IMF never tires of advising developing countries to
improve their governance practices. No cronyism, more
transparency and less corruption are the refrain of
most policy documents released by the more powerful
of the Bretton Woods twins. Yet the debate over the
choice of a new Managing Director for that institution
reveals its own adoption of a non-transparent, closed-door,
"informal" process. That process is part
of an arrangement between the US and Europe, which
"accepts" that the chief of the Fund has
to be a European, while the head of the World Bank
should always be an American.
The current debate began when Horst Kohler, the IMF's
Managing Director, abruptly resigned in early March,
on being chosen the compromise candidate for the post
of the President of the Federal Republic of Germany.
Even while Europe has since been scurrying to find
a consensus candidate for the post of the MD, beginning
with an unsuccessful lunch meeting of the EU's Finance
Ministers on May 9, developing countries have come
out far more sharply than before in favour of a more
open and transparent process.
Around the same time as the EU meeting, at the sidelines
of a technical group meeting, Ariel Buira, the Director
of the G-24 Secretariat, an official developing country
think-tank functioning since 1972, declared that the
selection procedure for the chief of the IMF reflects
the fact that the governance structures of the IMF
and the World Bank "lack representativeness"
and "do not reflect the reality of the world
economy". Speaking on behalf of the members of
the G-24, Buira noted that though the countries of
the South account for around 160 of the 184 members
of the multilateral lenders, this presence is neither
reflected in the voting system nor in the distribution
of upper-level posts. Between 80 and 85 percent of
the top posts in the IMF and World Bank are held by
people from industrialised nations, said Buira, a
noted Mexican economist.
The point being made here was not just about nationality
or geographical origin. Since developing countries
are the only ones that have used the lending facilities
of the IMF and the World Bank for close to 25 years
now, those with developing country experience are
the ones who have hands on experience with the implementation
of the conditionalities and programmes associated
with such lending. Given the growing criticism of
such programmes, especially during the spate of financial
crises beginning with that in East Asia in 1997, "there
is something to be said about having people who have
experienced the programmes and conditionality, know
what the cost is and perhaps are better able to understand
the needs of the countries that borrow," Buira
noted. So what was needed was a more participatory,
open, transparent and democratic procedure "which
leads to an objective assessment of the merits of
potential candidates and attracts the best candidates
regardless of nationality."
That Buira was not speaking without a brief became
clear when days latter Finance Ministers attending
a meeting of central bank governors and finance ministry
officials from Africa, echoed the same sentiment.
Addressing a media briefing during the conference,
Burkina Faso's Finance Minister Jean-Baptiste Campaore
said, the unexpected resignation on March 4 of IMF
Managing Director Horst Koehler was an opportunity
for developing countries in general, and Africa in
particular, to "send a signal" about the
importance of transparency and participation in choosing
the leadership of the Bretton Woods institutions.
Sudanese Finance Minister Zubair Ahmed Al-Hassan said
the Johannesburg conference was not saying the next
managing director must be an African. What they wanted
was a more open and democratic selection process.
Subsequently, on March 19, 2004, an IMF press release
made clear the position of a large group that had
formed within the IMF itself, who together represented
well over 100 countries. The release stated that this
group, consisting of the G-11 Executive Directors,
representing emerging and developing countries from
Asia, Africa, Latin America, and the Middle East,
Executive Directors from Australia and Switzerland,
who each represent a range of countries, and the Executive
Director from the Russian Federation, had in a meeting
"1. The … candidate nominated for the position
(of IMF Managing Director) must be an eminent person,
familiar with the goals of the institution.
2. The process of identifying and selecting the candidate
must be open and transparent, with the goal of attracting
the best person for the job, regardless of nationality.
A plurality of candidates representing the diversity
of members across regions would be in the best interest
of the Fund.
3. All members of the Executive Board should be consulted
in the process of considering candidates that lead
to the selection of the Managing Director and informed
in a timely manner regarding candidates, including
their credentials and knowledge of the institution."
These developments indicate that this time around
there is bound to be considerably more controversy
surrounding the appointment of the Managing Director.
Kohler's appointment as IMF Managing Director in 2000
was itself the end result of a murky two-step process
of selection. First, Germany was "allotted"
the post in 2000 because at that time the NATO chief
was from the UK, an Italian headed the European Commission
and a Frenchman was to take over leadership of the
European Central Bank. Using its "opportunity",
Germany nominated Caio Koch-Weser as successor to
former managing director Michel Camdessus of France.
But the U.S. government blocked the IMF board's selection
of Koch-Weser, and in a subsequent compromise Germany
won approval of a second candidate, which was Koehler.
Backroom deals in international finance are fought
hard and not won easy.
Thus, even if Europe has as per an informal deal between
the US and Europe the right to nominate a Managing
Director to the IMF, it has to first find a consensus
candidate and second win US approval for that candidate.
Not surprisingly, as soon as the post once again fell
vacant in March, speculation in Europe started over
the likely nominee. Initially, the name of Gordon
Brown, UK's Chancellor who also chairs the IMF's International
Monetary and Financial Committee, was doing the rounds,
since he was a considered in 2000 as well. But given
his ambitions to become Prime Minister, he did not
join the race. Now there are three names reportedly
being considered by the EU: Jean Lemierre, the French
president of the London-based European Bank for Reconstruction
and Development; Rodrigo Rato, former finance minister
of Spain, and Mario Draghi, the former head of Italy's
treasury who is now at Goldman Sachs. Rato's chances
may have been adversely affected by the election results
in Spain, since he may not win approval even from
the new Spanish government itself.
