Table Of ContentElena Sciso Editor
Accountability,
Transparency and
Democracy in the
Functioning of
Bretton Woods
Institutions
Accountability, Transparency and Democracy in the
Functioning of Bretton Woods Institutions
Elena Sciso
Editor
Accountability, Transparency
and Democracy in the
Functioning of
Bretton Woods Institutions
Editor
ElenaSciso
LUISSGuidoCarliUniversity
Rome,Italy
ISBN978-3-319-57854-5 ISBN978-3-319-57855-2 (eBook)
DOI10.1007/978-3-319-57855-2
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Preface
This volume is inspired bytheresultsofaresearchcarriedoutinthe context ofa
project of national interest financed by the Italian Ministry of Education, Univer-
sities and Research on the observance of the principle of democracy by interna-
tional economic organizations. Our research team has focused on the Bretton
WoodsInstitutions.Theresultsofthisresearchhavebeenthesubjectofabroader
discussionwithacademicsandexpertsinthefield.
As is well known, the International Monetary Fund and the World Bank are
financialinstitutionsthatcameintoexistencetowardstheendoftheSecondWorld
War,in1944,about1yearbeforetheSanFranciscoConferencesignedthecreation
of a new global organization, the United Nations. They were pillars of that same
institutionalframework,whichaimedtoguaranteeanewglobalorderbasedonthe
restrictionoftheuseofforceintherelationsbetweenStatesandontheobservance
of the fundamental rights of human beings. Until now, these institutions have
undergone no significant changes to their original structure as far as their internal
governance is concerned nor to their decision-making mechanisms, which still
basically reflect the balance and principles of the period when they were created.
Thisisso,despitethefundamentalchangesthathaveoccurredwithintheinterna-
tional community, both in quantitative and qualitative terms and, consequently,
withinitsinternalbalances.
SufficeittorecallthatthereformthatwasfinallyratifiedbytheUnitedStates’
SenateinDecember2015hasonlyenteredintoforceinthelastfewmonths.This
reform, by eliminating the category of nominated Executive Directors, aims to
overcome the disparity that has existed all these years between some Executive
Directors, directly nominated by the five countries that in 1944 were the main
economic and financial powers (to whom must be added the three Executive
Directors nominated by the States whose currency had been most used in the
transactionsoftheFundduringthe2yearsprecedingtheelectionoftheExecutive
Board, and today these are Russia, China and South Africa), and the remaining
ExecutiveDirectorswhoontheotherhandrepresented,basedonelections,allthe
othermembercountriesunitedinconstituencies.Duetothissubstantialinequality
v
vi Preface
of position among the members, which was prone to significantly influence the
decision-makingprocessandtheoverallgovernanceoftheOrganizationandalsoto
condition the effective capacity of a Member State to have access to the Fund’s
resources, the credibility and legitimacy of these institutions has increasingly
diminished over the years. This perception exists both in the public opinion in
various countries and among governments especially in countriesthat are playing
anincreasinglyimportant roleontheglobaleconomicstage(suchasChina,India
andseveralotherAsiancountries).Itisnocoincidencethatthesecountrieshave,in
thelastfewyears,launchedinitiativestocreateneworganisms,whichare,infact,
alternatives for the Bretton Woods Institutions, such as the Asian development
banks and Funds, ranging from the Chiang Mai Initiative tothe BRICS Bank and
theAsianInfrastructureInvestmentBank,whichpresentsitself,evenstatutorily,as
themaininstitutionforthefinancingofinvestmentsinalargenumberofdevelop-
ingcountries.
In the end, the above-mentioned reform has been much less substantial than
expected:thefive“powerful”StatesofthesystemcontinuetohavetheirExecu-
tive Directors in the Board, although now they are no longer nominated but
elected.
