Published: March 30 2005
It is déjà vu all over again. Reminiscent of previous appointments to multilateral institutions, the effort to choose a new president of the World Bank has focused attention on a flawed process and ignited a heated debate. As a result, the credibility of the multilateral system is being damaged, the effectiveness of the World Bank compromised and the standing of the nominee undermined. Instead of marking an opportunity for renewed energy and enthusiasm, a key appointment risks inciting distrust among the institution's partners.
At the heart of the problem is an outmoded approach to global governance. This approach undermines the effective global policy co-ordination that is increasingly needed given growing international payments imbalances and the fluidity of capital flows. It also saddles multilateral institutions with a selection system that is better suited to feudal societies, as it is based on geographical privilege rather than merit.
It is therefore urgent that industrial countries adopt a more enlightened approach to global governance. Such an approach should eliminate archaic entitlements that have little to do with the realities of today's international economic system. There are two immediate candidates for reform: the selection process for multilateral institutions and the composition of the Group of Seven leading nations.
In consultation with other governments and with non-governmental organisations, the G7 countries can provide the catalyst for taking five steps to create a more inclusive, transparent and effective selection process for the heads of the International Monetary Fund and World Bank. First, develop job descriptions for the positions, including qualifications and experience. Second, eschew barriers that limit the candidate pool to a certain country (the US in the case of the World Bank) or set of countries ("old" Europe in the case of the IMF). Third, appoint, when needed, an internationally balanced selection committee to evaluate applicants and provide a shortlist for consideration by the boards of the multilateral institutions. Fourth, allow the boards formally to interview the candidates, and fifth, specify a voting process that would select a candidate who commands consensus.
These steps are easy to implement. Industrial countries have an early opportunity to lead following Thursday's likely confirmation of Paul Wolfowitz as the new World Bank president, and given that Rodrigo de Rato, the managing director of the IMF, was appointed less that a year ago. Given these appointments, neither position would normally become vacant for at least four years (and, judging from history, more like nine years). Accordingly, industrial countries can use next month's G7 gathering to make progress without being encumbered by the desire of a government to push a particular person for a job.
It is also time to address another glaring deficiency in global governance: the under-representation of emerging economies in key forums for international policy discussions, notably the G7 itself. Several of these economies are now important contributors to global growth, trade and financial flows. Through their growth and their investment decisions, emerging economies have instilled short-term stability to a world increasingly concerned by the deterioration in the twin deficits in the US.
This is not just an issue for academics to debate. The importance of a more inclusive approach to global governance has been highlighted by recent episodes showing the extent to which the decisions of some emerging economies affect financial markets overall, and the US in particular. Witness the manner in which markets reacted a few weeks ago to talk of Asian and Russian reserve diversification. If talk of a small potential change in asset preferences can impact global markets, imagine what could happen if some emerging economies were to use only domestic considerations in guiding their economic and financial policies.
Given all of these considerations, it is hard to argue against an urgent reform of the outdated components of global governance. The steps outlined here would strengthen international policy co-ordination, as well as stimulate a meritocracy in multilateral institutions that can play a more important role in alleviating poverty and promoting high and sustainable global growth. But all this depends on governments overcoming antiquated notions of entitlement and, instead, better promoting the advancement of human welfare around the world.
The writer is a managing director of Pimco, the investment management firm. He was a developing country nominee last year to head the IMF