China Wins New Influence at the World Bank

28 April 2010

In a reflection of its growing economic and political clout, China has scored a significant jump in voting share at the World Bank. The shift, announced on Sunday, will give the country more say in the governance of the Washington-based international financial institution - an objective that the country has long pursued.

The realignment of voting power "recognises that we need to consign outdated concepts like 'Third World' to history," World Bank President Robert Zoellick told journalists in Washington. "Today the world is moving toward a new, fast-evolving multi-polar economy." An acknowledgement of this shift, he said, is "crucial for the bank's legitimacy."

Officials from the World Bank and the International Monetary Fund were gathering in Washington for their annual spring meetings, which lasted through the weekend. Finance ministers from the Group of 20 developed and emerging nations also gathered on the sidelines, as did the G20 energy ministers.

The announcement on China was the biggest news to come out of the weekend of diplomatic frenzy. The Asian Giant now has a 4.42 percent voting share at the World Bank, a big jump from its previous share of 2.78 percent, making it the third-most influential member of the bank after the United States with 16.4 percent of the voting shares and Japan with 7.9 percent. Germany sits in fourth place while France and the United Kingdom are tied for fifth.

Brazil and India also scored modest boosts in voting power at last week's meetings, with Brazil edging up from 2.06 percent to 2.24 percent and India going from 2.77 percent to 2.91 percent. Developing countries now account for 47.19 percent of votes at the World Bank, up roughly 3.13 percentage points from last week and more than 4.5 points from 2008.

"This reform has increased the representation and voice of developing countries and made the World Bank's governance structure fairer and more reasonable," said Chinese Finance Minister Xie Xuren, according to a report from Xinhua, a news agency run by the Chinese government. "It will protect the interest of developing countries and provide developing countries chances to play a bigger role," he added.

Last week's shift in voting power came on top of reforms implemented in 2008, when the banks' members agreed to boost developing countries' voting power by 1.46 percent. The reforms also included the establishment of a new seat on the bank's governing board for a country from sub-Saharan Africa.

But the G24 bloc of developing countries, along with some members of civil society, said that the increase in voting power for "DTCs" - developing and transition countries - to just over 47 percent will not be enough in the long run. "Forty-seven percent is not our aim; that is not the mission. That is only the first step" toward a system of "equitable voting," Anup Pujari, an official with India's Department of Economic Affairs, told journalists last week.

The World Bank won a boost of US$ 5.1 billion of paid-in capital from the institution's member countries. The new funds - the bank's first general capital increase since 1988 - will be added to the institution's current paid-in capital of roughly US$ 11 billion. The money will help support the bank's everyday operations.

"This is a once-in-a-generation request to address the impact of a once-in-a-generation crisis," Zoellick said, according to a report in The Financial Times.

On Friday, the World Bank and the IMF released their annual Global Monitoring Report, which tracks countries' progress toward the Millennium Development Goals. The worldwide financial crisis has slowed the pace of poverty reduction, the report concludes, which means that 53 million more people will be living in poverty in 2015 than if the crisis had not occurred. The report also notes that rich countries have failed to live up to their aid commitments, even though total levels of foreign aid rose slightly in 2009.

G20 finance ministers meet on the sidelines

Before the World Bank-IMF meetings got underway on Saturday, G20 finance ministers gathered for a day-long meeting that touched on the pace of the global economic recovery, potential new financial regulations and the G20's goal of phasing out fossil fuel subsidies.

The global recovery "is proceeding at different speeds within and across regions, and unemployment is still high in many economies," the ministers acknowledged in a communiqué released at the end of the meeting. As the recovery continues, countries should "elaborate credible exit strategies" from crisis stimulus measures, they added, while being sure to coordinate efforts across national boundaries.

Following up on a goal announced last year, the finance ministers "recommitted" to drafting plans for G20 countries to phase out "fossil fuel subsidies that encourage wasteful consumption." The ministers promised to prepare this work for next G20 heads of state meeting, which will be held in Toronto from 25 to 27 June.

Civil society organisations will be closely watching the G20's progress on achieving the goal, which was set last September when G20 heads of state vowed "to phase out and rationalise over the medium term inefficient fossil fuel subsidies."

A recent analysis from the Global Subsidies Initiative, a programme run by The International Institute for Sustainable Development, found that governments spend more than US$ 500 billion each year to support the fossil fuel industry. That money would be better spent elsewhere, the study concluded.

"Virtually every analysis of fossil-fuel subsidies has shown that most are a complete waste of money, or worse, because money spent on subsidies isn't available for other purposes that yield much greater social benefits, such as education and rural agriculture," said David Victor, a professor of political science at the University of California at San Diego and the author of the study.

ICTSD reporting; "Chinese minister: World Bank reform benefits world development," XINHUA, 26 April 2010; "Poorer nations get larger role in World Bank," THE NEW YORK TIMES, 25 April 2010; "World Bank wins rise in capital," THE FINANCIAL TIMES, 26 April 2010.

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