Developing Nations Gain Clout at World Bank - Depending on Your Math

WASHINGTON - Developing countries
will have a slightly larger say at the World Bank under an agreement
reached at the institution's spring meetings this weekend. But some
groups are challenging whether the shift in voting shares is as large
as it should be - or as large as the bank says it is.

This shift comes as
part of a package in which developing countries will also up their
contributions to the money used for the bank's operations, or its
paid-in capital. That capital will increase by 5.1 billion dollars,
which marks the largest increase since 1988. Developing countries will
contribute 1.6 billion dollars of that boost.

The
share of voting power allotted to low- and middle-income countries on
the board of the bank's International Bank for Reconstruction and
Development will rise from 44.06 to 47.19 percent.

That number,
however, may not be accurate, according to some development and
international financial institution watchdog groups. At issue is the
definition of what constitutes a low- or middle-income country - or
"developing" or "transition" economy - and thus whether certain
countries should be included within that 47 percent figure.

The
classification used by the bank is based on data in the International
Monetary Fund's World Economic Outlook report and includes 16 countries
which should not be termed either "developing" or "transition", says
the London-based Bretton Woods Project.

These countries are all
classified by the World Bank as high-income, it says, and together they
hold five of the 47 percent. Sunday, the organisation characterised
"the final real share of voting power for developing countries
(excluding high income economies)" as just over 42 percent.

"It's
smoke and mirrors to count Saudi Arabia and Hungary as developing
countries and then claim a three-percent shift in voting power will
give poor countries more say," Elizabeth Stuart of the development
group Oxfam said Sunday. "The World Bank is asking for a lot more
money, but it hasn't got serious about reform."

Jo Marie
Griesgraber, executive director of New Rule for Global Finance, an NGO
that seeks to reduce poverty and inequality through promoting stable
global financial systems, called the changes announced over the weekend
"marginal". She agreed with the Bretton Woods Project analysis that
"the way you get to this 47 percent is by a distortion of numbers or a
misinterpretation".

"We need a really candid examination of the numbers," Griesgraber said.

The voting reforms were far from unexpected.

In
2008, developing countries were the beneficiaries of a 1.46-percent
shift in voting power as well as a 25th seat added to the bank's
executive board, to be elected by certain sub-Saharan African
countries. That 25th seat has still not been added on. The voting
reforms approved Sunday fulfill pledges made by bank shareholders at
last fall's G20 meetings in Pittsburgh and World Bank and IMF meetings
in Istanbul. With the 2008 increases, it amounts to a cumulative shift
in recent years of 4.59 percent, the largest change in representation
at the bank since 1988.

For his part, World Bank president
Robert Zoellick said Sunday, "The change in voting-power helps us
better reflect the realities of a new multi-polar global economy where
developing countries are now key global players." In a speech on
Thursday, he called the spring meetings a "turning point" for the
institution, saying "the World Bank has to change" and expressing hope
that the "historic step" of voting reform would be taken.

Individual country winners and losers

The
shift will benefit some developing countries - however defined - more
than others. China, Brazil and India came out as the major winners.

China,
which increased its voting share from 2.77 to 4.42 percent, leapfrogged
several European countries to become the new third-largest shareholder
in the bank. The United States stays well atop the pack at 15.85
percent, followed by Japan at 6.84 and then China, Germany, France and
Britain, respectively.

India's voting share increases 2.77 to 2.91, making it the seventh largest shareholder in the bank.

The
changing world economy has led Zoellick to declare that 2009 witnessed
the end of the "Third World", but that shift is not yet reflected in
the voting breakdown.

"The idea of giving the World Bank a lot
more capital for emerging economies makes eminent sense to me. But if
the U.S. wants a proportional voice it needs to contribute proportional
capital," said Griesgraber.

"It looks like we'll have a more
representative World Bank, with countries like China being given a
bigger say, but poor countries are still effectively shut out," said
Stuart. "This reform is all but meaningless for the poorest countries.
Sudan is the only sub-Saharan African country that gained any voting
share increase. To African countries this isn't a new World Bank for a
new world, as Zoellick calls it."

Oxfam notes that of the 47
countries in sub-Saharan Africa, more than a third have lost some of
their voting share as a result of the reforms and 60 percent have
stayed the same. Nigeria and South Africa, the largest regional
economies, had the most significant cut in quotas.

Developing
countries have long hoped for parity between their voting share and the
share allotted to industrial countries. That parity is still possible
somewhere down the line. The weekend's agreements included one to
review vote allocation every five years, with what a World Bank
statement called "a commitment to equitable voting power between
developed countries and DTCs (developing and transition countries) over
time".

But there are three ways to reach that voting parity,
says Griesgraber: "One, you don't tell the truth about the numbers.
Two, the U.S. accepts a decrease in its voting share. Three, Europe
accepts a decrease in its."

She sees a lack of political will in
achieving either of the last two. "I don't think any of those are going
to easy to achieve," she said.