But even if one of these candidates were to win the
support of Germany and France, as Lemierre is expected
to, there are three other obstacles to be crossed.
That which could be created by the UK and the US;
that being set up by the developing countries; and,
finally, the weight of informed public opinion against
the current cronyist appointment procedure being widely
expressed in the international media.
Reportedly, Gordon Brown has been sounding out other
members of the IMF's International Monetary and Financial
Committee, including the developing country members.
The UK has called for a more open selection process
and indicated that there cannot be too early an agreement
on a European candidate for the job. A British Treasury
official is reported to have said that UK wanted "a
very wide range of countries" to be involved.
The US too has chosen to remain in the sidelines,
letting the EU handle the matter, but conscious of
the fact that it needs to retain its "customary
right" to nominate a successor when the current
World Bank President James Wolfensohn's term ends
next year. However, to keep its legitimacy going it
has backed the call for openness and transparency.
John Snow, US Treasury secretary, recently told reporters:
"We want an open process that focuses on merits
and selects the most qualified person." In practice,
however, it is likely that the UK and the US would
go along with any Western European consensus candidate,
so as to avoid one more bone of contention with Europe,
to add to those like the Iraq war and agricultural
subsidies. They would at most extract a concession
or two on other issues.
So we are soon likely to see Europe running the course
to the second obstacle: developing country opposition.
The problem here too is one of agreement within a
large and varied bloc. We must recall that most developing
country governments have "owned" Fund-Bank
type policies, are competing for US-EU friendship
and would be averse to upsetting precariously balanced
relationships. This could lead to proposals that are
either no challenge to the IMF decision making process
or to disagreements that are unlikely to be resolved.
Already, reports have it that Shakour Shaalan, Egypt's
executive director at the IMF, has followed up the
G-11 statement with three proposed nominations to
the MD's post: Stanley Fischer, a Zambian-born US
citizen, currently with Citigroup, who is an economist
who has served as first deputy managing director of
the IMF as well as chief economist of the World Bank.
Andrew Crockett, a UK citizen, who works at JP Morgan
Chase, earlier headed the Bank for International Settlements
and has worked at the Bank of England and at the IMF.
And, Mohamed El-Erian, who holds both Egyptian and
French passports, who has served the IMF for 15 years,
rose to the position of deputy director of the Middle
East region, and currently is a fund manager at Pimco.
The panel is indeed surprising. When the system is
already loaded so heavily against the developing world,
why on earth should the G-11 EDs recommend an American
and an Englishman? It definitely is not because there
are no other deserving individuals from the South
besides Mr. El-Erian. It should be obvious that from
the point of the view of the IMF and international
financial capital, these are individuals with impeccable
credentials. The only major difference between these
candidates and those likely to be recommended by the
EU is the fact that their track record includes a
successful stint at the IMF. That could be a drawback
rather than an advantage. It could mean that their
entry into the top position in the Fund is unlikely
to make any difference to the Fund's positions with
regard to the developing countries. Fortunately, it
is not still clear whether Egypt's suggestions are
likely to be received well by all the G-11 EDs; probably
not. But the division this involves could be exploited
by the US and the EU to push through an EU nominee
with similar credentials. The point of the whole exercise
of dissent and opposition may be lost.
This leaves global public opinion as the final obstacle.
But, if the war in Iraq is an indicator, this is unlikely
to make any difference. Moreover, how could public
opinion matter if the developed countries are unwilling
to accept the procedures that the IMF itself has recommended.
We must recall that at the end of the last round of
back-door deals that elevated Kohler to the position
in question, the controversy it generated had forced
the IMF and the World Bank to set up separate Working
Groups to review the process for selection of the
heads of their respective institutions. The Groups
had recommended a procedure involving the creation
of an advisory group of eminent persons with adequate
geographical balance that would prepare an unranked
shortlist for consideration by the board of the institution
concerned. Thus far, there is no sign of this procedure
being adopted for selecting the next IMF head. In
the event, we are likely to see one more instance
of lack of transparency and openness in the selection
In sum, despite the blatantly scandalous procedure
being adopted by the EU and the US, there are no signs
of voluntary reversal. This indicates how important
the IMF is to the developed world, even in a situation
where it is directly responsible for a small share
of international capital flows, the ratio of which
to global trade has fallen from close to 60 per cent
in 1945 to a little over three per cent currently.
That importance comes from the use of the IMF as an
instrument to force developing countries facing balance
of payments difficulties to adopt policies that help
them little, but serves the developed countries and
international finance well. If to ensure the persistence
of such practices, an unacceptable procedure is being
sought to be adopted once again by the US and the
EU, it is time for developing country citizens to
organise and force their domestic governments to come
out united and strong against the scheme. They should
demand that their governments should refuse to go
along and put out an alternative list of credible
developing country nominees drafted by a group of
eminent persons from the South created for the purpose.
At the least, that would help highlight the duplicity
involved in these institutions preaching good governance
through the cut-and-pasted policy documents they routinely
serve up for the developing world.