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IFI governance

News

European countries plot heist of IMF top job once again

10 June 2011

As nominations close on the IMF leadership race it seems certain that European countries will trample over promises for "an open, merit-based and transparent selection process", and succeed in shoe horning French finance minister Christine Lagarde into the job.

Dominique Strauss-Kahn formally stepped down as IMF managing director on 18 May after allegations of sexual assault against a New York hotel worker. Coming at a critical point in eurozone crisis talks and two weeks before the G8 summit, European governments used the sense of urgency to rush forward Lagarde as their candidate with a presumption that she would get the job. In doing so they are going back on past promises, including those made just three months ago at the IMF spring meetings, "that the election should follow an open, transparent and merit-based process, irrespective of nationality and gender." Nuria Molina of Eurodad, writing on new blog imfboss.org commented: "both amnesia and backtracking are common features amongst European decision-makers regarding IMF governance."

Even before the resignation, a global coalition of civil society groups had been demanding a fair selection process. Their mid-April briefing, Heading for the right choice? (see Update 75), called for a fair, transparent merit-based system and an end to European domination of the post. The paper reiterated longstanding demands for reforms, such as double majority decision making to strengthen representation of developing countries. It argued that the right candidate "must be, and must be seen to be, wholly independent of any national or regional interest", must have "a rigorous focus on poverty", and be "well versed in the particular problems of low-income and middle-income countries".

On 23 May an open letter to all governors of the IMF, signed by over 100 organisations, asked that they honour their promises and demanded that "the candidate must gain the open support from at least the majority of IMF member countries, with no single bloc wielding excessive power." Bhumika Muchala of the Third World Network said "it is time for the European and US governments to finally end the sordid tacit deal that has maintained a de facto Northern leadership at both the Fund and the Bank".

European presumptions riled developing countries. A Chinese foreign ministry spokeswoman, with uncharacteristic directness, said: "we believe that [the process] should be based on the principles of fairness, transparency and merit." In late May the IMF executive directors representing Brazil, Russia, India, China and South Africa released an unprecedented joint statement saying that "if the Fund is to have credibility and legitimacy, its managing director should be selected after broad consultation with the membership."It goes on to argue that the recent financial crisis points to a need to reform international financial institutions so as to reflect the increasing economic influence of developing countries. They added that the next IMF head should be "committed to continuing the process of change and reform of the institution so as to adapt it to the new realities of the world economy."

Simon Johnson, former IMF chief economist, fears that a European back room deal could damage the Fund’s relationship with emerging markets. He pondered: "will they walk out of the room? No. Will they refuse to co-operate with the IMF for the foreseeable future? They might."

Who is in the running?

Lagarde formally launched her Europe-supported bid on 25 May. European states argued that the eurozone crisis (see Update 75, 72, 71) demanded a European candidate. This drew immediate fire from commentators and academics, with Phillippe Marliere, professor of French and European politics at University College London saying it was "astonishing that one of the major architects of the punitive and ineffective bailouts in Greece, Ireland and Portugal, should now find herself at the helm of the IMF". Others attacked her past record, with Indian economist Jayati Ghosh fearing that Lagarde "would pursue, even more enthusiastically, the same self-defeating and economically damaging measures whose only beneficiaries are the German, French, Dutch and British banks". Thomas Coutrout, co-president of NGO ATTAC France said Lagarde "blindly defends the interests of banks and the financial industry".

Lagarde may yet engulf the process in her own scandal when the French Court of Justice decides on 8 July whether to pursue charges of abuse of office against her for a decision she made as finance minister. The case concerned an arbitration settlement in favour of Bernard Tapie, a friend of the French president, and against the French state (representing the bankrupt Credit Lyonnais bank). Public prosecutor Jean Louid Nadal, on passing the case onto the court of justice, said that there were a "number of reasons to suspect the regularity and even the legality" of the decision, which might constitute an "abuse of authority". Lagarde has removed the case from the courts and sent it to arbitration.

In 2004, after the resignation of then managing director Horst Kohler (see Update 39), 11 executive directors representing middle- and low-income countries demanded an open process based on merit not geographical origin. That year the Europeans nominated Rodrigo de Rato of Spain, who eventually became managing director but not before a highly publicised faux run-off with the Egyptian candidate Mohammed El-Erian .

