International Financial Institutions and Their Leaders

cooperation and coordination.

A

That episode should focus the minds of a crippled White House, a resurgent US Congress, as well as the governments of the real G-10 for the 21st century – the US, EU, Japan, China, India, ASEAN, Saudi Arabia, Russia, Brazil and South Africa (all of which played a supine, diffident role in handling this incident) on two priorities: (1) abandoning dysfunctional selection processes for leaders of multilateral institutions; and (2) redrawing the architecture of the multilateral systems for financing, coordination and cooperation. What is now clear is that it is not sufficient for the world’s countries to rest content at rearranging chairs, and “reforming” or reorganising a single multilateral institution or two, from time to time. The whole multilateral house needs profound structural adjustment and rearrangement: from its very foundations to the design of every room up to its roof.

The US president reacted too slowly to the Wolfowitz debacle; first wanting to “save” him with lame excuses, but realising too late the hopelessness of that attempt. In the process his credibility and authority were compromised. Still, George W Bush Jr wanted to avoid desecrating and changing (by default) the unwritten, unspoken tradition that the head of the World Bank must always be an American. That tradition must now be put firmly on the table for open debate and resolution by the World Bank board and governors of that august institution. So must the accompanying tradition, that the head of the International Monetary Fund (IMF) must always be a western European in exchange. Similar unwritten traditions prevail in other multilateral development banks (MDBs) and international financial institutions (IFIs) as well. In the 21st century, the world is ill-served by such “clubby” cosy gentlemen’s agreements, based on handshakes in the post-war ethos of the mid20th century, that are aimed at keeping the rest of the world out of effective participation in the global system.

In similar fashion, it is understood among Asian and other member governments, though not constitutionally enshrined in its Articles, that the head of the Asian Development Bank (AsDB) must always be Japanese. The head of the Inter-American Development Bank (IADB) has always been chosen from a developing Latin American country. The president of the Islamic Development Bank (IsDB) has, on the other hand, always been a national from a donor Islamic country (usually in the Gulf). The head of the European Bank for Reconstruction and Development (EBRD) – the newest MDB which should not have been created but was, in order to accommodate the Hindenburg-airshipsized ego of the mercurial Jacques Attali, a former French presidential advisor – can be a national from western or eastern Europe. The president of the African Development Bank (AfDB) – the least-regarded and least capable of MDBs – can be from anywhere in north or sub-Saharan Africa. This has proven to be a bit of a drag on the fortunes of AfDB. It is a reflection of political correctness and imagery that actually compromises the amount of money that the AfDB can raise from European, Japanese and US markets and treasuries for their hard and soft loan windows.

Economic and Political Weekly June 30, 2007

suave, erudite diplomatic representatives, shake their visages sadly about the evils of petty chauvinism and nationalism rearing their ugly heads, when they (and we, who are equally to blame) cannot get our own heads around solving more blatantly carcinogenic symptoms such as these.

The unwritten, unspoken conventions – respected with greater force than the principles that are constitutionally protected – generally apply in all multilateral agencies, not just the MDBs and IFIs. They apply in the UN; whose secretary-general (SG) is appointed on the basis of a geographical round-robin. That results in it being purely a fortuitous accident of fate when the UNSG turns out to be remotely effective. Some poor choices of UNSG have been made as a result; including the present one, when better qualified candidates, who knew far more about the UN and its Byzantine workings – like Shashi Tharoor – or the charismatic global asset that is Bill Clinton, might have been much better.

Countries like India and China, which were supplicants in 1944 when the arrangements of Bretton Woods were decided, are emerging superpowers now. They should not have to put up any longer with ridiculous, offensive and anachronistic conventions such as these that damage their own evolving global interests – as well as those of other developing countries that do not have as large a presence. They should not tolerate so slow and unsynchronised an approach to adapting the governance machinery of multilateral organisations. They should not permit the “older” powers, whose influence is waning, to continue delaying and retarding essential changes (in board and management representation, shareholdings, quotas, etc) that are now long overdue. Neither should the rest of the “developed” world that does not belong to the tired G-7 club of downhill racers. A united front of like-minded countries – developed and developing – needs to be formed to force a change in this way of doing things; just as a united front in the World Trade Organisation (WTO) has made intransigent trade blocs like the European Union (EU) and US sit up and listen more responsively to economic reason and the imperatives of fairness and equity.

