Home .Governing globalization Who next for the IMF?
Who next for the IMF?
Tuesday, 17 May 2011 01:59

French playboy, politician and head of the International Monetary Fund, Dominique Strauss Kahn, seems to be mortally wounded.  Some European finance leaders are already calling for his resignation.  The image evoked by the seemingly well-founded accusations of sexual aggression are too much to contemplate, especially for those of us who believe in good global governance.  Even a "honky cat" like DSK has no more than nine lives.

But has he also shot Europe in the foot?  Will the crisis-ridden old continent now be forced to relinquish its traditional stranglehold on this IMF job?

The Managing Director of the IMF is appointed under a 60 year old unwritten convention that the nominee be from Western Europe.  All nine IMF Managing Directors have indeed been citizens of the old continent.  As part of this convention, the President of the World Bank is nominated by the United States.  A similar convention has applied at the Asian Development Bank since it was established in 1966, under which the President is nominated by Japan and has always been Japanese. 

This unwritten convention has been increasingly contested over the past decade or so.  In a 2007 paper, the Australian Treasury argued that these ararngements are anachronistic, are contrary to modern corporate governance best practice, are inconsistent with the multilateral character of the IMF, World Bank and ADB, and undermine their legitmacy and effectiveness.  It argues that removing nationality restrictions would be consistent with measures being taken to enhance the voice and participation of developing member countries, particularly emerging market economies whose voice has not kept pace with their growing economic weight.

The Australian position is that the heads of these international organizations should be selected based on merit, and under an open, transparent process with candidates not restricted by nationality.  In fact, the leadership of the World Trade Organization and the Organization for Economic Cooperation and Development are selected in such a manner, although these organizations do not have the political and financial clout of the IMF and World Bank.  Strauss Kahn himself was selected by a backroom deal between France and Germany, as French President Sarkozy was keen to expatriate his leading political opponent.

The movement to open up the leadership positions of the IMF and the World Bank reflects many factors.  The IMF fell into massive disrepute in Asia, following its perceived mismanagement of the 1997-98 Asian financial crisis.  In particular, developing countries particularly do not like the harsh medicine of IMF conditionality that comes with its loans. 

The IMF has also been highly criticised, including by its own evaluation office, for not predicting the 2008 global financial crisis.  And many now question why it is so heavily invested in saving the euro from the continent's sovereign debt crisis.  Surely, the whole point of the IMF and the World Bank should be to save reckless developing countries from their widespread bad governance.

Europeans will argue that solving the euro crisis requires a European pilot of the IMF.  But when developing countries had their crises, we believed that they should be lorded over by stern developed country leadership. 

Many of the arguments for a more open and meritocratic slection process hide the ambitions of other regions, especially, to get their hands on the prized leadership of these organizations.  And this is understandable given the immense financial strength of China, Japan and other Asian giants. 

There have been solid efforts to fob them off, as the World Bank's Senior Vice President is now Chinese and Strauss Kahn himself appointed a former Deputy Governor of the People's Bank of China as a senior advisor.  Some time ago, Japan was awarded a Vice Presidency in the World Bank and a Deputy Managing Director position in the IMF.

All things considered, it is difficult to imagine a really open and meritocratic process for the appointment of the leadership of the IMF and World Bank.  The key skills are difficult to evaluate objectively -- a rare comination of great political judgement and finesse, with high level financial and economic expertise. 

And since these are jobs which are prized the world over, political infighting and horse trading are inevitable.  Former British Prime Minister Gordon Brown was lobbying for the IMF job, even before Strauss Kahn's passion led him astray.  The meritocratic selection of the heads of the WTO and the OECD in part reflects their relative lack of importance in the international system.   

There is one big job in the international system which is open to all countries, namely the Secretary-General of the United Nations.  But this has been solved by a system of regional rotation, hardly an ideal way to pick the best candidate.  This means that the US, still the world's only real superpower, has to find a competent and compliant friend, like the present leader Ban Ki-moon from Korea, every time the position is up for grabs.

There are many reasons why the leadership positions of the IMF and the World Bank should be opened up to other countries.  The West should accept that we now live in a multipolar world which it no longer dominates.  It would indeed be a symbol of global democracy and a recognition of the financial weight of emerging economies.  There are also many credible candidates in the emerging economies. 

It would also strengthen the credibility and legitimacy of these organizations.  In particular, it may help defuse the constant bickering and carping of emerging economies in the context of a "West versus the Rest" organizations. 

The reality is that notwithstanding the process by which IMF leaders have been selected, most of them have been very high calibre and have done a very good job.  In particular, Strauss Kahn may well have been the best Managing Director that the IMF has ever seen.  He transformed an organization dominated by "economic ayatollahs" into one with a human face and political sensivity.  

It is time to challenge those Asians with their fists full of dollars to see if they could do half as well.  It would be a challenge! 

 

Reference:

Governance of the International Financial Institutions: The Case for Merit-Based Selection of Agency Heads.  Michael Kooymans.  Australian Treasury Working Paper, 2007-03.  May 2007

http://www.treasury.gov.au/contentitem.asp?NavId=&ContentID=1264

 

 


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