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Can International Financial Institutions be Democratic?
Unformatted Document Text:  Can International Financial Institutions be Democratic? Ruth Ben-Artzi Draft 1 APSA, Washington D.C, September 1-4, 2005 International Financial Institutions (IFIs) are entrusted with the task of making loans to developing countries. Their loans are supposed to foster development, and, according to the goals stated by the IFIs themselves, alleviate poverty. With members of varying political and economic powers, IFIs are expected to overcome the collective action problem and provide assistance that is multilateral in nature. Officially, the assistance is attributed to the institution. However, observers have claimed that membership in the institution is not necessarily directly related to influence. The rules and relationships among the members of these institutions construct not only the procedures governing the activities of IFIs, but also their policies, and the impact these policies have on development. The IFIs in this study are structured in such a way that members have weighted voting powers in the decision-making process of the institution, and not a one-vote-per-country structure (like the UN and WTO). However, the question arises whether the weight of each member’s vote is a real indicator of that member’s influence over policy making of the institution, or, whether, there is a different “power mechanism” that determines the influence levels of the various members. This paper analyzes four IFIs: The Inter-American Development Bank (IDB); the Asian Development Bank (AsDB), the African Development Bank (AfDB); and the European Bank for Reconstruction and Development (EBRD). It first examines the various theories that explain why and how states cooperate to form international institutions, and the role the member states play in the process of the institution creation, as well as its continued existence. This section lays out the central argument – that for IFIs to exist and operate a hegemon(s) is necessary, but that there can be different configurations of hegemon(s) that can have varying effects on the decision-making process. I argue that IFIs are not entirely independent organic bodies. Given their histories and the resources they must sustain, they can only exist, ultimately, as vehicles for policies of members. However, the varying shareholder structure of these institutions filters the member’s involvement and channels it in a direction that enables different levels of participation that garner 1

Authors: Ben-Artzi, Ruth.
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Can International Financial Institutions be Democratic?
Ruth Ben-Artzi
Draft 1
APSA, Washington D.C, September 1-4, 2005
International Financial Institutions (IFIs) are entrusted with the task of making loans to
developing countries. Their loans are supposed to foster development, and, according to the
goals stated by the IFIs themselves, alleviate poverty. With members of varying political and
economic powers, IFIs are expected to overcome the collective action problem and provide
assistance that is multilateral in nature. Officially, the assistance is attributed to the institution.
However, observers have claimed that membership in the institution is not necessarily directly
related to influence. The rules and relationships among the members of these institutions
construct not only the procedures governing the activities of IFIs, but also their policies, and the
impact these policies have on development.
The IFIs in this study are structured in such a way that members have weighted voting
powers in the decision-making process of the institution, and not a one-vote-per-country
structure (like the UN and WTO). However, the question arises whether the weight of each
member’s vote is a real indicator of that member’s influence over policy making of the
institution, or, whether, there is a different “power mechanism” that determines the influence
levels of the various members.
This paper analyzes four IFIs: The Inter-American Development Bank (IDB); the Asian
Development Bank (AsDB), the African Development Bank (AfDB); and the European Bank for
Reconstruction and Development (EBRD). It first examines the various theories that explain why
and how states cooperate to form international institutions, and the role the member states play in
the process of the institution creation, as well as its continued existence. This section lays out the
central argument – that for IFIs to exist and operate a hegemon(s) is necessary, but that there can
be different configurations of hegemon(s) that can have varying effects on the decision-making
process. I argue that IFIs are not entirely independent organic bodies. Given their histories and
the resources they must sustain, they can only exist, ultimately, as vehicles for policies of
members. However, the varying shareholder structure of these institutions filters the member’s
involvement and channels it in a direction that enables different levels of participation that garner
1


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