Be careful what you wish for

The Bretton Woods Project, a London-based activist group that monitors the IMF and World Bank, is skeptical of the IMF’s recent governance reforms. Managing director Dominique Strauss-Kahn hailed the measures as a "historic" shift of voting power and board seats toward the emerging economies and developing world. BWP argues that the IMF fudged some of the numbers by classifying several rich countries as developing.

Like the World Bank’s reforms earlier in the year…the IMF has included South Korea and Singapore in the group of emerging markets and developing countries benefitting from the shift. This is despite the IMF’s own flagship analytical report, the World Economic Outlook (WEO), classifying Korea and Singapore as "advanced economies". This misleading classification has added 0.6 percentage points to the shift. By the WEO definitions, advanced economies experience a net loss of only 2 per cent, far shy of the 6 per cent being reported in the press.

Nor is the activist group pleased that the United States retains its unilateral veto over major IMF decisions. So far, so good. This is all consistent with the activist community’s broad complaint that the IMF and World Bank remain, for the most part, instruments for the rich countries to foist their preferences on the rest of the world. I don’t necessarily agree with the argument or its implications; plenty of what these institutions do isn’t foisting at all (and plenty of the foisting they actually do seems sensible to me). But I understand the logic of the position.

Where I lose the activist thread is on the issue of the environment. Like other activist groups, the BWP has hammered the Bank recently for funding coal projects and engaging in other activity of questionable environmental virtue. At least as far as I discern, there’s no real recognition that more developing world power at the IMF and World Bank will almost certainly mean less emphasis on the environment, and certainly less attention to issues like climate change. The BRIC countries, in particular, have banded together to defend projects like South Africa’s coal-fired power plant. When I’ve asked NGOs and activists about this, they respond that the positions of the big developing countries don’t accurately represent the views of the people, who, they insist, care more about environmental issues. Maybe they’re right. But IMF and Bank board meetings convene with representatives of real governments, not some Platonic ideal of what developing world governments should look like.

However slowly, the Bank and the Fund are changing. And it’s not simply a matter of voting shares, it’s also a question of assertiveness. I’ve heard from a number of sources that developing world executive directors are much more prepared and interventionist than they used to be. This trend will almost certainly continue. It seems much less certain that the activist community will be pleased with the result.