Democratic deficit in IMF

antiauthoritarian dearth in IMF elected deficit in IMFIntroduction global M matchless(prenominal)tary Fund(IMF) is one of the devil shapings stamp after the Bretton woods conference in 1944. the opposite one is the man banking precaution. It has to be noted in the earliest that though this article deals with IMF and how the pop deficit in it affects the poorest of the countries in the do main(prenominal), the IMF works in tandem with the populace bank and other supranational pecuniary institutions.The founding commandment of IMF is grow deep in the Great Depression of 1930s. During the depression the industrialised countries of the innovation plummeted themselves by engaging in raising trade barriers, devalued their currencies for competing in the export market and interchange surface curb their citizens from holding any contradictory substitution all of these mea surelys resulted in further loss of trade and handicraft making millions jobless and poor. One o f the major(ip) reasons for establishing an institution handle IMF was to grapple mass meeting rate stability and international wagess ensuring smooth functioning of the intemperate international monetary system of rules. IMF on with organismness till(WB)was formed in 1945 in the wake of the pressing need for the post struggle reconstruction and assure monetary stability in the gentleman parsimony especially European economy. Though it officially came into existence in December 27, when 29 countries cig atomic number 18tonic its charter or Articles of Agreement in 1945, it started its operations single on March 1, 1947. During the cold war years the atomship in IMF was special due to the pressure of Soviet Union on impertinently autarkical countries.End of the fixed standardAs pointed in the first place the IMF all oversaw the fixed exchange rate system where any rate of flowness is reeferged at US dollars which support be converted in to Gold. The incre asing spending on the war in Vietnam adding to the increasing expenditure on Great Society Programs initiated by US chairwoman Lyndon Johnson worsened the already overvalued US dollar. This system was started to be abandoned slowly betwixt 1968 and 1973. The major point came when US President Nixon announced the de-linking of US dollar from gold. alone the transition to free planless exchange rate system, where every member of IMF was free to peg its bills against any currency or group of currencies, was smoothly done. The period excessively posited another challenge in the form of unprecedented rise of crude prices, culminating in what is called Oil shocks. It responded to the situation by nail smoothting up two oil facilities to supporter oil importers deal with current account deficit and inflation( Nayyar 2006).The IMFs engagement with the poor countries starts from the mid 70s when it stated funding these countries through its de take Fund. The IMF with the end of the cold war and actd by The jettisoning of the Keynesian petition attention policies after their initial success and success of the liberalisation policies initiated by the Richard Nixon in US and Margaret Thatcher in UK along with the collapse of the Soviet Union and east Bloc bolstered a new era symbolically re largessed by IMF and world bound called Neo-Liberalism where both IMF and WB was used to force the past socialist and mixed economical countries to undefendable their markets to foreign investors and liberalise their pecuniary system, the effects of which were gamely destabilizing. While the einsteinium Asian economies initially showed high growth rates the same programs resulted in devastations across Sub Saharan Africa. The vehemently critiqued geomorphologic Adjustment Facility which was later on changed into Enhanced Structural Adjustment Facility was initiated in March 1986.The Financial Functions of IMFAny grounds of the functioning of IMF should as wel l as differentiate between IMF and human beings Bank. The IMF, distant Bank is not primarily a modify institution like World Bank. The WB besides is a complex organisation. It is actually two organisation International Bank for Reconstruction and breeding(IBRD) and International Development Association(IDA).WB is an investment bank. The World Bank functions by issuing bonds the repayment of which is guaranteed by its member countries. That is WB lends money to development works through market borrowing. The IDA, on the other hand is a concessional loan associate which is mainly financed by bestower nations. The IMF in contrast in enclosureediate between investors and recipients. It demands membership fee from its members which is accrue in to a general pool. Each member contributes to this pool harmonize to its economic size and strength, providing separately member a respective quota which besides translate into their right to vote helping in a reorient manner. Its oper ations are to a major part are financed through this habitual pool.What does IMF exactly do? The IMFs situation is highlighted when any member nation travel into a balance of payment debacle. a field of battle must consider both its exports and imports at al just about equal levels. After the floating exchange rate system was adopted, every nation is left free to peg its currency against any or any group of currencies. hardly it besides develops a task over a period