IFI governance


Emerging split demonstrates need to end IFI leadership carve-up

18 March 2004

With two weeks to go before a 2 April meeting of the Economic and Finance Ministers’ Council in Brussels to decide the European candidate to replace outgoing Managing Director of the IMF Horst Koehler, the backroom horse trading has begun in earnest.

The early frontrunner is Rodrigo Rato, outgoing Finance Minister for the Aznar administration in Spain. However Rato’s smooth trip to Washington looks threatened by reports in a German newspaper that French President Jacques Chirac would not support his nomination. It is widely believed that this is punishment for Rato’s support for the imposition of disciplinary measures on France and Germany for breaking the Eurozone stability pact last November.

Mr. Rato’s qualifications for the post were thrown into question by a recent comment in the Financial Times, which suggested that his training as a lawyer means he has “no experience of crisis management, big economic reforms or crisis prevention.”

Who then?

The same FT comment by Sebastien Edwards, Professor of economics at UCLA and former World Bank Chief Economist for Latin America, argues that the “ideal candidate” for the post is Alejandro Foxley, former Finance Minister in Chile. Edwards argues that Foxley, armed with a doctorate in economics, “understands the plight of emerging and transition countries and at the same time he knows at first hand that policies aimed at macroeconomic stability have a tremendous pay-off.”

Ariel Buira, Director of the G24 Secretariat that represents the interests of developing countries at the IMF and World Bank, insists that, as the largest users of IMF funds, “developing countries should have a say in selecting the Managing Director”. Buira cited former Indian Finance Minister Manmohan Singh and former Mexican President Ernesto Zedillo, adding that there was no dearth of able candidates from the developing world.

Other candidates mooted include Frenchmen Jean Lemierre, current head of the European Bank for Reconstruction and Development, and Pascal Lamy, EU Trade Commissioner; Robert Rubin, former US Treasury Secretary supported by the editors of The Economist; Briton Andrew Crockett, a former head of the Bank for International Settlements, has in addition been mentioned. Insiders at the UK Treasury are saying that, based on the history of a progression of French Directors, the smart money is on Lemierre at this stage.

It’s the process, stupid!

What all of this points to is a replay of the fiasco in the selection of Horst Koehler in 2000. After initial candidate Caio Koch-Weser was blocked by the US, German Chancellor Gerhard Schroeder agreed to climb down and nominate an alternative only after weeks of haggling. Schroeder and other Europeans were upset that the US had broken the longstanding convention by which the Europeans get to nominate the head of the IMF uncontested while the Americans do the same for the World Bank.

This ugly open display of political nepotism prompted the World Bank-IMF Joint Working Group to review the process for selection of the heads in April 2001. Their conclusion was hardly surprising: “A plurality of candidates representing the diversity of members across regions would be in the best interests of the Fund; the goal is to attract the best candidates regardless of nationality.”

UK NGOs, in a 12 March letter to Chancellor of the Exchequer Gordon Brown, have argued that the selection of top management at the IMF and World Bank should be merit-based, open to all nationalities, and subject to a clear and transparent set of selection criteria. This, they said, was in line with the UK’s 2000 White Paper on Globalization which commits the government to “open and competitive processes for the selection of top management” at international institutions.

There has been no official response from the Treasury on whether or not they will take active steps to support their declared principle of national non-discrimination.