‘The U.S. has a dominant position in quota calculations'

This week, U.S. President Barack Obama announced his intention to nominate Jim Yong Kim, President of Dartmouth College, for the top job at the World Bank, following the recent retirement announcement of current President Robert Zoellick. The news comes a little more than nine months after the resignation, under a cloud, of International Monetary Fund Managing Director Dominique Strauss-Kahn.

The change of guard at both institutions has raised questions among rapidly growing and emerging economies, on issues of succession and broader, internal restructuring of the Bretton Woods institutions. Specifically, BRICS leaders (Brazil, Russia, India, China and South Africa) have urged that such reform ought to give the interests of these countries more voice and a greater say in policymaking by the two organisations.

Shedding light upon these vital questions Kalpana Kochhar, Chief Economist at the Bank's South Asia division, spoke to Narayan Lakshman about how decisions get made at the two institutions, and how and under what circumstances their policy paradigms have changed. Edited excerpts (full transcript on www.thehindu.com):

Could you comment on where plans for internal reform at the Bank and the International Monetary Fund stand, and whether it is likely that the BRICS nations and India in particular might occupy any of the top posts going forward?

Both institutions — the Bank and the Fund — work on a quota [basis] and the quota is determined, broadly speaking, by size, which is the size of the economy, population and a couple of other variables. Not surprisingly, in spite of the fact that we have had slow growth in the last two or three years in the United States, the U.S. remains the biggest member. Any adjustment of the formula or any recalculation to take into account recent developments does not change that — it does not change the U.S.' dominant position in the quota calculations.

There have been long arguments over the years about what weight you should give to these variables, but I think the one robust result is that regardless of how you weight these different variables, [the U.S. dominates] because it is a much bigger economy than the others in the world. That is a point that needs to be kept in mind. That will always remain the case.

What then will change, and has changed, is the relative position of the others. In particular the ones that have increased in size and importance by any of these variables are countries like South Korea, China and, to some extent, Brazil and Russia.

But you would be surprised to know that India does not [fit into this category]. The population has a big impact and [its] Gross Domestic Product as well, but the shift that has taken place is quite small. First of all, the original quota was small so even a big percentage increase in a small number is not a big number. It is not like we are seeing tectonic shifts.

That is just on the calculation of the quota. It does [translate one-for-one] into the voting structure, because that is by agreement, by which these institutions were set up. But that does not necessarily translate, one-for-one, into the management of these institutions — who heads them, who are the senior people, and so on. If you look back in history at both institutions it has been traditionally very dominated by the Europeans as the head [at the Fund] and by the U.S. [at the Bank] but in the top management, only recently have efforts been made to diversify.

To be clear, you said that the voting structure is determined on a one-to-one basis on these variables?

It is basically determined by your quota size. So if the U.S. has 17 per cent, then when the U.S. votes it is given a 17 per cent weight. It is unlike the United Nations where it is “one country, one vote.”

What about the rate of growth of economies as a determinant of voting shares, because isn't that a measure of economic heft, especially in this post-recession global economy?

I am sure there are all kinds of variations in the way these calculations can be made and I am sure that the rate of growth matters, but the more important variable is becoming the contributions that are being made [to the Fund], for example now, in the middle of the Europe crisis.

Looking specifically at the Bank's presidency, what sort of time frame do you think it will be completed in and do you see the competition for this role being of the kind that you saw for Fund Managing Director Christine Lagarde's appointment?

First of all there is a process, which is good. But it is a good process. All members have apparently been asked to provide nominations. On our website I think you will find the competencies that they are looking for. The competencies are laid out quite clearly and my understanding is that people are supposed to nominate the candidates to a committee in our Executive Board, [which] will then gather them up, vet them and then come up with a shortlist that will be voted on.

The fact that it has to be voted on, gives a little twist to it because you have this voting structure that I just mentioned. If you assume that that is an agreed process, that that is not new, then at least there is a process and it is not just somebody automatically nominated.

There have been people who were disappointed with [it], hoping that developing countries would come together and jointly nominate somebody to balance out the voting structure. But that never happened and frankly, it is very difficult for such disparate developing countries [to come together in this way]. People talk about the BRICS and now they are starting to come together and talk. But initially it was an invention of somebody there in Goldman Sachs. The reality is that it is difficult for these countries to bring all of their interests together in a situation like this if they haven't done it beforehand.