Search for new IMF boss: Intrigues rage on

Editor Business Services – The Guardian

Wednesday, 25 May 2011 . MERIT, not nationality, should determine, who replaces Dominique Strauss-Kahn as the chief of the International Monetary Fund (IMF), the finance ministers of Australia and SA said in a joint statement recently.

The call comes as support grows for French Finance Minister, Christine Lagarde to become the next MD of the IMF — Britain’s Chancellor of the Exchequer, George Osborne being the latest in a cascade of European endorsements for her.

Ms Lagarde’s chances received a boost on Friday when former Turkish Economy Minister, Kemal Dervis — seen as the leading emerging market candidate — ruled himself out of the running.

Australian Treasurer, Wayne Swan and SA’s Finance Minister, Pravin Gordhan, who jointly chair a Group of 20 (G-20) Committee on IMF reform, said that the convention that the fund’s MD was a European was out of date. Mr. Gordhan and Mr. Swan said a G-20 agreement adopted in Pittsburgh in 2009 calling for an open selection process for the IMF chief should be honoured.

“For too long, the IMF’s legitimacy has been undermined by a convention to appoint its senior management on the basis of their nationality.

“In order to maintain trust, credibility and legitimacy in the eyes of its stakeholders, there must be an open and transparent selection process, which results in the most competent person being appointed as MD, regardless of their nationality,” they said.

The financial institutions established by the 1944 Bretton Woods conference have operated for 60 years under an informal but rigidly enforced rule that the IMF is headed by a European while an American leads the World Bank.

Separately, Mr. Swan pointed to the increasing importance of emerging economies, particularly in Asia, as a reason for considering non-Europeans for the post.

“The tradition of automatically appointing a European to the role is one that’s long past its use-by date, given the shift of global economic weight to emerging economies, particularly Asia, over the past few decades,” Mr. Swan wrote in an economic note.

“The most suitable candidate may well come from Europe, but I think it’s essential that the appointment not be limited to any one nation or continent.

“This is why I’ll be working with my international colleagues to ensure that the appointment to this most important of global institutions is based on merit.”

Perhaps the gravest obstacle to Ms Lagarde’s prospects could come from a legal probe of her decision to settle a dispute between the state and a businessman and friend of French President Nicolas Sarkozy, who won a payoff of €285 million. A panel of judges is expected to decide by mid-June whether to launch a formal investigation. The IMF board has said a new chief would be appointed by June 30, allowing enough time to resolve the case.

Former British Prime Minister, Gordon Brown on Friday sidestepped questions about whether he would be interested in taking the post at the IMF, saying the post should be decided on merit.

Brown has been touted as a possible contender, as has Planning Minister, Trevor Manuel.

“The job should be decided on merit and the process is starting,” Brown told reporters in response to a question. He was speaking at the launch in SA of a report urging the establishment of a global education fund.

Developing countries want the top job at the global lender to go to one of their candidates but have failed to agree on whom they should support. Mexico last night said it would nominate the head of its central bank, Agustin Carstens to lead the IMF.

Brown declined to answer questions on that issue. “I’m not as interested in talking about personalities, (as in) how we shape the agenda for the future,” he said.

Steps had to be taken to mitigate the fallout of the global financial crisis of 2007-09. “We are out of the first part of the crisis — preventing a recession from becoming a depression. But there are two other problems,” he said.

First, there was no global system to avoid a crisis, with common standards and adequate supervision. Second, economic growth was not fast enough to create jobs in the face of youth unemployment, he said.

On education, Brown was scathing in his criticism of global leaders’ lack of will to tackle an “education emergency”.

“This is a scandal that makes me really angry … no injustice should last forever,” he said.

Brown said if the world continued existing education policies, there would be 75-million children without primary school in 2015, up from 68- million now. Millennium Development Goals proposed universal primary education by 2015.

“I thought it might help to have some background on what has happened in the recent selection processes for IMF Managing Director (2000, 2004, 2007).

“There have been several false starts in the effort to democratise the process, with comical post-process candidacies, symbolic nominations, and a “G11? of rebels on the IMF Board.

