A Bankrupt Process
As Paul Wolfowitz is confirmed today as head of the World Bank, the need for reform could not be more apparent. In the controversy surrounding his selection all but a handful of stories focused on Wolfowitz the individual. Lost in this discussion – which must take place – is the larger question of modernizing the institutions charged with fighting poverty and promoting economic growth in the developing world.
Simply put, the current process of selecting a new president for the World Bank and the director of the International Monetary Fund (IMF) is dysfunctional and archaic, and it ill-serves the long-term interests of the American people, our European allies, and the nations of the developing world.
When it comes time to pick new leaders at the World Bank and the IMF, we enter a time warp that sends us back 60 years to the founding of these institutions. The current deal is the same one that was reached in 1944: the United States effectively owns the presidency of the Bank and Europe has a monopoly on naming a director of the IMF.
When these institutions were established, this gentleman's agreement made a certain 1940's kind of sense. Having technocrats work behind closed doors was common practice. Only a few nations could actually contribute to the organizations and a handful helped launch them. And many of the countries that today make up the majority of their clientele would not achieve independence for 20 years or more.
Sixty years later there are abundant reasons for change. More nations are contributing to and involved in the daily operations of the Bank and IMF. International institutions of all stripes are expected to function in more transparent ways. The client base has increased exponentially. And the Bank and the Fund now have track records that, rightly or not, have raised questions about their independence from the U.S. and other G8 nations, and the effectiveness and practical economic implications of their programs.
The World Bank and the IMF are vastly different institutions. Over the past decade the Bank has taken many more steps than the IMF to operate transparently and most analysts give World Bank President James Wolfensohn high marks for his emphasis on basic health and education programs and anti-corruption drive. Leadership has changed at the IMF but the jury is still out on whether it has truly reformed from the days when it came under heavy fire for its handling of countries affected by the Asian financial crisis.
When it comes to the process of selecting new leaders, however, the institutions share a need for change. Those seeking clues for what might happen to the Wolfowitz nomination ought to examine how the last two directors of the IMF were selected, a process that revealed both flaws and potential for change.
The first cracks in the process appeared in 1999, when the United States intervened for the first time in Europe's selection of a new IMF director. The Clinton Administration, using the power of the U.S. contributions to the IMF and its outsized influence, effectively vetoed Germany's first choice for IMF Director. When it was clear that the candidate would not survive, German President Gerhard Schroder rapidly responded with a new candidate, Horst Kohler. There were far better candidates than Kohler available, including the South African-born Stanley Fischer, an IMF veteran with the backing of many African nations. Fischer, however, was saddled with American citizenship and could not get a hearing.
When Kohler resigned unexpectedly one year later, members of the IMF Executive Board immediately embraced the old ways. European officials dismissed a public plea from the board representatives of more than 100 nations who called for the new director to be chosen in an open process, "regardless of nationality." These were hardly outlandish demands – board members of any large company have the right to learn about candidates and weigh their options before agreeing to the appointment – but the Spanish quickly succeeded in having Rodrigo de Rato, a lawyer with limited experience in crisis management or financial reforms, installed as the new IMF Director.
While there is no chance that the big contributors to the Bank and Fund will overnight yield their right to select leaders, there are steps that can be taken now that might one day lead to real change.
First, the process should immediately be made more transparent. Perhaps coincidentally, this week a Bank spokesman said that the Bank would begin to publish minutes of the executive board's meetings beginning April 1. As the Center for Global Development and others have argued, this new pledge should apply to the meeting about Wolfowitz even if the board meets before the new rules are set to come into effect.
Second, client countries must be given a formal role in helping to pick candidates for leadership at the Bank and Fund, even if the ultimate decision lies in the hands of the executive board dominated by the U.S. and European nations. Ensuring that representatives from client countries be allowed to interview candidates, for example, would mean far fewer surprises and much greater credibility for the new leaders.
Third, the process should be opened to ensure that highly capable leaders from other industrialized and developing countries have the opportunity to compete for the role. This is not to knock the skills or accomplishments of Bank presidents from Robert McNamara to Wolfensohn. But opening the field could serve to better define the kind of leadership the Bank or Fund needs at that moment, as well as expand the talent bank for top-level positions throughout the international financial institutions.
Finally, the Bank and Fund would do well to involve the non-governmental organizations that have protested their policies but played increasingly important roles in global development and poverty efforts. Shutting out these people – including NGOs, economists, and current and former Bank and IMF employees – only increases the sense of alienation that fuels misunderstanding and protests.
We are not arguing that doors should be opened for the sake of transparency, or that enlarging the pool of candidates is a goal in itself, or that widening the circle of selection would be easy or neat. Change should come for a simpler reason: it will better serve the nations who contribute the most to the Bank and Fund and those nations these institutions were established to serve.
Robert O. Boorstin is Senior Vice President for National Security and Brooke Lierman is a research associate at the Center for American Progress.
The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.