Reform the international financial institutions

White Band Day 2007 TUC demand

Listen to the South!

Support global standards

ASK YOUR MP to support giving the global south a larger say in the International Financial Institutions

The international trade union movement has long campaigned for reforms of international financial institutions, especially the World Bank and the International Monetary Fund (IMF), so that they are able to address the current needs of the developing world. The two institutions created some sixty years ago for post-war reconstruction of mainly Western Europe had their remit extended to the alleviation of poverty in the developing world. The shift in the geographical focus has not, however, been accompanied with any corresponding changes to governing structures of the two institutions in order for the interests of developing nations to be adequately represented in them.

The international trade union movement demands structural reforms of international financial institutions to ensure that:

• Representation on governing structures of the two institutions reflects today's economic, political and demographic realities;

At present, five out of the 24 Executive Directors of the World Bank are appointed by the United States, France, Japan, Germany and the United Kingdom while 19 others are elected by 180 member countries. There are flagrant disparities in the current representation. Two Executive Directors represent 47 countries in sub-Saharan Africa and 13 Executive Directors represent 30 countries in the OECD.

• Developing nations - recipients of financial and technical assistance - are adequately represented in the decision-making process of international financial institutions;

The US alone held 16.39% of the total voting power in the World Bank while Japan's share was 7.87% in 2006.

• The President of the World Bank and Managing Director of the IMF are elected/appointed on merit rather than 'by tradition';

Since 1944, the USA and Europe respectively have held the two posts.

• Low-income developing nations - beneficiaries of the concessionary lending by the International Development Association (IDA) - are adequately represented within its governing structures;

At present, Executive Directors of the World Bank, ex-officio, serve as Executive Directors of the IDA (and the International Finance Corporation). Although the beneficiary countries are invited to take part in the discussions leading to the replenishment of funds, they have little say in the decision-making processes.

• Reforms of International Financial Institutions, especially the World Bank and the IMF, can be effected with a reasonable qualified majority;

At present, any amendment to the Articles of Agreements of the two institutions needs to be approved by three-fifths of the members having 85% of the total voting power. In the case of the World Bank and the IMF, this is tantamount to the USA having a veto on any reforms, as it holds 16.39% and 16.79% respectively of the total voting power in the two institutions. It is important to point out that this is not a theoretical possibility but a practical obstacle to any reform. 131 member countries having 77.3% of the total vote have so far approved an amendment to the Articles of Agreement of the IMF concerning a new allocation of Special Drawing Rights. The United States has so far withheld its approval, thereby blocking the allocation.

• Developing countries have access to financial and technical assistance from IFIs without excessively onerous conditions restricting their ability to manage their economies being imposed on them;

In recent years, international financial institutions have, under pressure from many quarters, especially from civil society, indicated their willingness to waive conditions on loans. Both the World Bank and IMF claim that they no longer impose conditions that impinge on the independence of their clients. However, there have been many instances of severely restrictive conditions being attached to financial assistance. These include deregulation and privatisation, labour market reforms and reductions in expenditure on vital public services like education, health and infrastructure.

• International financial institutions including the IDA take into account the observance of Core Labour Standards and other components of the Decent Work Agenda in their assessment of eligibility for receipt of assistance;

The international trade union movement, while opposing debilitating economic conditions being imposed on fragile economies, does support the strict fulfilment of international obligations by all countries including developing nations. The 12th Replenishment of the IDA recommended that Country Assessment Strategies (CAS) take into account the observance of Core Labour Standards. However, this has not been implemented.

• IMF monitors economic and financial policies of its members and takes measures proactively to prevent crises, thereby having a more effective oversight of the international monetary system;

The IMF has failed to fulfil effectively its primary function of surveillance of the international monetary system with serious consequences for economic growth and income distribution, as was evidenced in the Asian financial crisis in the late 1990s.

• International financial institutions consult trade unions and other civil society organisations on country strategies and other important issues.

Trade unions and other civil society organisations are willing and able to make a useful contribution to consultations by International Financial Institutions, if they are given the opportunity by making available relevant information in advance. World Bank/IMF missions often fail to consult trade unions and other civil society organisations during their visits to developing countries.