The 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 resolved that:
"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 procedure.
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.