With the World Bank, an unusual opportunity for effecting a profound change in discarding bad habits and ill-suited conventions was missed. When Wolfowitz’s departure became inevitable, president Bush appointed Robert Zoellick, former US trade representative, and former deputy secretary of state, as his replacement. As substitutes go that does not appear to have been too bad a choice; assuming (but why?) that it had to be another American. It could have been worse – John Bolton? But it could have been better. From a global welfare viewpoint, Colin Powell, the former secretary of state; Robert Rubin the former secretary of the treasury; or even David Mulford, the US ambassador to India, and former deputy secretary of the treasury, might have been better choices. Non-American and non-European choices might have been better still. The idea of Tony Blair as a candidate was not one of them. The fact that choices for the president of the World Bank are now typically made by the president of the US from the “B & C” team ranks of the US administrative establishment, rather than the “A” team, reflects subliminally how low the Bank has sunk in US perceptions of global prestige.

A Digression

What is strange is that the US – while insisting on retaining the antediluvian arrangement of appointing an American as the World Bank’s president – turned its back on attaching importance to development assistance and the World Bank/IDA some time ago. That is why no worthwhile, really capable high-profile American has been appointed since 1981. In relative terms, and bearing in mind affordability, Europe, Japan and petrodollar donors have been much more supportive of the institution (with market funding for the hard window of the International Bank for Reconstruction and Development (IBRD) and budget funding for the soft window of IDA) since the mid-1970s.

The US has been at odds with other donor countries – principally in western Europe and Japan – on the general orientation and thrust of development policy since the end of the Vietnam war. Then, it perceived the rest of the world that did not support that war against communism in Asia, as ungrateful and unreliable. That view in middle America has not changed much over the last 30 years. The US administration, the public, and Congress would rather spend $ 200 billion on an illegitimate war, in the belief that terrorists are better off killing each other in Iraq, Lebanon, Palestine and Afghanistan, than spend $ 20 billion on genuine development assistance there or anywhere else.

There is an unshakeable conviction in the mind of republican, ‘mittel Amerika’, which voted for this particular administration again in 2004 (despite its stealing the 2000 election), that the former option (i e, egregious defence expenditure) makes the US safe while the latter (i e, uplifting the miserable plight of four-fifths of humanity) wastes tax money in yielding further ingratitude. The possibility that the opposite relationship may hold has no credibility at all in the corridors of American power. An America which twice saved the world from itself, in the early and mid-20th century, now feels more comfortable with systematically eliminating those whom it perceives as terrorist threats. That appears to embrace virtually all the Islamic world; but excludes selectively that part of it occupied by its client states. It prefers to ignore dealing with and eliminating the appallingly unjust political, social and economic conditions that breed terror in such profusion in west Asia. In fact, since 2004, what the US has been doing will achieve the opposite of what it intends. It is now creating terrorists more rapidly in Iraq, Afghanistan, Lebanon, Palestine, Iran, Egypt and Pakistan (which has become the most dangerous country on – and to – the planet) than it can possibly exterminate them. As it happens, these places are, unfortunately, of immediate geostrategic interest to India, being in its neighbourhood.

In the time I have been involved with “development” since 1971, the US has favoured using the multilateral development assistance system – with the World Bank as its centrepiece – to: (a) propagate market economies and capitalism around the world; (b) emphasise the role of individual/corporate entrepreneurialism and the private sector rather than state intervention and parastatal corporations as the engine of development; (c) encourage governments to be more open to global trade, investment and private capital flows;

(d) apply the Washington consensus on macroeconomic policy and structural adjustment; and (e) confine the role of the state to fostering democracy and providing security, while having it withdraw from playing a direct role in the economy, apart from ensuring sound regulation of markets. That posture has proven to be more right than wrong as time has unfolded.

