Voice and Governance Reform in the BWIs An Update Amar Bhattacharya G24 Secretariat May 26, 2010
Total Votes for Developed and Developing Countries in Shares 70 60 50 40 30 20 10 0 IMF IBRD AsDB IADB Developed Countries Developing Countries 1
Shares of Developed and Developing Countries in Total Votes 70 60 50 40 30 20 10 0 IBRD IDA MIGA IFC Developed Countries Developing Countries 2
Reform of Voice and Governance in the World Bank Initial package of reforms adopted at the last Annual Meetings (doubling of basic votes, partial offset for largest EMEs, and third t chair for sub-saharan Africa) was even more modest than the IMF with respect to voice and vote reform. A second phase of voice reform was approved by Ministers at the Spring Meetings. For IBRD, the voting power of developing countries was increased by 3.13 percent bringing it to 47.19 percent (representing esenting a total shift of 4.59 percent) For IFC, Ministers endorsed an increase in basic votes and a selective ective capital increase representing a total shift of 6.07 percent. In addition to a selective increase of $27.8 billion associated with the voice reform, Ministers agreed to a general capital increase of $58.4 billion for IBRD. Only a selective increase of $200 million was approved for IFC 3
IBRD 2010 Voice Reform: Realignments in Shareholding 60 50 40 30 20 10 0 Pre-Phase 1 Post Phase 1 Post Phase 2 DEVELOPED DTCs 4
IBRD 2010 Voice Reform: Realignments in Voting Shares 70 60 50 40 30 20 10 0 Pre-Phase 1 Post Phase 1 Post Phase 2 DEVELOPED DTCs 5
IFC 2010 Voice Reform: Realignment in Voting Shares 70 60 50 40 30 20 10 0 Before Reform 2010 Voice Reform DEVELOPED DTCs 6
Distinct Mission and Functions of the World Bank Mission IMF International Financial Stability World Bank Poverty reduction and development Functions Multilateral and bilateral surveillance Lending Technical Assistance Global public goods related to development Market-based lending Concessional financing Policy advice and capacity building 7
New IMF Quota Formula CQS = (0.5*Y + 0.3*O + 0.15*V + 0.05*R) k Y = 0.4 MP GDP + 0.6 PPP GDP over a three year period O = annual average of current receipts and current payments over five year period V = variability of current receipts and net capital flows measured as a standard deviation from the centered three-year trend over a thirteen year period R = twelve month average over a year of official reserves k = a compression factor of 0.95 8
Comprehensive and Dynamic Formula Adopt a comprehensive and dynamic formula that both properly reflects evolving economic weight and the Bank s development mission before the subsequent shareholding review First, economic weight should be measured with a higher weight of GDP PPP than what is proposed. GDP PPP is the best comparable measure of economic weight. Better indicator of representativeness for a development institution especially as it more closely correlated with population. Third it would reduce the bias against the poorest countries who would be the most discriminated against by excessive weight on GDP at market prices. 9
Comprehensive and Dynamic Formula Second financial contributions should be properly measured. The current package assumes that IDA contributions are the only financial contribution (and indeed element of the Bank s development mission) and staff paper suggests that IDA contributions and Trust Funds would be the only financial contributions to be taken into account in a future formula. This is simply wrong. The bulk of the financial contributions come from counterpart funds from countries and from loan charges (past and present) for the functioning of IBRD and IFC. Even for IDA, IDA contributions are a very important but not the only element of financial contribution. 10
Comprehensive and Dynamic Formula Third, any robust formula must incorporate the importance of clients to the Bank s development mission. COMPLETELY MISSING IN STAFF PAPER Key indicators that reflect the importance of countries to the Bank s poverty and development mission are the proportion of the world s poor and population weighted by income level. This can be modulated to reflect the extent of client engagement as proposed (IBRD/IFC/IDA financing as well as knowledge engagement, advisory services, IFC investments and MIGA guarantees). 11
Comprehensive and Dynamic Formula Progress towards equitable voting power should be judged against a formula that properly reflects all these elements and addresses the present shortcomings. It will be important to ensure that the voice of the poorest and the small are adequately recognized. The best protection for the poor is a formula that fully takes on board their importance to the mission of the Bank. It would also be important to review the share of basic votes given their still low levels compared to historical benchmarks and many other international organizations. 12
Towards a World Bank Specific I. Representation Pillar Formula 1. 1$ = 1 Vote (GDP PPP and/or GDP MP) 2. 1 Country = 1 Vote (Basic Votes) 3. 1 Person = 1 Vote (Population or Square Root of Population) II. Development Cooperative Pillar 1. Contributions 1. IDA 2. ODA 3. Outstanding IBRD Loans 2. Importance as Clients 1. Incidence of Poverty 2. Income status weighted by population 13