Stanley Fischer, Mohamed el-Erian, and Josef Tosovsky have been the unlikely vehicles for reformers’ hopes. This post is somewhat longer than most, but I think there’s enough amusement to keep people reading …

Another search for a new managing director of the IMF. Whatever happened to the days of long-term reigns, such as Michel Camdeussus’s (1987-2000)?

Ah Michel Camdessus, there was a worthy opponent. A nominal “French Socialist” (by party affiliation) and a true believer in neo-liberal orthodoxy, he made for the most charming defender of structural adjustment programs (SAPs) one could imagine.

It was a lethal charm indeed – his reign coincided precisely with the most damaging years of SAPs. He was an executive M.D. – the face of the IMF to the outside world, the self-assured technocrat who spoke of his Roman Catholic piety and branded the IMF staff “missionaries of the poor” on the grounds that they could earn bigger salaries on Wall Street.

When we demonstrated outside the IMF headquarters with Camdessus masks complete with devilish horns, it seemed not at all over-the-top.

Since then it’s been a different story – two bland technocrats and the current occupant, Dominique Strauss-Kahn (known always as DSK), who, even before his weekend arrest, could hardly be accused of blandness.

But our concern here is how those people came to occupy the office. We all know the basics, I trust, back at the founding Bretton Woods conference a famous “gentleman’s agreement” was struck whereby the U.S. would name the President of the World Bank, and Western Europe would name the managing director of the IMF.

Given their lock on the majority of votes on both boards, the agreement has held for over 60 years.

But not without objections from the other members of the institutions, and not without a series of vague (and some not-so-vague) promises from the boards, from heads of state of powerful countries, and from IMF managing directors themselves, that the process would be opened up.

When Camdessus was finally eased out in 2000, the board took its time finding a replacement. Japan and a few other countries made small sounds about the unfair process, but didn’t make too much trouble. The Western Europeans conceded to Germany that it was their turn – the previous MDs had been French, Dutch, Belgian, and Swedish. But the U.S. didn’t like the Germans’ first choice (Caio Koch-Weser), so they had to come up with another, which took awhile. By the time they settled on Horst Köhler, impatience was running high.

And so it was that the first strike against Western European domination of the process was struck by José Pedro de Morais, then the executive director for the “Anglophone” African countries (and later the Angolan finance minister, who in 2008 took pleasure in telling the IMF his country would not take its money).

Morais nominated Stanley Fischer, Camdessus’s deputy, on the grounds that Fischer, although a U.S. citizen, was born and raised in Northern Rhodesia (which became Zambia, one of the countries Morais represented).

I spoke to Morais at the time, who said his action was designed to register a visible objection to the closed process, and to the long delay in making the selection. And like many others associated with the IMF at the time, he was very fond of Fischer, a genial man who was said to have done most of the real work that Camdessus neglected. Fischer, who is now, in another strange twist, the Governor of Israel’s Central Bank, said he was flattered, but declined to be considered.

Things went a little further the next time around. Köhler announced his sudden resignation in 2004, when he was offered the mostly ceremonial German presidency (which he resigned last year in semi-disgrace after suggesting that the German military was a necessary safeguard for Germany’s international trade).

This time, there was organised action at the IMF board, 11 of the 24 executive directors, representing middle and low income countries, signed a statement demanding an open process to select the MD on the basis of merit rather than geographical origin (predictably they were dubbed the G11 for a short spell). But no serious candidate made a bid before the Europeans, acting faster this time, nominated Rodrigo Rato, of Spain.

And so, to satisfy the rumbling discontent, the IMF executed a virtually incomprehensible bureaucratic maneuver, after it had already been made clear that Rato was the confirmed choice, the IMF managed to arrange for Mohammed El-Erian, a former IMF deputy managing director and an Egyptian (with dual Egyptian-French citizenship). Egypt was one of the louder voices among the “G11.”

The IMF conducted some sort of interview, which it publicised a good deal, and then announced that of the two candidates, Rato had attracted more support.

Rato proved to be a lacklustre MD, and his term coincided with the period in which countries began repaying their IMF loans ahead of schedule and making clear they would try to avoid the IMF in the future. The word “irrelevant” began to be linked to the IMF routinely, and so by 2007 it was decided that Rato had to go.

