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Developing Nations Gain Clout at World Bank – Depending on Your Math

Matthew Berger

WASHINGTON, Apr 26 2010 (IPS) - Developing countries will have a slightly larger say at the World Bank under an agreement reached at the institution’s spring meetings this weekend. But some groups are challenging whether the shift in voting shares is as large as it should be – or as large as the bank says it is.

This shift comes as part of a package in which developing countries will also up their contributions to the money used for the bank’s operations, or its paid-in capital. That capital will increase by 5.1 billion dollars, which marks the largest increase since 1988. Developing countries will contribute 1.6 billion dollars of that boost.

The share of voting power allotted to low- and middle-income countries on the board of the bank’s International Bank for Reconstruction and Development will rise from 44.06 to 47.19 percent.

That number, however, may not be accurate, according to some development and international financial institution watchdog groups. At issue is the definition of what constitutes a low- or middle-income country – or “developing” or “transition” economy – and thus whether certain countries should be included within that 47 percent figure.

The classification used by the bank is based on data in the International Monetary Fund’s World Economic Outlook report and includes 16 countries which should not be termed either “developing” or “transition”, says the London-based Bretton Woods Project.

These countries are all classified by the World Bank as high-income, it says, and together they hold five of the 47 percent. Sunday, the organisation characterised “the final real share of voting power for developing countries (excluding high income economies)” as just over 42 percent.

“It’s smoke and mirrors to count Saudi Arabia and Hungary as developing countries and then claim a three-percent shift in voting power will give poor countries more say,” Elizabeth Stuart of the development group Oxfam said Sunday. “The World Bank is asking for a lot more money, but it hasn’t got serious about reform.”

Jo Marie Griesgraber, executive director of New Rule for Global Finance, an NGO that seeks to reduce poverty and inequality through promoting stable global financial systems, called the changes announced over the weekend “marginal”. She agreed with the Bretton Woods Project analysis that “the way you get to this 47 percent is by a distortion of numbers or a misinterpretation”.

“We need a really candid examination of the numbers,” Griesgraber said.

The voting reforms were far from unexpected.

In 2008, developing countries were the beneficiaries of a 1.46-percent shift in voting power as well as a 25th seat added to the bank’s executive board, to be elected by certain sub-Saharan African countries. That 25th seat has still not been added on. The voting reforms approved Sunday fulfill pledges made by bank shareholders at last fall’s G20 meetings in Pittsburgh and World Bank and IMF meetings in Istanbul. With the 2008 increases, it amounts to a cumulative shift in recent years of 4.59 percent, the largest change in representation at the bank since 1988.

For his part, World Bank president Robert Zoellick said Sunday, “The change in voting-power helps us better reflect the realities of a new multi-polar global economy where developing countries are now key global players.” In a speech on Thursday, he called the spring meetings a “turning point” for the institution, saying “the World Bank has to change” and expressing hope that the “historic step” of voting reform would be taken.

Individual country winners and losers

The shift will benefit some developing countries – however defined – more than others. China, Brazil and India came out as the major winners.

China, which increased its voting share from 2.77 to 4.42 percent, leapfrogged several European countries to become the new third-largest shareholder in the bank. The United States stays well atop the pack at 15.85 percent, followed by Japan at 6.84 and then China, Germany, France and Britain, respectively.

India’s voting share increases 2.77 to 2.91, making it the seventh largest shareholder in the bank.

The changing world economy has led Zoellick to declare that 2009 witnessed the end of the “Third World”, but that shift is not yet reflected in the voting breakdown.

“The idea of giving the World Bank a lot more capital for emerging economies makes eminent sense to me. But if the U.S. wants a proportional voice it needs to contribute proportional capital,” said Griesgraber.

“It looks like we’ll have a more representative World Bank, with countries like China being given a bigger say, but poor countries are still effectively shut out,” said Stuart. “This reform is all but meaningless for the poorest countries. Sudan is the only sub-Saharan African country that gained any voting share increase. To African countries this isn’t a new World Bank for a new world, as Zoellick calls it.”

Oxfam notes that of the 47 countries in sub-Saharan Africa, more than a third have lost some of their voting share as a result of the reforms and 60 percent have stayed the same. Nigeria and South Africa, the largest regional economies, had the most significant cut in quotas.

Developing countries have long hoped for parity between their voting share and the share allotted to industrial countries. That parity is still possible somewhere down the line. The weekend’s agreements included one to review vote allocation every five years, with what a World Bank statement called “a commitment to equitable voting power between developed countries and DTCs (developing and transition countries) over time”.

But there are three ways to reach that voting parity, says Griesgraber: “One, you don’t tell the truth about the numbers. Two, the U.S. accepts a decrease in its voting share. Three, Europe accepts a decrease in its.”

She sees a lack of political will in achieving either of the last two. “I don’t think any of those are going to easy to achieve,” she said.

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