This will be the third successive leadership race with nominal opposition to the European candidate (see Update 57). As with the last IMF leadership race, the Russians again chose to field a candidate, nominating Grigoriy Marchenko, governor of the Kazakh central bank. After admitting that winning the race was only "theoretically possible", Marchenko complained on the closing day of nominations that Lagarde’s appointment was a "done deal". French officials had already said the same at during a G8 summit in France at end May.

Meanwhile, Mexico backed their University of Chicago trained central bank governor Agustín Carstens, who declared that his priorities would be the eurozone crisis, the Middle East and quota reforms at the IMF. Though from a developing country, his neoliberal background and perceived closeness to the US may turn some emerging markets against him. In response to the lack of endorsement from the emerging market countries, he countered: "it’s more a surprise that some other countries have [already] made up their mind than that the BRICS and other emerging markets are not [yet] making up their own mind". In an indictment of her compatriot’s skills in handling financial crises, Noemi Levy of Universidad Nacional Autónoma de México wrote: "Carstens’ inability to understand the genesis and development of the economic crisis has proven very costly for Mexico."

Although media outlets report that Brazil will back Largarde, if the emerging markets were to support one of their own, it was more likely to be Trevor Manuel. Currently heading the South African national planning ministry and co-chair of the UNFCCC’s Green Climate Fund (see Update 76), he chaired the IMF board of governors in 2000 and it’s Development Committee from 2001-05. He also served as the UN Special Envoy for Development Finance in 2008. Considered sympathetic to the Fund, he was an architect of South Africa’s economic liberalisation in the mid to late 90s. However, with rumours circling that Manuel would be a last minute candidate, he went on South African TV to say "I haven’t thrown my hat in the ring."

In a surprise move, Stanley Fischer, Bank of Israel Governor and former IMF deputy managing director, entered the race on the last day of nominations. This depite being 67, two years above the cut off age for first time appointments. Fischer served as deputy managing director of the Fund under Michel Camdessus, a champion of structural adjustment programs, and was nominated as a possible successor in the 2000 IMF leadership contest.

not the year of the outsider, again

Contrary to the argument put forward by Europeans, an editorial in the Economist argued that "the case against appointing a euro-zone finance minister as head of the IMF now is overwhelming." Further picking Lagarde apart, the publication argued "[she] has played a central role in forming the euro zone’s response to its debt crisis, and whatever her private views, she has a public record of defending the indefensible."

Some observers feel the best choice would be an objective outsider. China, who the French asserted backed Lagarde, was amongst the first to issue a statement to that effect. Chinese central bank advisor, Li Daokui, made the case for a candidate from a neutral or small country who "would accord more with the interests of the world including China, because big countries such as India and Brazil have too many national interests".

By the end of nominations, most analysts were resigned to a Lagarde victory, but speculation began about what price Europeans would have to pay for it. The Brazilian government suggested that whoever is selected would only be allowed to serve out the rest of Strauss-Kahn’s term. Danny Bradlow of the University of Pretoria argued that "The Europeans’ effort to foist their candidate onto the IMF creates an opportunity. They can be forced to pay a price for their hypocrisy." He advised developing countries to demand not only developing country candidates in other senior IMF management positions, but also IMF governance reforms and support for innovative financing for development.

Rushed and not transparent process

On 20 May the IMF executive board outlined the official seven week process for selecting its next head. Member governments have until 10 June to nominate a candidate, three weeks less than last time. The board will then meet to discuss the submissions and shortlist up to three candidates, with the final vote held by end June.

According to the criteria published by the IMF board, the successful candidate: "will have a distinguished record in economic policymaking at senior levels"; "will have demonstrated the managerial and diplomatic skills needed to lead a global institution, and will be a national of any of the Fund’s 185 members"; " (s)he will be capable of providing strategic vision for the work of a high quality, diverse, and dedicated staff; and will be firmly committed to advancing the goals of the Fund by building consensus on key policy and institutional issues"; "will have a proven understanding of the Fund and the policy challenges facing the Fund’s diverse global membership"; "will have a firm commitment to, and an appreciation of, multilateral cooperation and will have a demonstrated capacity to be objective and impartial"; and "will also be an effective communicator."

With neither Carstens nor Lagarde meeting the demands for a candidate set out by civil society groups in their April briefing, there was little satisfaction amongst campaigners. "This rushed process means that we are stuck with a paltry choice of candidates with similarly narrow economic world-views and little proven capacity to do the job," said Soren Ambrose of ActionAid International. At the close of nominations, NGOs issued a demand that at the very least the candidates should participate in an open public debate to find out their views on the key issues facing the global economy (see briefing).