Economic and Political Weekly June 30, 2007 I must confess that I did not think so at the time, when I was directly involved in raising capital resources for IDA and the IBRD. The experience of India since 1991 and China since 1978 with economic liberalisation aimed at converting their commandcontrol economies into market economies has vindicated the US viewpoint.

The Europeans on the other hand – with the episodic exception of the UK before 1997, but with its over-enthusiastic jumping on the “poverty-equity” band-wagon since then – have pushed for development policies that are increasingly driven by vociferous NGOs and aging rock-stars. These so-called “policies” have had intense emotional resonance, especially to the young and energetic, addicted to deafening rock concerts dedicated to saving Africa and the world. The fact that these non-policies are fundamentally flawed has escaped notice. Indulgent leaders like Tony Blair have bestowed on them an entirely false credence.

All these “agents” – i e, the NGOs, celebrity “has-beens” and political leaders like Blair, desperate to establish their universal popularity at the expense of wisdom – are misguided on the basics of economics and finance; which they do not understand despite an elaborate glossy pretence that they do. They are wellintended and aggressively exuberant in their social commitment to bringing about a “world without poverty” regardless of the damage that might be done to the cause of real development in that elusive pursuit. They command the global media and can appeal to the hearts and minds of the innocent, the young, and the naturally gullible. They have persuaded European donor governments to take the opposite (and erroneous) view that development is best achieved through European-style interventionism, public expenditures of 50 per cent or more of GDP; the pursuit of unadulterated socialism, a greater concern for achieving equity over growth through capital accumulation, and most damagingly, an obsession with poverty reduction, that has effectively derailed “development” throughout too much the developing world and particularly Africa which has suffered from being the focus of attention of “do-gooders” with more money than sense.

In that pursuit, the UN has been a willing co-conspirator in promoting the European development paradigm; especially in Africa, much to that continent’s harm. It has promoted with exuberance its so-called Millennium Development Goals. Unfortunately these have little to do with achieving development, in any commonly understood sense of them term. They have more to do with superficial, inherently unsustainable, and intellectually unsound attempts to supposedly alleviate poverty. Thankfully, real development is now galloping ahead in the two giant countries that account for over a third of humanity. These countries are much less concerned about poverty reduction. They are more concerned about growth and about ensuring that the trajectory of globalisation and open world trade, from which they have both benefited so spectacularly, is not disrupted.

In heading off this European-led effort to derail development, and the basic stability of key global development agencies, by loosening their established mental moorings, the US has been conspicuous by its absence; except perhaps in ratifying the content of the structural adjustment agenda invented more by the IMF than by the World Bank, that became (in default mode) the Washington consensus. Since the 1980s, the US has exerted little intellectual or financial leadership to safeguard the cause of development, or of the agents it created in the mid-1940s to advance that cause.

So, its insistence on retaining the unilateral right to appoint the president of the World Bank stands in stark contrast to its post-1970s posture. The only way in which that obvious anomaly can be reconciled is by assuming that the US administration now sees the World Bank as an extension of its state, defence and commerce departments through which it can exert its own political mores and values as well as its foreign policy and security interests. That may also help to explains why it now appoints World Bank presidents from the B & C levels of its own administrative cadres. They are well indoctrinated and psychologically attuned to taking their leadership and agenda-shaping cues from their established seniors at the “A” tier of US governance. Unfortunately that also makes the World Bank less useful and less relevant to the world at large.

The first priority after Wolfowitz’s departure should have been to concentrate the minds of all the World Bank’s shareholders (not just the US) on selecting the right individual and team to repair/overhaul that institution with urgency. Zoellick, on the face of it, has credentials that meet the minimum criteria. But is that enough?

