As well as being one of the world’s most successful finance ministers responsible for South Africa’s record economic growth run, South Africa’s Trevor Manuel has been a key player in his country’s economic diplomacy in the past decade. So much so that from time to time the rumour surfaces in the South African markets that Manuel is tipped for a top job at the IMF or the World Bank. Some politicos in South Africa go further and suggest Manuel, who is popular within the ruling African National Congress, as a leading candidate for the party’s presidential nomination in the 2009 national elections.
Manuel’s immediate concerns are more modest. He wants to ensure a substantial boost to the voting power of African states on the board of the IMF. The logic of IMF reform better representing the needs of developing countries “would tip you in favour of Africa”, Manuel told Emerging Markets in an exclusive interview, “but political decisions would not tip you in favour of logic unfortunately”.
Manuel says the structure of IMF quotas was flawed from the beginning. “Quotas were devised not as a mathematical formula but as a political formula. Every move since has been proportionate to the original error.”
Representation
The debate over making the IMF more representative is highly charged politically, Manuel says. Manuel, together with Britain’s chancellor Gordon Brown and all of Africa’s finance ministers, is concerned that the proposed IMF reforms – boosting the voting power of China, Mexico, South Korea and Turkey – do nothing to boost the voice of Africa in the IMF, although it is one of the Fund’s most important areas of operation.
African executive directors on the IMF board wrote to the managing director Rodrigo de Rato this summer arguing that the proposed reform measures would leave them in an even weaker position relative to other developing economies. They know that, if they can get the support of Britain and one other industrial power on the IMF board, they can block the reform proposal. Manuel knows de Rato well and has worked closely with British chancellor Brown on several international economic negotiations.
So Manuel will be key to efforts to agree a compromise reform package.
The problem is that de Rato wants to reform the IMF in two stages: the first stage is the voting boost for China and other selected developing states, which would b e ratified immediately if the proposal secured 85% backing from the IMF shareholder countries; the second stage is a much wider redistribution of voting power, which would be subject to prolonged multinational bargaining. For now, IMF member states can’t even agree on what the criteria for vote allocation should be – GDP or some other measure.
Manuel is hopeful that reform can be agreed soon. “You should have representation per monetary area; in those terms Europe is over-represented.” Manuel and another African finance minister met with de Rato over the summer, and he says that other voting formulae are being explored.
“In the case of Africa, one executive director represents 25, and the other 21 countries. If you take 46 countries, the bulk have programmes with the Bank and the Fund, the majority with the Bank as a major source of lending. The fundamental question to be answered is how can you have one executive director, with one alternate, with any hope of representing 46 countries with equal attention and efficiency?”
Almost everyone agrees the IMF board must be more representative. But there’s little consensus on how to line up the variables: quotas, voting rights and the number of executive directors.
“If you have a rational policy,” Manuel suggested, “and say there will be an alternate executive director for every 10 countries, that could help … it would go a long way towards allowing for representation.”
After their discussions, Manuel seems optimistic that the gap on voting power can be bridged. “My sense was that de Rato was sensitive to the proposal, and he might be able to press some large shareholders that this [quota change] is what we need to do.”
HIDDEN AGENDA
Making the IMF and the World Bank more representative and more responsive to developing countries’ needs is for Manuel part of the wider reforms being demanded of international organizations. He shares the concerns of several developing country governments that the Bretton Woods institutions are used to push a political agenda: “There are some large shareholders that use the Bank as a foreign policy mechanism and not as an economic policy forum.”
Heavy-handedness by rich and powerful states could undermine the international system, says Manuel. “It is not a happy place if multilateralism is trampled underfoot, as seems to be the case. We have a responsibility to get the issues on the table in the developmental institutions.”
If people lose confidence in the ability of the international system of trade rules and finance to act effectively and fairly, that will chip away at attempts for better global cooperation. “The worst possible place to be is where the cynics and the sceptics are king,” says Manuel.
Among those cynics and sceptics, Manuel numbers the authors of the highly critical Meltzer report on the IMF to the US Congress in 2000. “The Meltzer report says you [IMF] should shut up shop. The worst position is to allow the lack of wisdom in the Meltzer report to be the victor.”
A big problem for the African finance ministers is the lack of continuity in the focus on development in the poorest countries. Unlike last year’s G8 meeting in Scotland, which pushed through a package of aid, debt and trade measures for Africa, this year’s meeting in St Petersburg broke little new ground.
Independent of the Russian G8 meeting was the establishment, backed by Britain and the United Nations, of a high-level monitoring committee to check how far the G8 rich countries were keeping to their pledges to more than double aid to Africa and boost debt relief. Manuel strongly backs this initiative: “We need to retain a mutual evaluation. You can track the flows. It’s very difficult to argue why nations should not be bound by that evaluation. It’s not all doom and gloom.”
Political will
Political will is key for Manuel. “The big challenge for us is to understand that, while in the articles of the Bank and the Fund there is an enormous potential to focus on development, with the Fund focused on surveillance, it is hard to focus on those issues to the exclusion of the political imperative.”
The lack of political will and, more often, the lack of a political consensus is doing huge damage to international organizations, Manuel says, giving the example of the attacks on Lebanon in July and August.
“Jim Wolfensohn was committed, upon leaving the Bank, to develop the state of the West Bank and Gaza. But what you’ve seen instead is an all-out war. So much of what Jim was trying to do has been destroyed,” Manuel says.
“If you look at Lebanon, you can almost smell the destruction. We’ve seen this place pounded by artillery and bombs day after day. You see the infrastructure of a country destroyed, all of which was built in the last few years, and all of which has accumulated a huge outstanding debt.”
“You can’t just invade sovereign states, destroy infrastructure and leave people poorer than they ever have been. This kind of militarism must only take place within the framework of established laws and covenants.”
Global insecurity
Global insecurity is also setting back the international development agenda, Manuel argues, amid concern that the push for the poorest countries to attain the UN’s Millennium Development Goals (MDGs) is losing momentum.
That has left a very mixed picture of the achievements of the campaign for Africa in 2005. “When heads of state appended their signatures at Gleneagles, there was hope. One part of that hope was tied in to the Hong Kong ministerial meeting [on trade]. The hope was – and it was universally accepted – that multilateral trade would put more food on African tables than ODA [Overseas Development Administration]. That was very important,” Manuel says.
“The second thing was debt relief. The biggest disappointment was that the cut-off point was moved to 2003. The benefits of countries would lose 10%. On aid, it’s not all doom and gloom, but there is a sense of caution.”
However, Manuel points out that the composition of aid is changing to the detriment of longer-term development imperatives: “Over the last four years, there have been increasing aid flows towards cataclysm and disaster, and away from the kind of flows that would help countries reach their MDG targets. Money has been going into Iraq and Afghanistan and away from the areas of need.”
That doesn’t mean South Africa is giving up on the international system, he says. “If I didn’t think there was sufficient hope, I would leave this job and go and do something else. While South Africa might be in a position of relative privilege, many poor countries are very dependent on this [aid flows]. It’s our responsibility to [help them].”