Controversy Mounts Over IMF Leadership Selection Process

May 29, 2011
Crimson Tazvinzwa

Stanley Fischer - Bank of Israel

Advocates clamor for a new IMF boss who is independent of powerful governments and well versed with issues in emerging economies where most IMF work occurs.

The resignation of Dominique Strauss-Kahn as Chief of the International Monetary Fund (IMF) on 15 May 2011, and the subsequent blanket endorsement of Christine Lagarde by Europe and the U.S as potential successor, raise questions on the impartiality of the Fund’s leadership selection process.

The Global Coalition Campaigners and leaders from the emerging economies have called for an open merit-based process to appoint the next IMF director. The campaigners comprising Bretton Woods Project, Oxfam and the Third World Network are challenging the “gentlemen’s agreement” between Europe and the US that favors the IMF Managing Director to always be a European and the President of the World Bank an American.

Oxfam’s Sarah Wynn-Williams said: “The time has come for the IMF to accept an open and merit-based approach to choosing its leaders. Open voting, and a leader backed by a majority of IMF member governments, not just a majority of shares.”

Ms. Wynn-Williams says there are fundamental democratic principles missing from the whole process, a situation that works against some members of the IMF club.

“The IMF can't continue to select its leaders in such a flawed manner. Leadership must be representative and accountable if it is to be credible,” she charged.

There is a sustained argument that the appointment of a new IMF chief must be based on expertise and not nationality - with an effort to accommodate leadership from outside Europe or America.

“It is time for the European and US governments to finally end the sordid tacit deal between the two regions that have maintained a de facto Northern leadership at both the Fund and the Bank,” said Bhumika Muchhala of the Third World Network.

Representatives from Brazil, Russia, India, China and South Africa (BRICS countries) say the choice on the basis of nationality undermines the IMF's legitimacy.

"The recent financial crisis which erupted in developed countries underscored the urgency of reforming international financial institutions so as to reflect the growing role of developing countries in the world economy," they said in a recent statement.

The European Union on the other hand believes it is one of their own who is able to understand the continent’s unique and complex socio-economic troubles reflective of the collapse of the economies of Greece, Ireland and Portugal. They insist a consensus is growing for Lagarde's appointment.

Nonetheless there is evidence that the IMF has at its disposal professionals from smaller economies with abilities, qualifications and experience required to lead institutions of relevance.

Potential candidates

There is a compelling viewpoint that the IMF would benefit from credible alternative professionals outside of Europe or America, who possess not only economics clout but in-depth knowledge and experience of international relations and politics.

Take for example Stanley Fischer, a PhD Economics Graduate from Massachusetts Institute of Technology (MIT), and currently Governor of Israel’s Central Bank. Prior to joining the Bank he was Vice Chairman of Citigroup where he was in charge of the Public Sector Group before assuming presidency of Citigroup International.

Mr Fischer became the First Deputy Managing Director of the International Monetary Fund in 1994. Prior to joining the IMF, Fischer was the Killian Professor and Head of Department of Economics at MIT (Massachusetts Institute of Technology). He also worked as Vice President- Development Economics and Chief Economist at the World Bank.

Emerging from South America is Augustin Carstens who is Head of Mexico’s Central Bank. He worked at IMF as Deputy Managing Director (August 2003–October 2006). Before joining the IMF he was Mexico’s Deputy Secretary of Finance.

Between 1999 and 2000 Carstens was the IMF’s Executive Director representing Costa Rica, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Spain and Venezuela. He had a stint at Banco de México (central bank) where his positions included Director General, Economic Researcher and Chief of Staff. Carstens has served as Alternate Governor for Mexico at the InterAmerican Development Bank and the World Bank.

Tharman Shanmugaratnam with Sri Lankan ancestry, graduated from university of Cambridge with an MSc in Economics. He also has second Master’s Degree in Public Administration from Harvard University. He is a member of Group of Thirty, also known as "The Consultative Group on International Economic and Monetary Affairs.

He is the Chairman of the International Monetary and Financial Committee (IMFC), the policy steering committee of the IMF. He is the first Asian to head the IMFC after Dr Youssef Boutros-Ghali, Egypt’s former cabinet minister in Hosni Mubarak’s government. Mr Shanmugaratnan is Singapore’s Finance Minister.

There is no doubt that these individuals possess a wealth of qualifications, knowledge and experience worthy of recognition within important institutions like the IMF and the World Bank.

Why the race is over before it even starts?

Big guns have already fired a warning shot to make their positions clear. Endorsements for Christine Lagarde have already been made public way before closing of nominations on June 10, 2011.

So far it appears the interviews for the post of IMF Chief will be a formality with the appointment of Ms Lagarde a foregone conclusion confirming the view that there is a tradition of appointing a European to the role of IMF Chief.

Eyrun Bernahardsdotttir, in an article published by Suite101.com, September 23, 2010 argues: “There is lack of democracy within the IMF. It governs the economics of the global community without the global community being allowed to have a say on who governs the IMF.”