However, considering the “natural” relationship that subsists in the field of
international organizations between legitimacy and efficacy, due to the fact that
theorganizationsnecessarilyoperateonthebasisofconsensusandwiththesupport
of their Member States, this general perception of scarce legitimacy has signifi-
cantlyaffectedtheinstitutions’interventions.Thisisespeciallysoforinterventions
oftheInternational MonetaryFundbutalso,albeit toalesser degree, for thoseof
theWorldBank,andthisperceptionhasclearlycontributedtotheemergenceofa
realidentitycrisisofthetwoinstitutions.Thelackoftrustinthebehaviourofthe
Fundandthe Bankhas beenfurther erodedbythe fact thattheir interventions are
coupledwiththerequirementofarigorousrespectofcertaineconomicconditions,
whichnotalways,andnotnecessarily,haveadequatelytakenaccountoftheshort-
and medium-term repercussions that these reforms and/or the imposed structural
adjustmentscanhaveonthesocio-economicfabricofthecountriesconcerned.
In recent years, from the last decade of the past century onwards, the World
Bank and the International Monetary Fund have attempted to respond to calls for
moretransparencyand“democracy”fromthegovernmentsofmanyMemberStates
and from global public opinion. To this end, they have launched some internal
reformswhile alsopromotingthe adoption ofinternal controlmechanismsfor the
interventionsthatareimplementedand/orfinanced(suchastheInspectionPanelof
theWorldBankortheIndependentEvaluationOfficeintheIMF).However,some
doubts could be cast on their efficacy, especially with regard to the nature and
outcome of the new procedures. They are, in fact, purely internal mechanisms,
whichcansometimesalsobeactivatedattheinitiativeofprivateparties,citizensof
thecountriesthathaveaninterestintheimplementationofaprojectfinancedbythe
institution, as is the case for the Inspection Panel of the World Bank. Moreover,
both the initiation and the outcomes of the procedure are still subject to the
exclusive control of the Organization and in particular of its restricted organ, the
Preface vii
Executive Board. Therefore, despite the novelty and the originality of this mech-
anism,theInspectionPanelcannotbeincludedamongtheinternationalprocedures
for the protection of human rights, even though it tends to take on the task of
reorientingtheBank’sactionstowardsasubstantialobservanceofthefundamental
socialandeconomicrightsofthepopulationsconcerned.
With a view to coping with the new needs created by the financial crisis that
started to mature in that period, in 2009 the IMF launched some new and more
flexibleinstrumentsfortheaccesstoresources,whichtheFundmakesavailableby
wayofprecautionfor“virtuous”MemberStates,whichfindthemselvesinaphase
beforeactuallymanifestingatradedeficit.
In order to meet the demands for greater openness of the system to countries
that are less represented or, in other words, to respond to demands for a more
democraticinternalgovernanceoftheinstitutions,inthatsameperiod,arevision
ofthesystemofcalculationandallocationofquotaswaslaunched.Thisrevision
has led to a significant transfer of voting power from the Western countries,
especially the European ones, to developing countries and emerging economies.
Also the decision to include the Chinese national currency, the yuan, among the
reservecurrenciesthatconstitutethebasketoftheSpecialDrawingRights(SDR),
operativefromOctober2016,shouldbeconsideredinthesameperspective.
Eventhoughthesevariousinitiativesdifferinnature,onthewhole theyareall
designed to foster a more equitable internal representation of the Member States
withintheorganization,togetherwithabetterdistributionofthevotingpowersand
of the right to access to resources and consequently to greater democracy in the
decision-making processes. These reforms were accompanied by a tendency,
starting from the last years of the past century, to progressively overcome the
rigid respect of rigorous standards of financial policy—known as the Washington
Consensus—imposedontheMemberStateswhointendedtoobtainthesupportof
theIMFortheWorldBank.Thisnewapproachishighlightedbythelatestversion
oftheGuidelinesonConditionality,adoptedin2002bytheExecutiveBoardofthe
IMF, and even more so by the inclusion of some criteria which are not strictly
economic—such as environmental protection, safeguarding the rights of workers,
respectoftherightsofindigenouspeoplesandothers—amongtheproceduresand
operationaldirectives,which constitute,for thestaffresponsible fortheircontrol,
binding statutory guidance for the approval and implementation of projects
financed by the World Bank. On the other hand, it could be underlined that a
rigorous conditionality seems to have been successfully “exported” and adopted
withintheEuropeaneconomicgovernance,characterizingtheinterventionsbythe
Troika in support of the countries in crisis of the Eurozone, with sometimes
destabilizingeffectsforthesocio-economicfabricofthesecountries.
