/ 14 October 2007

Reform challenge for chiefs of IMF, World Bank

The new heads at the World Bank and the International Monetary Fund (IMF) face the tough task of restoring credibility to the powerful financial bodies that hold an annual summit this month, analysts say. Negotiations are under way to reform the distribution of votes among the IMF's 185 members.

The new heads at the World Bank and the International Monetary Fund (IMF) face the tough task of restoring credibility to the powerful financial bodies that hold an annual summit this month, analysts say.

”Both [Robert] Zoellick and Dominique Strauss-Kahn are certainly competent people. But I don’t think it is so easy for them to make change on their own,” said Daniel Bradlow, an international law professor at American University in Washington, where the institutions are based.

At their general assemblies on October 20 and 22, the American Zoellick, new chief of the development lender, and Strauss-Kahn, the French former finance minister set to take over as head of the IMF, must old the reins of institutions in the grip of an identity crisis.

Six decades after their founding in the aftermath of World War II, Strauss-Kahn leads an IMF struggling to justify its relevance, while critics say the bank is inefficient and too Western-dominated.

”It might be beyond him, no matter how competent he is, to solve the governance and relevancy problems. And the fact that there has been no governance reform so far makes it very difficult for him to change things,” Bradlow said of Strauss-Kahn.

Negotiations are under way to reform the distribution of votes among the IMF’s 185 members, currently determined by a complex system of mathematical formulas. Industrial nations are loath to yield voting power to emerging ones.

”For Zoellick, it is easier. The World Bank has no problem of relevance,” given the huge financial needs of poor countries, he added. ”The real problem is that it is such an American-dominated institution.”

The World Bank is a multilateral development lender, while the IMF works to promote monetary cooperation and stability by overseeing countries’ policies and giving loans.

An unwritten rule in the tradition of the institutions determines that the United States picks the head of the World Bank while the IMF leader comes from Europe. Zoellick was formerly the top US trade negotiator.

The fund is unlikely to get more efficient or relevant as long as members disagree on its future role, said Domenico Lombardi, president of the Oxford Institute for Economic Policy and a former adviser to the IMF and World Bank.

”The next meetings will be a sort of transition meetings,” with eyes on how the bank fares under Zoellick with loans by its International Development Association (IDA), which targets the world’s poorest countries, he said. ”It is very important how the current IDA replenishment will end up. So far he [Zoellick] has managed to deliver some interesting results,” said Lombardi.

In his first 100 days on the job, Zoellick won record contributions worth $3,5-billion for the IDA from the bank’s members.

Setting out his plan on Wednesday, he stressed the need to aid poor countries, support ones emerging from conflict and protect the environment. He said globalisation must be ”inclusive and sustainable” if it is to fight poverty.

His other themes included fostering ”development solutions” for middle-income countries, becoming more involved in issues such as HIV/Aids, malaria and trade, and supporting development across the Arab world.

The prospects for new strategies by the IMF were less clear ahead of the meetings, however.

A German finance official said on Friday that IMF policymakers faced tough talks on reforming the IMF’s mechanism to determine national contributions in the face of rising demands from emerging countries.

The junior economy minister Thomas Mirow told journalists in Berlin he did not expect firm results on this quota question at the annual meeting.

The outgoing head of the IMF, Rodrigo Rato, is not expected to make any major announcements at the meeting. He steps down on October 31 and Strauss-Kahn, yet to take office, has not spoken up about his plans.

”The general assembly will be a lot of noise and it will amount to very little,” Bradlow said. — Sapa-AFP