When the G20 meet in April the needs of African countries should be high on their agenda. The G20 have promised “comprehensively to reform the Bretton Woods institutions”. The risk is that the powerful wealthy countries focussed on managing their own economic crises, will ignore the need to make the IMF and World Bank more responsive and supportive of African countries who are also weathering this crisis.
Africa needs at least four things from the IMF and World Bank at present:
(1) Assistance to deal with emergencies (such as food security, climate-related, or other) where a security or political crisis looms (which requires a more rapid and flexible World Bank capacity to react);
(2) Emergency IMF lending as the financial crisis spills over to affect countries’ liquidity (this means a better-resource IMF which works with governments to put in place fewer but better corrective measures).
(3) Development lending which counter-balances the drying up (over-correction) in capital markets and of bilateral donors (this could mean a stronger, better-resourced African Development Bank which is supported by, rather than dominated by the World Bank);
(4) Support and advice on managing risks (such as prudential measures Treasuries and Central Banks can use in managing the immediate crisis, and advice about other countries’ experience and setting of longer-term strategies).
To deliver on these, obviously the IMF and World Bank will need significant resources. Food security alone will require a step increase in donor support in the light of higher food prices ( World Bank paper detailing this). The IMF and World Bank should be measuring and informing the G20 of the scale of these new needs, and seeking adequate finance to meet them.
But new financing will not be enough. The G20 promise to reform the IMF and World Bank and here at least three changes – one small and two larger – should be considered:
(1) More African staff: A small but significant change would reverse the shockingly low number of IMF and World Bank staff who are from Africa. Reversing this would enhance the capacity of the institutions to understand and work effectively within African countries: they have long been frustrated (as have their African interlocutors) by their inability to understand the political, social, and specific economic constraints and possibilities in the region. Furthermore, jobs within the IMF and World Bank have offered other regions an important training ground for officials.
(2) Reform the World Bank Board: A much larger reform would be to enable the World Bank to take risks where situations of crisis require speedy action. The existing Board structure of the World Bank is one which minimizes risks to the institution, at the cost of its borrowers. A full-time resident Board oversees detailed rules and procedures which constrain the staff and senior management. The Board also monitors internal auditing and quality controls, the work of an independent evaluation group, and the work of the judicial style Inspection Panel. The result limits any risk-taking by the Bank. Or better said, distributes risks to those least able to bear them.
The costs of minimizing risks are borne mostly by borrowers (who face slower and more costly loans) and by the world’s most at-risk and vulnerable populations whose hopes of assistance in a crisis or conflict are postponed while the Bank’s Board ensures that rules and procedures are followed. The result is a Bank which is too slow, too risk-averse, and too unresponsive to its needy members to be as effective as it can and should be. Am I arguing that the rules should be ripped up and the Bank encouraged to plough into risk-taking? No, I am arguing for decision-making which better distributes risks.
To deliver public goods, the World Bank needs a Board which enunciates the collective purpose of members. This means a Board which engages and reflects political leadership at the highest level – from every region within which the Bank works. The governments sitting on the Board need to make decisions which give the institution political cover. Those governments themselves should sometimes collectively shoulder risks, permitting the Bank to act rapidly in uncharted terrain, and to act with other international institutions without fearing for damage to its own procedures and rules (much as the G7 Finance Ministers occasionally did in the past).
The World Bank has never had an effective directorate. It needs a board which is small enough to be a directorate, yet representative enough to be effective. It needs input from different regions and countries, in part to be better informed yet more importantly because if countries do not feel represented in the organization, they can simply refuse to “let the Bank in” which would directly erode the institution’s capacity to deliver on global public goods. It needs an over-arching Board of Governors with a small number (probably no more than eight Cabinet level members, each representing a region of the world, meeting and communicating regularly (for more on this, see my blog on the FT’s Economists Forum “Shaking up the World Bank“).
(3) IMF Governance Reform: the IMF also needs governance reform to make it more responsive to all of its membership. Crucial for African countries is for other, more powerful countries to have a strong incentive to consult African countries. This could be achieved by reforming the selection and accountability of the Managing-Director of the institution; and by reforming how decisions are made to ensure that a majority of countries agree on decisions (African countries are numerous even if not economically powerful). More detail on this.
The need for action from the IMF and the World Bank is particularly necessary at a time when African countries would be starved of resources – bilateral, multilateral or even from the diaspora and the financial markets- will have no alternative but to revert to domestic financing. In a situation where many countries were graduating from IMF supported programs (PRGF), domestic financing could wreck havoc on their macroeconomic frameworks that would have devastating effects especially for the poor. Since the governance institutions have not taken proper root capacity to effectively manage the consequences of unsupervised domestic financing would be seriously limited.
Ngaire,
Thanks for inviting comments, and for these provocative suggestions. I’d like to weigh in on your 3 proposals in reverse order –
#3 – I’m glad to see this suggestion, as I think the 2nd sentence captures some realism often missing in this debate – it’s not about percentages but processes. So I’m surprised to see the 3rd sentence’s focus on the Managing Director, since nothing is going to change there for awhile, and besides I think we still have to figure out just how much DSK has changed the equation already. What’s most promising (tho still a long shot), I think, is the suggestion of “double-majority” voting – tho that’s relegated to a footnote in your linked article.
#2 – I don’t get the sense that the WB staff/mgmt feels nearly as inhibited by the Board as you seem to suggest. Indeed, I don’t think this Board is making sure they’re following the rules, including a lot of important rules designed to safeguard the rights of project-affected people. Given the complexity & size of the WBG, effective oversight is a difficult problem, but I’m not sure I agree on the basic diagnosis. I don’t see which reform would get the WBG to a place where I’d want it to be the agency taking more risks with less supervision. Greater involvement from higher levels at gov’t is clearly needed, and at a regional level, but making the WBG the platform throws in an element of power distortion that could well unbalance things quickly.
#1 – Ngaire, spare us more Africans trained by the IMF & WB and returning to their home gov’ts! Already I think we’ve got a situation where IMF ideology has basically won out in many African countries because of precisely this kind of movement – it’s no longer a case of arguing against the IMF as trying to expose the IMF assumptions ensconsed within. And even as the IMF, maybe maybe, shifts ideologically, we’re going to be stuck with SAP-style thinking in Fin Mins here for another decade or two. The “training” from the IFIs doesn’t get translated into nuanced debates among high-level thinkers, but stubborn dogma enforced down the line. This has to be most dangerous development of the last 15 years (and your most lamentable provocation!).
Soren Ambrose
Nairobi, Kenya
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