The maneuver in 2007 followed closely on an equally-unscheduled changing of the guard at the World Bank, where Paul Wolfowitz was forced to resign after hisrelationship with a staffer and charges of preferential treatment were exposed. The U.S. quickly moved in to nominate his successor, Robert Zoellick, before demands for a more open process could gather momentum.

So the Western Europeans decided that to be consistent with their American allies, they’d have to fill the position one more time. French President Nicolas Sarkozy took an active role, pushing forward the nomination of Dominique Strauss-Kahn, former finance minister from the opposition party. It was assumed that Sarkozy was “kicking him upstairs” to a backwater, irrelevant office in order to rid himself of a potential political rival.

The Western Europeans tried to calm objections by suggesting that if everyone went along this time, the decision would be thrown open next time around.

Luxembourg’s prime minister, and chair of the Eurozone Finance Ministers, Jean-Claude Juncker, was widely quoted saying, “Within the Eurogroup and among the EU’s finance ministers, everybody agrees that Strauss-Kahn will probably be the last European to lead the IMF in the foreseeable future.”

This time around the loudest objection to the process came from Russia. The IMF published a process for nominating candidates, and the Russians decided that someone should try to exercise that option, on the last day for nominations they nominated Josef Tosovsky, former finance minister of the Czech Republic, and at the time the head of a division of the Bank for International Settlements (BIS).

The Russians lobbied allies, especially in Latin America, where disdain for the IMF ran high, to support their candidate.

The reaction among establishment IMF-watchers to the nomination of DSK was negative. The Financial Times, which had been a nominal supporter of reforms in the past, became strident in voicing its disappointment with the Western Europeans’ behaviour, and savaged DSK as “a man who is neither qualified nor legitimate.” It didn’t have much to say about Tosovsky, but was offering his candidacy at least indirect support – which was more than the Czech government would offer, choosing instead to side with its EU allies in supporting DSK.

(Note to Gordon Brown: while it would certainly be helpful to have Prime Minister Cameron’s support, it is not absolutely necessary to be a candidate).

Tosovsky’s candidacy represented a challenge to the domination of the institution, and the global economy, by the U.S. and the E.U. But in light of a manifesto of sorts that DSK published in the Wall Street Journal and the comments he made in an extensive world tour promoting his candidacy (even before Tosovsky’s name was mentioned), it appeared that in fact he was the more progressive choice.

He was calling for a “double-majority” voting, a long time demand of civil society to democratise the institution (though he backed a milder version) and he was trying to appeal to poor countries as someone, who would give their interests more attention. All this just won him more contempt from the FT and other establishment figures.

Tosovsky was less vocal in declaring his positions, but made clear that he was far more satisfied than DSK with the status quo.

The Wall Street Journal’s long-time IMF reporter, Bob Davis, ridiculed DSK by saying “he also finds `interesting’ an IMF proposal to get ready for the next economic crisis by pre-approving countries for emergency loans. If the latter sounds a bit desperate — somewhat like department stores mailing customers preapproved credit cards — it is. With the world economy humming along, the fund and the bank are at loose ends.”

These words were written in October 2007, on the eve of the biggest global financial crisis since the Great Depression. Indeed, many analysts would later concur that the impacts of that crisis had already started at that time, though they were as yet not recognised. And now DSK has implemented something like the proposal Davis mentions, though the more elaborate version, proposed officially by the South Korean government last year at the G20, is not yet approved.

But DSK, for all his manifest flaws, has changed the IMF more than any of his predecessors – most recently by breaking with the IMF’s longtime fervid opposition to capital controls — and would probably be judged as the most successful managing director in recent history by most observers.

Derided by some as a politician without the technical expertise necessary to run the institution, DSK demonstrated that what the IMF really needed was to acknowledge that it is a political institution, not just a technical one, and that it needs a politician at its head to meet its potential.

DSK used his considerable political skills to start to move the IMF away from many of its most archaic and calcified positions and practices. He also restored the IMF’s power and prestige – though in this he was aided greatly by the financial crisis of course. He has not made the IMF a progressive institution, but he has made it less retrograde, a little bit harder to hate (though it’s still not too hard).