Economic and Political Weekly June 30, 2007

par excellence, who guided the world through the Uruguay Round of trade negotiations, and who would have made an excellent president of the World Bank based on his record) the IADB has chosen another cipher to be its leader. In fact leaders like Iglesias have been the exception rather than the rule through the IADB’s turbulent history.

The present leader of the AsDB seems astute, forward-looking and dynamic enough. But that has not always been the case. The Japanese finance ministry does not specialise in producing charismatic leaders of multilateral institutions in Asia or elsewhere who command respect easily on the wider regional and global stage. Nor does it produce leaders who, trained to be inscrutable, invisible, and opaque bureaucrats for most of their careers, can suddenly develop the gift of communicating and inspiring Asians with their charm and diplomacy. There have of course been exceptions, like the remarkable Toyoo Gyohten, former vice-minister of finance, who was not made president of the AsDB but of the Mitsubishi Tokyo Bank instead, or the volatile Eisuke Sakakibara, who was too outspoken and up-front to make his own authorities entirely comfortable.

But, that infirmity apart, Japan still has too many ghosts to lay to rest, for the rest of resurgent Asia (especially China which suffered most from Japanese occupation) to be comfortable with Japanese leadership of pan-Asian institutions that should play a much more active role in Asia. Japan would do well to consider opening up the presidency of the AsDB not just to other Asian nationals from its two giant economies and ASEAN, but to the best qualified candidate from anywhere, including the Antipodes. It should also move the AsDB from Manila to Singapore (which is now Asia’s most credible and genuinely global financial fulcrum) to achieve greater operational and financial flexibility and efficiency. For multinational organisations to saddle themselves with politically established leadership recruitment and locational infirmities, that successful private transnational corporations abandoned some time ago in order to survive and thrive, seems remarkably perverse and counterproductive. It sets entirely the wrong example for the world of the 21st century.

To his credit, Kuroda asked an expert group (which included Isher Ahluwalia) to do some serious thinking about the future of that institution. What they have come up with was interesting. They recommended quietly shifting the AsDB away from focusing on poverty reduction to what Asia really needs – i e, massive doses of financing for infrastructure, assistance with galloping urbanisation and a major population transition away from rural to urban areas as incomes rise; assistance with the rapid development of their own capital markets; and with meeting the challenge of climate change.

But what the expert group recommends does not go far enough in making the AsDB a truly regional institution in the same way that the European Investment Bank (EIB) is for the EU. That cannot happen unless the AsDB abandons copying the dysfunctional model of the World Bank and considers adopting the more appealing model of the EIB. It will not happen unless non-regional shareholdings in the AsDB, (and in the IADB as well) such as those of the US and EU countries, are reduced to below 25 per cent of the shareholding of the institution with the shares of ASEAN, China, India and Japan equalising at 15 per cent each, with other Asian states including Australia and New Zealand (which are Asian irrespective of their ethnicity) accounting for the remaining 15 per cent.

That shift in the AsDB’s shareholding structure is now long overdue. It should have happened at the turn of the millennium not a decade or two later. Moreover, even the nominal non-regional shareholding of 25 per cent should be phased out to zero by 2025 through pre-negotiated call options that redistribute this share to Asian shareholders pari passu.

At present Asian countries, are collectively the largest creditors to the rest of the world to the tune of nearly $ 3 trillion. Yet they confront the absurdity of being instructed by their debtors (especially the US and EU via the good offices of the IMF, WB and AsDB) on what they should be doing to develop successfully and the attention they should be paying to poverty reduction instead of capital accumulation and growth. It is surplus Asia that should be instructing its profligate debtors – the US and EU and indirectly Africa as well

– what to do in order to adjust properly and reduce the global imbalances that threaten global stability instead. In respecting traditional relationships, and age-old balances of relative bargaining power between creditors and debtors, the US – which now owes over $ 2.5 trillion to its creditors, mostly Asian countries, and with that debt stock growing at $ 600 billion annually – needs to be told by its creditors (as third world debtors once were) to: tighten its belt, reduce public spending dramatically, reform its dismal and failing healthcare system, revitalise its school level education system, withdraw immediately from invasions/occupations it cannot afford, reduce its external deficits, increase its savings rate, and refocus its investment expenditure.

