As the Great Recession rumbles on, hitting the old, very rich countries of Europe and North America far harder than the new, somewhat rich economies of Asia and Latin America, the traditional order of global financial governance is looking increasingly frayed. At the Group of 20 summit in Los Cabos, Mexico, on June 18-19, world leaders are expected to issue bold statements about their commitment to reshaping institutions such as the World Bank and the International Monetary Fund to reflect shifts in the economic balance of power. Such declarations have been made at pretty much every G-20 meeting since the first one was held in Washington in 2008.
Thanks to the shortsighted foot-dragging of the U.S. and Europe, however, this goal remains unrealized. For all the talk of reform, developed countries still retain disproportionate voting power inside the halls of the World Bank and the IMF. The U.S. still possesses veto power over major decisions made by those two bodies. The irony is that, by clinging to these prerogatives, the U.S. and Europe are discouraging others from contributing more to multilateral institutions, which in turn has made them less effective at precisely the time when the stagnant economies of the rich world can most use their help.