Inthiscontext,itmaybeusefultorecallthatamongtheobjectivesoftheIMF,
stipulated in Article 1 of the Articles of Agreement, is also the duty to contribute
“... to the promotion and maintenance of high levels of employment and real
incomeandtothedevelopmentoftheproductiveresources...”withintheMember
Statesasprimaryobjectivesofeconomicpolicy,offeringtheMemberstheoppor-
tunitytocorrectanypossibleimbalancesintheirbalanceofpayments“...without
viii Preface
resorting to measures disruptive of national prosperity...”. On the other hand,
among the objectives for which the World Bank was created is the assistance to
MemberStates“...inraisingproductivity,thestandardoflivingandtheconditions
oflabourintheirterritories”(ArticleIoftheArticlesofAgreement).
From the same perspective, it should also be taken into account that the IMF
and the World Bank have, since 1947, been specialized agencies of the United
Nations, based on an agreement concluded with the UN Economic and Social
Council. Therefore, even though they are not formally parties to the Universal
Covenants agreed among States, the Fund and the Bank are de facto held to
promotetherespectofthefundamentaleconomicandsocialrightsofthepeople
whoareaffectedbytheirinterventions,inconformitywiththerelevantprovisions
of the universal instruments which apply in the field of their activities. Article
18 of the International Covenant on Economic, Social and Cultural Rights stip-
ulatesthattheUNEconomicandSocialCouncilcanmakearrangementswiththe
specializedAgenciesinviewofthepresentationbythelatterofperiodicreports
on the progress achieved in observing the provisions of the Covenant that fall
within the scope of their activity. Various technical organizations, such as the
ILO,UNESCO,theFAOandtheWHO,havemadeuseofthispossibility,butnot
theBrettonWoodsInstitutions.
Inresponsetothecriticismthatisoftenvoicedabouttheirbehaviourwithregard
tothepointsconsideredabove,boththeFundandtheBankhavealwaysreliedon
theirextraneousnessasthirdpartieswithrespecttotheobligationsoftheCovenant,
stressing the fact that especially the Fund uses resources from the Member States
foritsinterventionsandthattheOrganizationhasspecificresponsibilitiestowards
thesememberswhenusingtherelevantfunds.
These considerations cannot exempt either the organizations or the Member
States from their international responsibility for possible violations of the pro-
visions of the universal Covenant, generated by or resulting from the respect,
imposed to the debtor States, of loan conditions that can prejudice the enjoyment
ofthefundamentaleconomicandsocialrightsoftheirpeoples.Indeed,itshouldbe
considered that, based on general international law, States have the obligation to
promoterespectanduniversalobservanceofhumanrightsandthatthisobligationis
reiteratedinArticle2oftheCovenantonEconomic,SocialandCulturalRights.It
isalsoageneralprinciple,recognizedbytheDraftArticlesontheResponsibilityof
International Organizations (Article 61) and supported by international jurispru-
dence (recently, cf. ICJ, Application of the Interim Accord of 13 September 1995,
TheFormerYugoslavRepublicofMacedoniav.Greece,5December2011),thata
MemberStateofaninternationalorganizationincursinternationalresponsibilityif
it acts within the competent organization with respect to one of its obligations,
therebycircumventingthisobligation.Ontheotherhand,theStatethatknowingly
forcesanotherStatetocommitanillicitactmustbeheldinternationallyresponsible
for this act according to Article 18 of the Draft Articles on the International
ResponsibilityofStates.