By the same token, the EU needs to be told by its Asian creditors that they need to trim unaffordable welfare states that are making them so uncompetitive by destroying incentives for their people to work. They should cease being so protectionist, prevent the social decay that is gripping their societies, learn to cope better with free global movements of labour from within and outside the EU, as part and parcel of the globalisation process, instead of ranting ceaselessly about uncontrolled immigration (which actually works to their economic advantage by exerting downward pressures on escalating wage rates), reduce the percentage of GDP absorbed by public expenditures and revenues from 50 per cent to around 35 per cent, adopt the market-economy model more widely, and let the private sector play a greater role in European production of goods and services.

The leaderships of the other MDBs in other regions – i e, Africa, Latin America, eastern and central Europe and west Asia

– need to be subjected to similar selection processes that stress competence and ability, as well as transparency and accountability, over resort to nationalism or the ridiculous principle of “Buggins turn”. That would automatically trigger collateral responses of a more substantive, strategic kind in re-orienting and focusing the efforts of these institutions and yield a better return on their capital resources as well as their loans and investments rather than persisting with an infantile preoccupation with the mantra of poverty reduction.

The Second Priority

Most people would think that the second priority – re-engineering the multilateral system – demands another doctoral treatise written by wise men of the Paul Volcker ilk. They would be wrong. As noted above, a recent attempt was made by the AsDB to think seriously about its future. Several

Economic and Political Weekly June 30, 2007 such attempts have been made by almost every multilateral institution in the last 20 years. I have been involved in writing some of these grand plans. But, despite application of much thought and expenditure, they have achieved nothing.

Typically, to undertake these periodic exercises supposedly wise people are appointed to suggest how expensive lumbering multilateral elephants – that are meandering aimlessly about, bumping clumsily into each other as well as into the world’s problems, and often accidentally exacerbating them – can be transformed into lean, mean racing machines. Invariably, these same wise people come up with designs for an eight-legged hippopotamus. That is neither a particularly attractive nor useful beast. But that is what happens when people who have been too much a part of the “system” they are asked to transform indulge in conventional thinking and apply received wisdom to why a multilateral system is needed in the 21st century and what it should and shouldn’t do.

It no longer makes sense to change the architecture or role of an individual institution, like the World Bank, when the overall “system” in which it operates is as anachronistic as it is. The MDB system as a whole has to be revamped and restructured before the roles of individual institutions within it are determined. The foundations of that system were first designed in the mid-1940s when the world was quite different. Unwieldy regional and global bits and pieces have been tacked on periodically since. As a consequence, the overall MDB system is now too slow and unresponsive in accommodating the shifts that are occurring continuously in global/ regional economic and strategic power. The design of its governance and oversight mechanisms (by shareholders and stakeholders over institutional managements) across this system is fundamentally faulty. It is based too much on the original model designed in 1944 based on the relative power balances that prevailed then. The evolutionary changes that have occurred in adapting the UN and Bretton Woods systems to the modern world have been too few, too far between, and simply not deep or ambitious enough to have made a real difference.

The result is that the extant multilateral system is much too inefficient in accommodating changes in the agenda and focus of global concerns, and in recognising the evolving nature of what are seen, from time to time, as essential “global public goods”. Multilateral institutions are too far behind the global private sector and many governments in adapting to their rapidly changing environments and applying sound management practices. They glory in the mobilisation and waste of large amounts of public resources by insisting on politically correct and popular, but erroneous, wishful thinking on an egregious scale.

