IFI governance


Symbolic vote does nothing to change Fund leadership stitch-up

24 May 2004

Unsurprisingly, former Spanish finance minister Rodrigo Rato was confirmed as managing director of the IMF in a mock voting procedure on 4 May. Disappointment was widespread that the Fund had failed to end the stitch-up that allows Europe to nominate the Fund’s head. While some commentators pointed to the nomination of Egyptian Mohammed El-Erian and his official interview with the board as a sign of increased openness, the usefulness of this precedent was put in perspective by an IMF executive director: “It was not a total success in that the decision as to who is going to get the job had already been made.”

Rato comes from a wealthy family in the north of Spain. His father was a supporter of Franco and head of a provincial bank. When the bank collapsed, both he and his eldest son were jailed. As a result he has reportedly held a burning desire for his youngest son, Rodrigo, to become central bank governor and restore the family honour. Rato has exceeded these expectations: becoming the central bank governor’s boss.

Rato held the post of Finance Minister for the last two years of the Aznar administration. He advanced orthodox neoliberal policies, pushing through controversial privatisations which wound up in the hands of friends of the ruling Partido Popular. Rato maintains close ties with a number of Spanish business leaders with extensive interests in Latin America. He affirmed in 2000 that a central aim of economic policy was to “obtain the greatest commercial benefit from the circuit (of International Financial Institutions) for our business people.”

At his first IMF news conference, Rato said that “overall, the work of this institution has been very good.” Countries that borrowed from the Fund and followed its advice were generally in a “much better position today.” On bailout packages, Rato said that if the Fund’s board was confronted with a well-reasoned recommendation from the staff to make a giant loan, “it ought to act.” He did cite one instance in which the IMF had erred – its handling of the collapse of the Argentine economy.

However Rato maintains the status quo at his peril. Latin American countries are increasingly banding together to demand far-reaching changes in their relations with the Fund (see Comment). In Asia, the noises being made in support of the creation of a regional monetary fund are growing louder. Financial Times’ chief economics columnist Martin Wolf argued in May that Asian economies have massive reserves which would be better spent in developing Asian capital markets rather than accumulating US dollar reserves of dubious investment quality. He scolded European finance ministers, saying that “by their arrogant narrow-mindedness over the appointment of the managing director, the Europeans have demonstrated once again their determination to keep the IMF under their thumb.”