of cartridge clip. The value of the currency tend to get overvalued. Thus a currency might be pegged at four units to one dollar. After a period of magazine due to trade fluctuations, the currencys actual value might make water reached sextet units to one dollar. What effects does this over valuation bring forth? At this clipping the currencys higher value helps in reducing import expenditure whereas at the same time the currencys higher value makes it costlier and reduces export revenue. Thus economy recei ves less income but spends more. This plummets the economy into a balance of payment crisis. This is where IMF enters into the scene. The IMF being the only international organisation with the support of the dominant economies and with expertise advises and directs nations to work from such balance of payment crisis. IMF provides goldbrick circumstance and medium term loans to tide over the debacle for the time being. scarce IMF also has influence over the decisiveness making in World Bank and other financial institutions. The loans are not without fetters however. The loans are accompanied by a series of conditions generally termed as conditionalities .Thus the major functions of the IMF butt joint be broadly classified as follows1) to promote exchange rate stability to maintain international trade stability2) by providing short term and medium term financial assistance to members facing shortage of foreign currency.3) It also undertakes an advisory role on macro-economic in demnity vents so that the economic policies of member countries do not adversely affect the balance of payment situation.4) it also assist member nations in expanding their markets where they can exchange currencies without tieion. ( Sharma, 2002 90).Democratic deficitWhat is meant by democracy in the case of international presidential terms like IMF? It is well kn witness that the IMF was originally not conceived to be an organisation to help the third world countries or less developed erstwhile colonies. Its drop dead aim, along with World Bank was to check into reconstruction of the capitalist economies in the war ravaged European nations. The agenda of lending and interfering in ontogenesis countries was initiated in the course of the cold war attempting to lure newly independent countries away from the socialist bloc dominated by Soviet Union. No surprise that still the organisation of the chief decision making bodies inside the Bretton woods institution reflect the poli tical equations existing at the time of the second world war completely tuned to the use up of the essential countries. When IMF and Bank was formed, except for United States, members were expected to be both contributors and borrowers. The decisions in the administrator director climb on is reached through voting, if not reached by consensus. Each country holds a share of vote with regard to their character to the world economy. The unify states the with the largest voting power holds 17.09 % of shares. Al to the highest degree 63% of shares is held by just 12 member countries including US out of 186 members of the IMF. The same condition prevails in the world bank also. The 24-country African group in contrast carries only 1.42% of get along voting share power making their influence practically null in the agenda setting and decision making serve welles and policies. This problem arises because, in that respect are only 8 member countries enjoying their own seat on the board. The remaining 16 are divided between the remaining 179 countries. This skewed system renders other member countries to group together to augment their collective bargaining or voting share represented by an administrator managing director. This reflects in the policies of the IMF and its results. However, the pop deficit is not the cause of the problems associated with the IMF. Rather, the very democratic structure of both the IMF and Bank are themselves symptoms of a much structural problem, the present world order based on the capitalist baby-sit of production and its prevailing ideology neo-liberalism. Unequal meansConstituenciesThe groupings of the member countries have created what has come to be called Constituency system.. all the members other than eight of them who have their own seats group together to form constituencies to elect a managing director for their constituency to represent them. These constituencies are not static groupings. The size of the const ituencies i.e. the memberships both qualitatively and quantitatively change depending on various factors, especially economic factors. This happens because every country except for some are on the lookout to accession their leverage vis-a vis other constituencies and in spite of appearance their constituency to apportion a bigger share out of the collective bargaining. But, in some cases, member countries also conjure constituencies due to ideological considerations. For example, Indonesia joined the constituency headed by Italy in 1950s and later moved to a constituency of Islamic countries of North Africa and Malaysia. Later, Indonesia formed a constituency on geographical basis, consisting of Korea, Philippines and Vietnam. One of the major reasons why members change constituencies has been to hold a more influential or senior position deep down the constituency. For example, earlier, Spain was within