One example is subscribing to an NGO and EU aid-agency driven, quasi-religious belief that poverty reduction, rather than wealth creation and its equitable distribution, is the key to “development”. The experience of China and India has proven this approach to be wrong. Yet the continued mindless application of a povertyreduction strategy for Africa will keep that continent poor for much longer than is necessary. The result of such a strategy has been to bend the entire system (multilateral and bilateral) for delivering aid and financing “development” out of shape. It has compromised objectives and outcomes by focusing on the wrong thing at the wrong time; and by putting the cart of poverty reduction before the horse of development. That same strategy has turned the World Bank into an Africa Bank; much to the detriment of the regional AfDB

What would constitute an immediate, cogent agenda for the shareholders of the Bank and stakeholders of the multilateral development financing system to focus on given the opportunity provided by l’affaire Wolfowitz? In adumbrated form it might comprise the following 15-points:

(1) Move all the development activities, funds, programmes and functions of the UN system into the ambit of a new global development agency(GDA). The new GDA should be built on the cumulative financial and human resources of IDA, which should be separated from the hard core of the World Bank (see point 5 below) and fused with the personnel, organisation and funds of the UNDP. That global aid agency should be independent of both the UN and the World Bank. It should be moved out of the US (with its limited appetite for aidfunded misadventures except for invasions and self-serving foreign policy purposes) to somewhere within the EU (London possibly), whose members appear to have a greater appetite than the US for excessive social (usually counterproductive) interventionism through public financing. Shift future IDA funding from donor countries into the soft windows of the African, Asian and Latin American regional development banks (RDBs) on a

60:30:10 distribution basis.

(Note: Separating the soft loan window IDA from the core World Bank (i e, IBRD) would reverse the relentless contamination, corruption, subversion of the IBRD’s intellectual integrity and operational focus. That has resulted mainly from the politicking necessary to obtain IDA contributions from recalcitrant donors and their legislatures, which attach peculiar riders to the authorisation and appropriation of such contributions. Donor legislatures making such appropriations are too heavily influenced by the wishful thinking of their national NGOs on aid use. Moreover, the IDA deputies (who convene every few months) have wrongly (and unconstitutionally) assumed, by default, direct governance rights over the IBRD’s operational and financial policies and practices, through far-reaching policy interventions made during IDA replenishment negotiations which regrettably are not confined only to IDA matters.)

(2) Focus the UN on resolving strategic geopolitical issues; undertaking interstate and intra-state conflict management and resolution; ensuring and enforcing global peace, security and stability; promoting human rights, democracy and good

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Economic and Political Weekly June 30, 2007

governance around the world; and providing a forum for dealing with global diplomatic cooperation on a (minimum but inescapable) consensually agreed global public goods agenda financed through the multilateral banks.

(3) Leave humanitarian assistance, refugee protection and rehabilitation, and poverty-reduction concerns, to be handled by global and national NGOs. Most of them are funded or subsidised by governments in any event. But as part of the funding bargain, keep the NGO world out of the inter-governmental organisation (IGO) world in order to avoid cross-dressing. Discourage NGOs from participating in the ‘development financing’ domain (i e, financing aimed at capital formation and accumulation) and discourage them from interfering in the operations and policies of multilateral banks.

(4) Privatise the International Finance Corporation (IFC) – the World Bank’s private sector financing arm – and auction its portfolio to the highest bidders from the world’s global, regional or national private investment banks.

(5) Shut down the EBRD. It was a bad idea to set it up in the first place. Transfer its portfolio and capital over to the European Investment Bank, while returning the capital subscriptions of non-EU countries (like the US, Japan and Korea) back to them.

(6) Make the RDBs the principal retail conduits for development financing under the revamped system. That would imply the RDBs focusing not on poverty reduction (and other episodic fads/fancies propagated by the donor and NGO communities from time to time) but on genuine development financing needs (micro, meso and macro) in key sectors and for budget support. Such needs would be determined by recipients and agreed by RDBs (not by donors) and would be aimed at more rapid capital formation and accumulation (human, physical and financial) as well as growth in the productivity of such capital in developing regions.

