The limited success over the past few years in reforming global financial governance means that there is a need to reassess the current strategy and tactics for achieving global governance reform.
Following the first G20 summit in November 2008, the prospects for global financial governance reform seemed promising. The G20 leaders, in the Declaration and accompanying Action Plan issued at the end of that summit, called for reforms in the governance of the key global financial institutions like the International Monetary Fund (IMF); the World Bank, and the Financial Stability Forum. These reforms included changes in the allocation of quotas and votes in the IMF, changes in the composition of the Boards of Directors of the IMF and the World Bank, changes in the services provided by these institutions, and reforms in the selection procedures for their chief executive officers. They also agreed to expand the membership of the Financial Stability Forum (eventually reconstituted as the Financial Stability Board) to include all G20 member states and to enhance its status and its role in the global financial governance architecture. It seemed that, at last, the G7 countries would agree to reforming the governance of the global financial system to make it more reflective of the actual power relations in the system, more inclusive, and more responsive to the needs of all the stakeholders in the system.
The promises made in 2008 were repeated at other G20 summits and in other international forums. However, the promised reforms have only been partially implemented and they have resulted in limited changes in global financial governance. The result, as events in 2011 demonstrate, is that the G7 countries still dominate global financial governance. When the Japanese government was looking for coordinated international action to counteract the rapid appreciation of the Yen, they turned first to the G7 and not their fellow G20 members or even their fellow participants in the Chiang Mai initiative. Similarly, when the Eurozone countries were looking for support in dealing with their sovereign debt and banking crises, they turned first to fellow G7 members and not to the G20. While the Europeans have utilized the services of the IMF in dealing with their problems, their key G7 allies, like the United States, have been reluctant to support an expansion in the general resources of the IMF because this might result in increased influence in the IMF for the most powerful new members of the G20. Finally, despite their promises to end the “gentlemen’s agreement” that ensured that the IMF is always led by a European, the European countries, this year, concluded that, they “needed” another European IMF Managing Director. Thus, the new IMF Managing Director, like all her predecessors, is a European and her first Deputy, like all his predecessors, is an American.