Until a few days ago, he had also made himself into a respected world figure and a formidable candidate to oppose Sarkozy for the presidency of France, which most polls suggested he could well win in 2012. While it appeared that Sarkozy may have outsmarted himself by pushing for DSK’s appointment, the past weekend’s events throw everything into chaos, both in French politics and the IMF.

For our purposes, the question now is what we will get after DSK, will the next MD continue his legacy, or start shutting it down? Surely most of the “usual suspects” that might be nominated, from either the North or the South, fit more comfortably in the mould of Rato and Köhler than DSK.

But what we’re concerned with now is how that successor will be chosen. Even if, ironically, arguably the best MD resulted from a process that nearly everyone, including DSK himself, would argue was fundamentally flawed. It would be nice to prove now that someone better, more accountable, less in thrall to neo-liberal orthodoxy (which DSK still was) would be selected by a more transparent, open process.

U.S. not yet decided on who should be IMF chief

Washington looking for an ‘open’ selection process that would lead to quick appointment of new MD, says deputy Treasury secretary

The United States has not yet made any judgment on, who it feels should succeed Dominique Strauss-Kahn as chief of the International Monetary Fund (IMF), said visiting Deputy Treasury Secretary, Neal Wolin recently

said the U.S. has long been in favour of boosting Asia’s responsibilities and presence in global financial institutions.

When asked whether Washington would support an Asian candidate, Mr. Wolin went so far as to say that the U.S, was looking for an ‘open’ selection process that would lead to the quick appointment of a new managing director.

The 50-year-old official, a key figure in President Barack Obama’s administration, added that the U.S. has long been in favour of boosting Asia’s responsibilities and presence in global financial institutions.

‘We have, of course, been strongly supportive of increasing Asia’s role in the international financial institutions in a range of ways, also in the G-20 and so on,’ Mr. Wolin said at an hour-long dialogue held at the Singapore Exchange (SGX).

He was in town for the last leg of his five-day trip to Asia that also included stops in Sydney, Jakarta and Kuala Lumpur.

‘Obviously, the importance of Asia, across the spectrum of policy issues that are relevant, including economic issues, is enormously important and growing. We think that, in a range of ways, the world is and should take account of that,’ he said.

There has been much debate over who should take over the helm at the IMF after Mr. Strauss-Kahn, 62, resigned on Wednesday following allegations of sexual assault. He is out on US$1 million bail and has maintained he is innocent.

Europe has moved quickly to try and retain the privilege of having one of its own lead the IMF. The institution has always been helmed by a European ever since it was first set up 65 years ago in 1946.

One of the frontrunners for the vacancy is French Finance Minister, Christine Lagarde, who would be the first female to take up the position if successful.

Mr Strauss-Kahn’s abrupt departure, however, has since fuelled talk that candidates from other regions should be carefully considered too.

The finance chiefs of Thailand and the Philippines openly backed Singapore Finance Minister, Tharman Shanmugaratnam for the job, even though the latter himself was eager to end any talk of him taking the post after he was promoted to the rank of deputy prime minister earlier this week.

The 54-year-old is also in charge of the Manpower Ministry and has just begun a three-year term as chairman of the IMF’s powerful policy steering committee. He is the first Asian to head that group, which is made up of top finance ministers and central bank governors.

Tharman ‘is certainly well qualified’ and the IMF should consider all candidates for the role of managing director, including those from Asia or Latin America, said Philippine Finance Secretary, Cesar Purisima in an interview with Bloomberg TV.

“In the late ‘90s, Asia went through a debt contagion itself and I think that experience, leading through that crisis, can come in handy in helping our European friends in their own debt crisis,” Purisima said.

Thai Finance Minister, Korn Chatikavanij described Tharman as ‘one of the most capable, technically sound, well rounded and experienced finance ministers in the world’.

Under IMF rules, its executive board selects the managing director and any member can make a nomination.

Among the other possible candidates, who have been mentioned so far are former German Finance Minister, Peer Steinbrueck, World Bank Managing Director, Sri Mulyani Indrawati, an Indonesian ex-Turkish Finance Minister, Kemal Dervis and current European Central Bank head Jean-Claude Trichet. Wednesday, 25 May 2011 .

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