(7) Accordingly, shift all the World Bank/ IDA staff working on Africa and on poverty-reduction, along with the entire WB/IDA Africa portfolio and commensurate supporting capital, into the AfDB. That would strengthen the AfDB and ensure that it is more professionally run. Similar transfers of staff and portfolios could be done with other RDBs as well, but on a more limited basis, to reflect a new division of labour between RDBs and WB.

(8) Turn the World Bank (IBRD) into a wholesale investment bank that makes loans only to credit-worthy middleincome countries (the BRICs, etc) leaving low-income countries to be financed by the RDBs. WB loans should be of $ 1 billion or more and made mainly for: assistance with the new challenges of rapid urbanisation; infrastructure development;

capital-market and financial system development; tackling global climate change through appropriately funded technology transfers on a massive scale; and post-conflict reconstruction of destroyed infrastructure.

(9) A wholesale Bank would work closely with the IMF and private global capital markets on preventing and containing financial and economic crises in middleincome developing countries caused by unanticipated exogenous shocks, natural disasters or internal political or policy failures. Focusing on such limited but clearly defined functions would reduce the World Bank’s staff requirements from over 11,000 to fewer than 2,500 although some of the original 11,000 (about 2-3,000) would have been transferred to the RDBs along with their portfolios.

(10) Make the new World Bank offer more guarantee-based credit and maturity enhancements to developing country bond issues on global capital markets. That would: reduce their cost of funding; diversify their currencies/sources of borrowing; lengthen the maturities of their bond issues (from 10 to 30 years); and sharpen their risk management of public debt, by operating in derivatives markets to control and limit their interest rate, credit and currency risks. For borderline credit risks the new World Bank could actually help to make and maintain a liquid market in developing country bond issues.

(11) Make the World Bank an apex shareholding institution that bundles and “manages” the collective shareholdings of the US, EU members and Japan (i e, UEJ); on their behalf and represents them through a single seat on the RDBs’ boards. That would do away with direct representation by each of these countries on the boards of the RDBs; which clutters up their boards with too many useless people. It would avoid the unnecessary conflicts and tensions that arise from such representation, which often derail the institutions concerned.

(12) The total of UEJ shareholdings in RDBs should not amount to more than 25 per cent of the share capital and votes

of the Asian and Latin American banks. The regional member countries in these two regions would have a 75 per cent stake/ vote in their RDBs. They would provide commensurate funding for them from their own capital markets and budgets. But the World Bank, on behalf of UEJ, would retain a 51 per cent shareholding in the African RDB until such time as Africa demonstrated, beyond any doubt, its ability to manage such an institution properly.

(13) Change the operating business model of the RDBs from being clones of the World Bank into operating more along the lines of the EIB. They should, like the EIB, fund themselves in regional capital markets to spur the development of such markets in their regions and member countries.

(14) Collapse all the national bilateral aid agencies of EU member countries into a single EU aid agency. That would enable the EU to deal with the developing world as a singularity on aid as well as on trade. The present arrangement in the EU results in a cacophonic array of often dissonant voices exerting their own preferences on developing countries (to appease NGO lobbies) where such preferences make little sense and even derail development. Eventually such an EU aid agency might be collapsed into, and integrated with, the GDA suggested in point (1) above to avoid unnecessary replication of administrative cost and bureaucracy.

(15) Combine all the EU member-country chairs on the boards of multilateral agencies into a single EU chair. That would make space for more representative chairs from the developing world to which global economic and strategic power is shifting. At present individual EU member-countries clutter up too many seats on the boards of international organisations. Their collective weight does not add up to the weight of the single US chair. The plethora of chairs occupied by three large EU members (i e, UK, France and Germany), and by different clusters of other EU membercountries, makes it difficult to accommodate larger and more significant newly emerging nations (like India) that need to exercise more weight and relative power in the institutions and processes of global cooperation and coordination.

One could (and would like to) elaborate more on these points but that might be better done in another forum through another vehicle.

EPW

Email: OxfordIntluk@aol.com

Economic and Political Weekly June 30, 2007