the United States withdraws power from the Board in favour of the President, which mainly responds to US hegemonic interests. This became indisputable during Wolfowitz’s short tenure at the Bank. In the second place, the present composition of the Executive Board and the voting power of each country should be reviewed with a view to increase the influence of borrowing countries, that is, those countries that are granted loans. The nature of a Multilateral Bank and the use of public resources to maintain it calls for a management model that is not simply the reflection of each country’s investment power. This debate has long been taking place among governments and civil society organisations and innumerable proposals have been put on the table in this respect. Finally, greater transparency is needed in decision-making processes within the Bank itself. Discussions at the Executive Board and votes cast by member countries should be duly disclosed in order to be subject to public scrutiny. Brazil, as one of the member countries at the Executive Board, should not be left out of this discussion.

* Member of the Management Collegiate Body of INESC and the Executive Secretariat of Rede Brazil on Multilateral Financial Institutions.

This article was first published in Portuguese language at INESC website.

print    send   correct