A former Director of Economic and Business Policy of London has queried why the United States, which is less than 5% of the world’s population, maintains veto power at the International Monetary Fund.
John Ross, also a senior fellow at Renmin University of China, was speaking during a panel discussion at the just concluded Lanting Forum in Shanghai on Friday.
Mr Ross argued that Bretton Woods are not democratic, citing that only Europeans head also the IMF, whose combined population is still not more than 10% of the world’s.
“In a fundamental sense these institutions have never been really democratic – reflecting the world’s people. For example, the U.S. is the only country with veto rights in the IMF – which is certainly not in line with democracy, as the U.S. is just over 4% of the world’s population. It is not democratic that 4% of the world’s population can overrule decisions supported by countries containing 96% of the world’s people. Equally, it has always been a European who heads the IMF, but Europe is only 10% of the world’s population.
Nor is it reasonable that the World Bank should always be headed by a U.S. citizen. The World Bank particularly plays a major role for developing countries, so why should its head always come from a country with only 4% of the world’s population which is not in the Global South? It would be more democratic, and more rational economically, to have a head from the 96% of the world’s population outside the U.S. and specifically from the 84% of the world’s population living in developing countries.
But with the changes in the world economy, and the rise of the Global South, these structures are also no longer economically rational.
Today not only is the Global South an increasing proportion of the world economy, but China and the economies of a series of Global South countries are growing more rapidly than the U.S. The resulting much reduced weight of the U.S. in the world economy, today it is only 15.6% of the global economy by the PPP criteria that the IMF itself uses, means that it is not even economically justified that the U.S. has IMF veto rights.
At some point these issues of global governance will have to be sorted out – although this will be a very fundamental shift and will not occur very rapidly as regards the IMF and the World Bank,” he said.
Mr Ross said the United States is also flouting the World Trade Organisation’s principles by embarking on a sanction spree in a bid to curtail China’s economic growth which continues to have a ripple effect on the rest of the world.
“The overwhelming majority of countries oppose such policies. But the U.S. has previously resorted to uniliteral actions against developing countries, for example its decades long economic sanctions against Cuba, which almost every other country in the world opposes.
Therefore, returning to the beginning, the present situation of changes unseen in a hundred years sees great possibilities for human advance – that is for the world’s people. The great majority of the world’s people want these. But it also contains dangers of undemocratic attempts to overturn such developments. It will take a major continuing struggle to develop a democratic and economically rational system of global governance. China’s economic success, as already seen, will play a key role in this,” Mr Ross added.
The RUC senior fellow said the Global South is now a powerhouse, having dramatically leapfrogged major economies in the West and China has been an undeniable reason for such status.
He stated: “In purchasing power parities (PPPs), which the IMF itself uses to measure shares in the world economy, the result is even more dramatic. Measured in PPPs in 1990 the Global South was 37% of the world economy, in 2022 it was 58% – easily a majority of the world economy.
China’s rise has been the most dramatic part of this increasing weight of the Global South. China has gone in only just over 70 years, a single lifetime, from being in 1949 almost the world’s poorest country to today not only achieving ‘moderate prosperity’ by its domestic standard, but it will also achieve ‘high-income’ status by World Bank criteria in the next two to three years. In 1990 China was 2% of the world economy measured at current exchange rates and 4% measured in PPPs. In 2022 China was 18% of world GDP measured both at current exchange rates and PPPs.”
The panel, who discussed Better Global Governance Through Joint Contribution and Shared Benefits, was moderated by Fu Ying, the former Vice Minister of Foreign Affairs of China and former Chinese Ambassador to the United Kingdom.