Volume 22 Issue 10, October 2018


There is a common impression in the developing world that global financial and development institutions such as the International Monetary Fund, the World Bank and the Asian Development Bank are beholden to the developed world. A significant proportion of the capital they work with comes from rich countries. Their executive boards reflect the sources of the capital from which it is obtained. The heads of the institutions are from developed countries. Under the Bretton Woods Agreement negotiated at a meeting held in 1944 at a resort in the state of New Hampshire in the United States, there was an understanding that the Managing Director of the IMF would be from Europe while the President of the World Bank will be an American. Later when the Asian Development Bank was created, Japan was the largest shareholder and has always provided the head of that institution. There are, therefore, good reasons to believe that these institutions work under the influence of the major donors.

Extensive news coverage was given in Pakistan to the remark by the United States Secretary of State Michael Pompeo about his country's likely response to a possible Pakistan reach to the IMF to lend support. There is a belief in Pakistan that the Fund and other international organizations are obliged to follow Washington and other Western capitals in decision-making. The Secretary said that his country would oppose any bailout by the Fund for Pakistan as that would amount to a payback to China for the huge amounts of lending it was doing in connection with the China-Pakistan Economic Corridor program. Even if the United States took that position, it is not a given that the Fund would refuse to respond to an appeal for help by Islamabad.
I will argue here that while rich nations such as the United States, Japan and the large countries of Europe have influence, the professional staff working in these institutions have a large role in policy-making. On many occasions, the professional managers in the institutions were able to override the stated objectives and wishes of the major donors. I will use my own role while I was the Director of the World Bank's China Department and later the Vice President of Latin America and the Caribbean Region to illustrate the role played by the institution’s managers. But before using biographical details to indicate that these organizations work mostly independently and don't necessarily follow the strategies of large and wealthy countries, I will briefly discuss the staffing of these institutions, their funding and how they decide on their country operations.

Unlike the United Nations and its many organizations, the IMF, the World Bank and the Regional Development Banks don't follow national quotas for recruiting their staff. The selection is based on merit. At the junior levels, people looking for employment in these institutions enter through what in the World Bank is called the Young Professionals Program. Two to three dozen "YPs" are selected each year and enter the institution. Once they have joined, their advance is on the basis of performance. At one point, the World Bank had thirteen Vice Presidents of which three were from Pakistan. I was one of them; the other two were Moeen Qureshi and Shahid Hussain. None of us was a YP. At that time there was nobody from India who had reached that rank. At this time Pakistan does not have a single person in that position.

Periodically, the institutions raise fresh capital from the member countries. There is an expectation that most of the new money will come from the world's wealthy countries. Their contributions determine their voting share in the institutions. Over time, the United States share in the World Bank has declined from over 40 percent to 18 percent. Similar dilution has occurred in the case of the IMF. The United States can influence decisions taken by the institutions up to its voting share but that is as far as it can go.

None of these institutions force their programs and projects on the member countries; the decision to borrow is entirely that of the borrower. Once a request for support is made, the IMF staff develops the program that would support funding by the institution. Similarly, the World Bank staff lends a hand in preparing the details of the project for which funding has been requested. Managers in both institutions are sensitive to some of the concerns their boards may have. For instance, the World Bank has indicated that it is unlikely to fund the Bhasha Dam project since it is located in what is classified as a "disputed territory." That is the policy of the institution.

My one experience at the World Bank is a good indication of the amount of authority exercised by the managers in the institution. In June 1989 an incident at Beijing's Tiananmen Square led to the use of force by the Chinese military that killed hundreds of people. This action was taken to clear the area for the demonstrators who were calling for the country's move towards a democratic order. A meeting of the Group of Seven (G7), a club of the world's richest nations, was held in Houston, Texas, and a decision was taken to ask all multilateral institutions to suspend all operations in China.

Barber Conable, the then president of the World Bank, called me to his office and asked me to comply. He was taken aback by my response. I told him that in working in a country, my directions from the Board were to ensure that the borrower was creditworthy to receive our funding, that our policy advice was taken seriously and that the projects being financed by the Bank were being satisfactorily implemented. These three conditions were being fulfilled by Beijing and I could not stop the World Bank operations in the country. Conable understood and communicated my decision to President George H.W. Bush who was a close friend of the Bank's President. There was not much the United States and its G7 allies could do other than send a formal request to President Conable to remove me from the China job which he did not do.

The point of this autobiographical detail is to emphasize that the institutions such as the IMF and the World Bank cannot be ordered around by the major shareholders. They are independent and operating on the basis of the beliefs and experiences of their staff and managers.

The writer is a professional economist who has served as a Vice President of the World Bank and as caretaker Finance Minister of Pakistan. He can be reached at sjburki@gmail.com
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