IFI governance


IMF selection mess only a symptom

5 April 2004

The political machinations laid bare by the selection process for the head of the IMF are symptomatic of a troubling democratic deficit in the Bretton Woods institutions. Will political self-interest block the mounting calls for reform?

One-horse race, squabbling jockeys

The early front-runner for the post of managing director was Rodrigo Rato, ex-Finance Minister for the Aznar administration in Spain. At the 25 March European Council meeting, many were openly questioning the logic of appointing a candidate from a recently ousted administration. Behind the scenes were rumours that Franco-German opposition was revenge for Rato’s calls for disciplinary measures against them for breaking the Eurozone stability pact last November.

The decision on the EU candidate was postponed until a 2-3 April meeting of the Council of Economic and Finance Ministers in Ireland. Career technocrat Jean Lemierre, head of the European Bank for Reconstruction and Development, was at the top of the not-Rato list. However, there were fears that the US would veto the candidacy of the Frenchman in retaliation for French opposition to the invasion of Iraq. This threw the competition wide open. Silvio Berlusconi stepped into the breach to suggest an Italian should run the Fund. Mario Draghi, formerly a top economic adviser to the government and vice chairman of US investment bank Goldman Sachs, was rumoured.

choosing a candidate based on horse-trading would damage the credibility of the Fund

At the ECOFIN meeting, the field was narrowed to two: Rato and Lemierre. Rato enjoys the backing of the UK, Belgium, Luxembourg and Latin America, while Lemierre has been backed by France and Germany. A final decision is to be taken on the sidelines of the annual meeting of the European Bank for Reconstruction and Development, 18 April.

It’s the process, stupid!

A similar fiasco in 2000 marred the selection of Horst Koehler, prompting 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.”

Jack Boorman, IMF head of policy development and review, issued an embarrassed memo to staff in late March. He admitted that the Fund “cannot preach transparency and good governance to the international community unless it is willing to apply those virtues in its own decision-making.”

Executive directors, representing over 100 countries from Asia, Africa, Latin America and the Middle East, were joined by directors from Russia, Australia and Switzerland in a public statement in March demanding that the selection of the new managing director should be open and transparent. They called for all executive directors to be consulted “in a timely manner” about the candidates, including their credentials and knowledge of the institution.

UK NGOs, in a 12 March letter to chancellor of the exchequer Gordon Brown, 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”, in line with commitments made in the UK’s 2000 White Paper on Globalization. Treasury responded that Brown will urge fellow finance ministers that choosing a candidate based on horse-trading would damage the credibility of the Fund. However, the UK would only vote for a non-European if the EU came up with someone who was “not the best person for the job”.

Ariel Buira, Director of the G24 secretariat that represents the interests of developing countries at the IMF and World Bank, argued that there was no dearth of candidates from the developing world.

Democratic deficit

Despite commitments made in Monterrey as part of the Financing for Development process to “enhance the participation of all developing countries in the decision-making of the World Bank and IMF”, efforts to reform the governance structures of the BWIs are going nowhere fast. Minor measures to increase the capacity of African directors do not hide the fact that there has been no progress on structural imbalances in the number of executive directors, votes and constituencies. South African finance minister Trevor Manuel has been charged with creating a ‘roadmap’ for governance reform. But as he has not found ways to navigate the diplomatic impasses, the issue will not even be discussed at the spring meetings.

Structural imbalances only serve to erode the legitimacy of the institutions in the eyes of client countries. In an unprecedented move, Brazil and Argentina have signed an agreement to adopt a common position from which to negotiate their debts with the Fund. Like the rise of developing country voices at the WTO in Seattle and Cancun, this could mark the beginning of the end for creditors’ stranglehold on institutions which are supposed to serve a greater global good.