the constituency headed by Italy along with Poland and Greece. Later in 197 8, Spain joined a fundamental American constituency including Mexico and Venezuela assuming the post of decision maker director (Wood, 2006483). The representation as shown above is based on the economic might of the members. The 24 member African constituency headed by Equatorial Guinea and the 19 member African constituency headed by Nigeria ahold only 1.42% and 3.01% respectively. But paradoxically these are the countries which are today and severely affected by the policies of the IMF and World Bank. It has to be re intelligenceed that it is the masses , peasants, on the job(p) classes of these countries who toil hard to repay their countrys debits. But they have almost no say on whatever the decisions that impinge and affect on their lives. It is a process of taxation without representation.But the IMF and Bank were not planned to be as undemocratic as they are now in their origin. The Bretton forest Institutions also provide 250 basic votes to every member of the organis ation. This was actually introduced to ensure a minimum sense of equal representation and fair play among members. The basic vote system at least(prenominal) ensured a minimum of equal peril along with the share on the basis of contribution. The quota votes are added to basic votes to form the total vote. But the basic votes which formed 14% of the total votes in 1955 has now come down to around 3 percent in both IMF and World Bank.Selection of the headThe selection of the head of the IMf is the most glaring bear witness of unequal representation and hegemony of the dominant occidental industrialize nations. The IMFs executive director board is responsible for selecting the Managing Director. Any administrator Director whitethorn submit a nomination for the position. If more than one gets nominated, the executive board reaches a decision by consensus. But by precedence, usually only a European becomes the Managing director of IMF. And in the case of World Bank only an American becomes the head.Accountability The executive board do not adequately hold staff and perplexity to account. There are no official mechanisms for holding elected Directors, members after being elected. The Dutch executive Director however, has introduced a template to ground evaluation of his staff which is slowly gathering prefer and being implemented by other Directors. But still there are no rules and regulations except for a shadowy and broad mention in sec 14 d of the By-Laws. It states It shall be the duty of an executive Director and his alternate to devote all the time and attention to the business of the Fund that its interests require and between them, to be continually available at the principle offices of the Fund. According to IMF Articles of Agreement the Managing Director The Managing Director shall be chief of the operating staff of the Fund and shall conduct, under the room of the Executive Board, the ordinary business of the Fund. Subject to the general contro l of the Executive Board, he shall be responsible for the organization, appointment, and dismissal of the staff of the Fund (article xii, 4,b). Regarding the reform of the Directors, a code of conduct was established only in 2000 applicable to Executive Directors, their alternates and senior Advisors. It has established some standards of ethical conduct regarding passage of arms of interests arising from the functioning as Executive Director and also supposed to pass over confidential information. It also mandates disclosure of regular financial reports. For the purpose of validating to confidentiality and other ethical issues, an Ethics committee of five Executive Directors was formed. But off the beaten track(predicate) most, the committee can only warn the relevant Executive Director communicate it to the respective Governor. It has to be kept in mind that ultimately the internal answerability comes down to moral persuasions. Accountability of Executive Directors, in relati on to the countries they represent, however, work in different terms. The countries with their own representatives can hold their directors directly accountable. He can be push aside and replaced at will. But a representative Director who was elected cannot be dismissed or replaced by any of the members until his term ends. A member can be induced to resign but no Articles provide the members the right to require resignation from him. The problem with this set up is obvious. There is no mandated obligation for him to follow the orders or directions of the member countries. The director can even vote against the interests of the very member, he/she represent. Reading this with the sec 14 d of the article provides a much more clear picture. Where the Director is not compulsorily oblige to follow the directions of the countries represented by him, he is obligated to work in tandem with other members. This creates enormous opportunities for developed nations to only if buy-out the r epresentatives of developing and under-developed countries. This problem emanates from the fact also that constituencies are not mandatorily legitimate units of representation. Regarding the accountability of the staffs and management towards executive board, three reasons are cited. First, it is difficult for members of the Executive Board to prepare