Asia and the proper governance of international institutions

Author: Peter Drysdale, Editor, East Asia Forum

Improving the governance of international institutions is now a core objective in reform of the global order, following the global financial crisis.The G20 group — its own formation a powerful testament to the need for inclusion of the emerging economic powers and more representative participation in managing the world economy — committed to more open and merit-based selection of top jobs in international institutions, such as the World Bank and the IMF, at its Pittsburgh summit.

Takehiko Nakao, a former Japan vice minister for finance, has been elected president of Asian Development Bank. (Photo: AAP)

The WTO is currently in the middle of choosing its next Director-General, through a hotly contested though incredibly complex process, from among nine quality candidates, with two now remaining with the last candidates eliminated this week. More equitable representation of Asian economies in global governance is one aspect of the reform that is under way.

Perhaps no part of the world more than Asia has a greater interest in having merit-based and open contests for the leadership roles in the key international institutions.

Yet, when the Japanese government nominated the last president of the Asian Development Bank (ADB), Haruhiko Kuroda, to become governor of its central bank, it missed a significant opportunity to promote openness. After Kuroda’s sterling eight years at the helm of the ADB, Japan announced Takehiko Nakao, an experienced finance ministry official specialising in currency rather than development issues, as its nomination for the job. By tradition, no other candidates had been put forward when nominations closed. Both the Japanese government and the ADB board of governors, it seems, have not been persuaded by the growing international consensus that believes in competition in the selection of the heads of international institutions. Other ADB member countries fell in behind the Japanese nomination or at least had no political will to push for a second candidate, so Nakao’s formal confirmation is now sealed.

Last year Washington at first resisted the World Bank’s decision to at last go for competition in the appointment of its new president. Little wonder that this resistance crumbled after the scandals at both the Bank and the IMF that opened up questions about the good governance of both institutions. It would have been too embarrassing for the US to refuse an open election for the World Bank presidency, though the man for the job happened to be another American.

It’s time the ADB took notice.

Competitive elections are now the practice in the other regional development banks, with recent examples being the African and European banks. While Japan used to be the dominant funder of the ADB, that’s no longer the case. Japan now contributes just short of 13 per cent of the Bank’s capital. Other Asian countries could have fielded strong candidates for the presidency of Asia’s premier development financing institution. Governance at the ADB has been slow to modernise. Japan showed the way with its founding but the time has long since passed to create a more inclusive leadership of the Bank, more closely aligned with the capacity of other powers in the region to carry a bigger weight.

One that is waiting in the wings, of course, is China, which for over 20 years has been a bigger economy than Japan in real terms and recently surpassed it as the world’s second-largest economy in nominal terms. It will be far better that China feels able to add financing and development capacity to that of the ADB, as it prepares to assume more responsibility in promoting regional and global development, than branch out separately creating its own institutions to serve this purpose. Another country is India, which has world-class expertise in the business of development and poverty reduction. Indonesia, Thailand and Vietnam also have their own reservoir of development leadership talent.

In this week’s lead essay, Stephen Howes, Robin Davies and Aslee Betterridge note that the ADB has racked up many achievements under Kuroda’s leadership. It ‘has taken important steps to improve its transparency and accountability… It was the first multilateral development bank to publish an annual review of development effectiveness. It has recently reinvigorated its accountability mechanism, which provides an avenue of appeal for people negatively affected by its operations. And it is making more project-level information available, including audit-related information… These and other improvements have been recognised in recent comparative assessments of multilateral organisations conducted by the United Kingdom and Australia, which have rated the ADB very highly indeed. The bank’s shareholders demonstrated strong confidence in the institution in 2009 when they agreed to increase its capital base by 200 per cent, to US$165 billion’.

Yet, Howes and his colleagues argue, the Bank has now defied good (G20) practice in filling its leadership vacancy. Whether this was a consequence of regional politicking as they suggest, or, more likely, a product of internal institutional inertia for which the whole Bank Board must be held culpable, the time for change has come. Asia’s credibility in, and its contribution to, the debate about the reform of global economic governance is on the line.

Now would be a good time for quiet reform, the introduction of formal board interviews and informal campaigns focused on which candidates for not only the presidency but the half dozen or more key posts at the Bank are best skilled at understanding the development challenges and have the management experience to deliver on the Bank’s programs and mandate.

Until we get these things right in the region, we are hardly likely to be able to lead change in the world.

Peter Drysdale is Editor of the East Asia Forum.

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