IMF Voice Reform: Realignments in Quota Shares 70 60 50 40 30 20 10 0 Pre First Round Post First Round Post Second Round Developed DTCs 14
IMF Voice Reform: Realignments in Voting Shares 70 60 50 40 30 20 10 0 Pre First Round Post First Round Post Second Round Developed DTCs 15
IMFC Mandate on Governance Reform we support a shift in quota share to dynamic emerging market and developing countries of at least five percent from over-represented countries to under-represented countries using the current quota formula as the basis to work from. We are also committed to protecting the voting share of the poorest members. We urge all members to promptly consent to the still pending 2008 quota and voice reform. From IMFC Communiqué October 4, 2008 16
Issues on Interpretation and Approach a) Shift to whom? b) By how much? c) On what basis (quota formula, reformed quota formula, ad hoc adjustments) d) How to protect the poor? e) What approach (targeted, formula based or equiproportional)? f) Size of increase 17
Addressing Deficiencies in the Quota Formula There are three main deficiencies in the quota formula: a) Economic dynamism is insufficiently recognized b) Some advanced countries are improperly categorized as under-represented because of distortions in measures of openness and variability c) Borrowers bear a disproportionate share of adjustment because variability is mis-specified These deficiencies can be addressed through adjustment within or outside the quota formula
Who are Dynamic EMDCs? GDP PPP 2006-08/ Post Second Round GDP Growth 2003-2008 >6 4-6 <=4 >=1.2 China Turkey India Vietnam Ethiopia Bangladesh (*) Kazakstan Azerbaijan Equatorial Guinea Russia Peru Albania Iran Colombia Brazil Egypt Indonesia Pakistan Poland Thailand Korea Nepal Mexico Spain United States 1-1.2 Lithuania Dominican Republic Estonia Angola Cambodia Bhutan Belarus Guatemala Botswana Ecuador Philippines Burkina Faso (*) Greece Japan 0.8-1 Latvia Turkmenistan Chad Slovak Republic Sudan Tanzania Qatar Argentina Lao, People's Dem. Republic Romania Ukraine Myanmar Uzbekistan United Arab Emirates Paraguay Chile Tunisia Oman Macedonia, FYR Syrian Arab Republic South Africa Czech Republic Costa Rica Honduras Bolivia Timor-Leste El Salvador Australia Italy Portugal Yemen, Republic of (*) Note: Burkina and Bangladesh are overrepresented by more than 25%
Dynamic EMDCs by Region (in percent) Asia Quota Share a LAC Quota Share a MENA Quota Share a SSA Quota Share a Transition Quota Share a China 4.00 Peru 0.27 Turkey 0.61 Ethiopia 0.06 Kazakhstan 0.18 India 2.44 Colombia 0.33 Iran 0.63 Equatorial Guinea 0.02 Azerbaijan 0.07 Vietnam 0.19 Brazil 1.78 Egypt 0.40 Angola 0.12 Russia 2.49 Cambodia 0.04 Dominican Rep. 0.09 Botswana 0.04 Lithuania 0.08 Bhutan 0.00 Guatemala 0.09 Nepal 0.03 Estonia 0.04 Indonesia 0.87 Ecuador 0.15 Belarus 0.16 Pakistan 0.43 Mexico 1.52 Poland 0.71 Thailand 0.60 Albania 0.03 Philippines 0.43 Korea 1.41 Total 10.42 4.22 1.64 0.27 3.75 a Share in Post-Second Round Quotas
Evolving Weight of EMDCs in World Economy 60 (in percent) 50 40 Post Second Round Quota Shares 30 20 10 0 GDP MKT 2005-2007 GDP MKT 2006-2008 GDP MKT 2011 GDP MKT 2015 GDPPPP 2005-2007 GDPPPP 2006-2008 GDPPPP 2011 GDPPPP 2015 Dynamic EMDCs Other LICs Other MICs Source: IMF 21
Magnitude of Gain/Loss from Trade Openness Measure in the Quota Formula 1 EU 1 0.5 0-0.5-1 -1.5-2 -2.5-3 -3.5 Germany Netherlands United Kingdom Belgium Singapore Switzerland Ireland Luxembourg Sweden Austria France Malaysia United Arab Emirates Denmark Canada Korea Czech Republic Thailand Norway Hungary Australia Argentina Indonesia Iran Turkey Mexico Russia China Brazil India Japan United States 1 Formula used: (Openness-GDP Blend)*0.3 Source: IMF 22
Impact of Variability Corrected in the Quota Formula 30 25 20 15 10 5 0 Dynamic EMDCs Other MICs Other LICs SSA PSR Calculated Quota 2008 Calculated Quota 2008 with Variability Corrected Source: IMF 23
Who Gains and Who Pays in Using Quota Formula? # of countries Post Second Round Quota Shares Calculated Quota 2006-2008 Percent Gain/Loss Advanced Economies Gainers 12 17.1 19.0 11.1 Losers 14 43.4 39.8-8.3 Net 26 60.5 58.7-2.8 Emerging Market and Developing Countries Gainers 49 20.7 29.7 43.1 Losers 111 18.8 11.6-38.3 Net 160 39.5 41.3 4.4
Who Gains and Who Pays in Using Quota Formula? Emerging Market and Developing Countries By Growth/Income # of countries Post Second Round Quota Shares Calculated Quota 2006-2008 Percent Gain/Loss Dynamic EMDCs Gainers 27 17.1 24.4 42.7 Losers 6 3.2 3.1-4.5 Net 33 20.3 27.5 35.5 Other LICs Gainers 3 0.04 0.04 18.9 Losers 65 4.2 2.3-46.6 Net 68 4.2 2.3-46.0 Other EMDCs Gainers 19 3.6 5.2 45.1 Losers 40 11.4 6.3-44.8 Net 59 15.0 11.5-23.1
Other Governance Reforms in the IMF Size of quota increase Size and composition of Executive Board Enhancing the Board's effectiveness Greater involvement of IMF Governors in decision making and strategic oversight Heads and Senior Leadership of IFIs should be appointed on basis of open, transparent and merit based process Staff diversity