papers and positions on all countries. umpteen Executive Directors remain in the job only for a short time. In the cases of constituencies, as there are rotations of the seat of Director, the time for the Director is too short to acquire real idea of the organizational set up. Second, the tendency to present a picture of unified view in Board discussions, the staff and management fail to play a proactive role by seriously debating over their disagreement. Third, the most important problem is that many discussion are taken by Executive Boards forwards the board meetings. This is especially the sign of influence of the dominant countri es in the decision making processes of the IMF. Issues like loans to countries that are against the US approval or interest will not at all be presented before the board.IMF also lacks accountability to its member nations. IMF by its, functioning is accountable only to the pay ministers and key bank Governors. But the role of IMf has expanded to such field of views that the accountability needs to be widened. The IMFs prescriptions are now not only restricted to only matters concerning finance ministries and central bank governors.Expanding activitiesIMF was not instituted by its founders to rock out the range of activities it is currently carrying out. The IMF was instituted on the basis of the Keynesian demand management. It was understood that there should be an international organisation to overlook the monetary activities of the countries to keep the exchange rates relatively stable and insulated from shocks. But the area of interest expanded with decreasing clout of the So viet bloc. More nations switched over to capitalist model and IMF and world Bank were rested with the duty to open the various . These functions got impetus with the neo-liberal policies initiated by Reagan and Thatcher in the United States and Britain. A major transformation came with the demise of the Soviet bloc after which the marketisation of these economies become the main objective of the Bretton Woods institutions. With these they have almost became the primary instruments of globalisation of world economy. The BWIs have come to be the only large lenders and monetary policy institutions. More and more countries are forced to approach these organizations in the absence of an alternative. In a sample of 25 countries, there were only between six and ten measures of performance criteria for loans on conditionality whereas it ontogenesisd to 25 measures at the end of 1990s.But the accountability and transparency of the IMF has not increased with these new functions.The role of US and other developing countriesThe role of US especially the treasury in the functioning of the Bretton Woods institution has been a matter of concern and critique for the democratization of the global financial institutions. similarly the US along with other developed countries called G7 form a formidable group domineering almost 47.13% of the total voting power. These countries act as a de facto management of IMF. besides unlike the developing countries they have well equipped staffs . They coordinate between each other. This is ensured by their shared interests, being the major creditors. The ministers, central bank governors convene a meeting on issues and agendas before the yearbook and spring meetings and issue press communiqu together. The Executive Directors also co-ordinate with each other on common positions. The IMF has acted more as an arm of the western especially US financial interests. The liberalization policy was forced on Kenya by the US Treasury through the IMF. The experience of Kenya when it implemented financial liberalization was devastating. The result was fourteen bank failures in 1993 and 1994. also the US holds the only veto power in the IMF with its 17% voting share. Also in 2000 the US congress was unilaterally able to propose and pass a resolution and later implement a measure of change and reform in IMF without consulting any other member. The US through its executive Board members, staffs and location of the organization and as the BWIs court US favour for their operation exercise a hegemonic influence over both IMF and Bank ( Stiglitz, 2002).Needed ReformsMost of the problems regarding IMF arise because of the dissonance created between IMFs supposed functions and the current functions it is carrying out. The IMF, to use Nobel laureate and earlier chief economist in World Bank, Joseph Stiglitz the IMF never likes to discuss the uncertainties associated with the policies that it recommends, but rather, likes to project a n image of being infallible(Stiglitz, 2002 230). The IMF, time and again has been only admitting mistakes as in the handling East Asia crisis. The IMF have also been slow in learning from its mistakes. But the mistakes are not simply mistakes by indifferent individuals. They are also evidence to the level of influence of free market ideology professed by the international financial community and the US Treasury. The reforms must also focus on the operational costs being forced on to the developing countries, the principle borrowers. The operational costs of IMF is financed by the subscriptions every member country makes and also from the interests to the loans debtor countries pay back. By this logic, it is the developing countries which are financing most of the