Every year the World Bank Group, which includes the “Sisters” founded at Bretton Woods, the World Bank, and the International Monetary Fund, hold their executive meetings. These annual events draw together central bank governors from around the world for discussions and planning with the executives of the most important international financial institutions. Notions of reform have been coming up for quite some time. Compared to previous years, they obviously had much to talk about.

Changes in platitudes

Every year, the top people from the IMF and World Bank talk about the need for their institutions to stimulate economic development around the world, increase the capacity of member states’ governments, support liberal democratic reforms, increase global equality, increase equality within states, and so on and so forth. There’s often a consensus on the lofty goals everyone is willing to voice out loud. Conflict arises when discussions turn to the specific means to be employed for reaching these admirable aims.

Some of the bitterest debates are over the way the institutions themselves operate. That may not be so surprising, given the reputations the chief IFIs earned over the past few decades. Neither the World Bank nor the IMF have painted themselves in glory; given the scale of the recent financial meltdown, neither proved very useful in preventing the diffusion of trouble, or even in reversing the deep drop in global economic activity. Thus it was quite interesting to see how some old platitudes took on new vigour last week at the meetings in Turkey.

Robert Zoellick, the American presiding over the World Bank Group, spoke of the need for the IFIs to improve their legitimacy, efficiency, effectiveness, and accountability. Improvements in these areas would require some important institutional changes to come into effect. For the World Bank Group to increase its legitimacy, it would almost have to accept greater representation in its governance from the “have-nots” of the world. Increased efficiency and effectiveness would require streamlining its bureaucracy, and coming up with better policy recommendations.

That’s something we’d all like to see, but easier to enunciate than to achieve. To increase accountability, the IFIs would need to make their decision-making more transparent, and admit to the high degree of politicking that goes on inside their own corridors. That might change some of the ways the IFIs make decisions.

Changes in attitudes?

While Zoellick voiced these ideas, we still have to wait for concrete plans to emerge to back them up. It may be a long wait, since the sort of changes required would necessarily cut against each other. Increased accountability would, in the short-run, undoubtedly not improve the IFIs’ image. It would probably hurt their legitimacy, rather than increase it.

The best first step would surely be to improve the effectiveness and efficiency of their actions, since that would improve the IFIs’ legitimacy and raise fewer questions about accountability. The challenge lies in making the IFIs more relevant in a period when they’ve just failed to play a decisive role in the most important international financial crisis since the Bretton Woods Sisters were born.

Reforms are indeed needed; at the same time, multilateral institutions such as these can only be as good as their member states allow them to be. The failure of formal institutions to take charge in this crisis reflects an inherent dynamic in global finance. Actors constantly find ways around regulation. In this case, we saw financial actors develop new investment instruments and strategies to evade existing national and international regulations. As a result, the crisis hit in unanticipated ways with unanticipated speed.

One lesson many may have learned is that informal institutions work better in crises than the formal institutions do. That would be a shame, for the IFIs still have a positive role to play, and their work can be improved with some smart reforms.