Preface ix
In this specific field, those general principles have been explicitly confirmed
several times, in more or less incisive terms, by the Committee on Economic,
Social and Cultural Rights—the monitoring body of the relevant Covenant of
1966—in several Comments concerning the provisions of the Covenant (cf. in
particular General Comment No. 2: International technical assistance measures
(Art.22oftheCovenant),FourthSession(1990),andGeneralCommentNo.19:
The right to social security (Art. 9 of the Covenant), Thirty-Ninth Session
(2008)). Also some domestic courts of last instance, such as the Portuguese
ConstitutionalCourtinajudgementof2013,andmorerecentlytheEUCourtof
JusticeitselfinajudgmentofSeptember20th2016haveconsideredwhetherthe
measuresaimingatrebalancingpublicfinances—thattheinternationaleconomic
institutions,andinparticulartheso-calledTroika,haveimposedontheEurozone
countries in crisis—are coherent and proportional according to constitutionally
guaranteedprinciplesandrightsaswellaswithreferencetothebasicprinciplesof
law recognized in Articles 2 and 6 of the EU Treaty, such as the respect for
fundamentalhumanrights.
Therefore, also based on these last considerations, it is doubtful whether the
achievementofahigherdegreeof“internal”democracywithintheBrettonWoods
Institutionsthroughtheadjustmentsandreformsthatwererecentlylaunched,based
on a more equitable representation of the Member States and on a more balanced
participation in the organization’s governance, will automatically lead to greater
“external”transparencyanddemocracyoftheinterventionsoftheseorganizations.
Inparticular,itisquestionablewhetheritwillleadtoanappropriaterespectofthe
obligationsoftransparency,informationandcontrolthatcharacterizeademocratic
society,especiallywhentheinstitutionalcontextandthegovernmentpoliciesofthe
MemberStateconcerneddonotreflectsuchcharacteristics.
Seventyyearsaftertheiradoption,thestatutoryobjectivesoftheBrettonWoods
Institutions—tofosterprosperityandtoincreasethelevelofincomeandoccupation
within the Member State inthe context of aglobalmarket thatis open tothe free
playoftheeconomicfactors—needtobereconsidered,inthelightofnewprinci-
ples of international economic law, among which the principle of sustainable
developmenthasgainedparticularimportance.
When implementing their interventions, the IMF and the WB should also be
awareofthefactthattheGDPisnolongeruniversallyrecognizedastheoneand
onlyindicatorofcountries’economicdevelopment.Otherfactorsmustbetaken
into account, such as the population’s degree of alphabetization, environmental
protection,thelevelofsafeguardingpublichealth,therespectoftheruleoflaw,
the fight against corruption and the presence of a “democratic” institutional
fabric that may achieve good governance and respect of fundamental rights; all
theseelementscontributetoprovidingacrediblemeasureofthedegreeofwell-
beingofasociety.
The substantial failure of the traditional recipe of economic-financial rigour in
theapproachtowardstheGreekcrisis,inwhichafter6yearsnopositiveoutcome
canpossiblybeforeseen,withdramaticconsequencesforthepopulation,provides
the latest evidence of how economic development or economic reform cannot be
pursuedwhileatthesametimesacrificingsocialdevelopmentandequity.
x Preface
Without indulging in ideal propositions, such as the one included in some
international documents according to which happiness is a fundamental human
objective,itcannotbeignoredthat,bothwithregardtoanindividualcountryandin
aglobalperspective,theaimofachievingeffectiveandstableeconomicgrowthin
themediumtolongtermcannotbecrediblypursuedwithonlyeconomic-financial
instruments whose benefits are rather doubtful. Rather, a holistic approach is
required, which puts the fundamental element of each society, even the universal
one,atitscentre:manandhisneeds.
ThisisthepaththattheBrettonWoodsInstitutionsshouldtakeinordertoregain
theircredibilityandtogivetheiractivitiesreneweddriveanddirection.
This volume is part of a collection edited by Centro di Ricerca sulle
Organizzazioni Internazionali ed Europee (Research Centre on International and
European Organizations) of the LUISS Guido Carli University, under the respon-
sibilityofProfessorElenaSciso.
AllcontributionsforthevolumeweredeliveredinOctober2016.
Rome,Italy ElenaSciso
October2016