IMF expenses. From the breakdown of the expenses of the IMF, it has been founded that the contribution of the developed countries who are the creditors have come down to 29% in 2000 from 71% in 1980. this means that three fourths of the administrative expenses of the IMF is financed by the same countries are dependent on the loans provided by the IMF. Also the fund allocated for the Report on the Observance of Standards and Codes(ROSCs) and the Financial Sector estimation Program (FSAP). Nearly 89 countries and 95 countries have participated in these schemes, respectively. But the majority of the countries who have had the assessments are developed countries. Developing countries and Sub Saharan African countries were hardly assessed about their financial and monetary status. Thus a good amount of money is spent on countries that are in good health rather than on those who need help and re-structuring (Woods, 2006498).The IMF should restrict itself to the mandated functions it was allocated to it when it was formed i.e to only monitoring and advising on the exchange rate stability. The lending business should be handed over entirely to the world bank.Also the basic votes to the member countries shou ld be brought back to the level at earlier years of IMF and should be slowly increased to enable a far more democratic practice than what is practiced now.Developing countries like India, China, Brazil, to the south Africa should be provided more voting share as their global contribution has also increased in recent years. Especially the case for increase of voting share of China is a long standing issue came to spotlight during the recent financial crisis when China has bargained for an increase in its voting share. More seats of Executive Directors should be formed to accommodate varied under-represented countries(Ambrose, 2007).Also agencies f horizontal accountability have to be built like independent evaluation unit. Like the supreme court acts as horizontal agency working as a component of constitutionalism one of the benchmarks of democracy in modern era, offices endowed with overseeing accountability and transparency have to be established.ConclusionThe IMF and World bank , especially IMF have veered away from their mandated area of functioning. The need for an international monetary agency always remains as long as capitalist economy prevails. The veto power hld by US also need to be balanced at least by providing other larger economies including developing economies with more role in decision making process. A more rational approach towards representation of poor nations has to be made. The liberalization of the asian economic powers has created rifts even within borrowers regarding the kind of schemes of lending. While developing countries like China, India, Indonesia etc. are provided with schemes with less scrutiny, Sub-Saharan countries receive credit after a long process of office work. The democratization of IMF based on the economic strength of present era will obviously provide great boost in bargaining power of developing countries vis--vis developed countries. But it is not sure whether the process will surely benefit even the poorest in these developing countries, let alone other poor countries of Latin America and Africa. The constituency system should be replaced by atleast minimum one per one country added with the vote in relation to their contribution to the world economy. Accountability within the organization can be developed only when the term of the Directors are ensured unlike in the case of constituency where rotation system operates. ReferencesNayyar, Deepak (ed.). 2006. Governing Globalization Issues and Instituions. unused Delhi Oxford University Press.Stiglitz, Joseph. 2002. Globalization And Its Discontents. New York Allen Lane.Ambrose, Soren. 2009. Multilateral Money. Counterpunch. obtainable online at http//www.counterpunch.org/ambrose09022009.htmlAmbrose, Soren. 2007. Confidence Crisis at the IMF. Counterpunch Available online at http//www.counterpunch.org/ambrose04172007.htmlAmbrose, Soren. 2007. IMF Reforms Mere Tinkering or Change We cigarette Live With? Foreign Policy in Focus. Available o nline at http//www.fpif.org/articles/imf_reforms_mere_tinkering_or_change_we_can_live_withElson, Diane. 1994. People, Development and International Financial Institutions An Interpretation of the Bretton Woods System. Review of African semipolitical Economy, 21, 62 511-524 . Available online at http//www.jstor.org/stable/4006259Glenn, John. 2008. Global Governance and the Democratic Deficit stifling the voice of the South. Third World Quarterly, 29, 2 217 238. Available online at http//dx.doi.org/10.1080/01436590701806798Sharma, Shalendra D. 2002. Reforming the IMF Can it serve as an international lender of last resort?. Global Economic Review, 31, 2 89 104 Available online at http//dx.doi.org/10.1080/12265080208422895Woods, Ngaire. 2001. Making the IMF and the World Bank More Accountable. International Affairs (Royal contribute of International Affairs 1944-),77, 1 83-100. Available online at http//www.jstor.org/stable/2626555Woods, Ngaire and Lombardi, Domenico. 2006. jag gy patterns of governance how developing countries are represented in the IMF. Review of International Political Economy, 13, 3 480 515. Available online at http//dx.doi.org/10.1080/09692290600769351