Governing the Fund

With the Spring 2004 meetings of the boards of directors of the IMF and the Bank having concluded over the weekend, the executive directors of the IMF will meet later this week to consider the procedure to be adopted to select the next managing director. The vacancy was created a few weeks back when Horst Koehler quit to take over as president of Germany.

No sooner had Koehler put in his papers, a flock of European aspirants started lobbying for the post. First came Spain8217;s luckless former economy minister Rodrigo Rato, a stronger contender who fell by the way side with the defeat of his political party in Spain8217;s general elections. Then stepped in Lamy and found no takers. In the meanwhile, embattled British Prime Minister Tony Blair8217;s cronies floated the name of his chancellor of the exchequer, Gordon Brown, more to get him out of London and out of Blair8217;s way, but Brown was not interested.

The French, of course, imagine the seat is theirs for the asking just because Michel Camdessus, Jacques de Larosiere and Pierre-Paul Schweitzer parked themselves on it for close to three decades during the bygone days of US-French entente cordiale! Having yielded it to their German neighbours, who will now be invited this year for the 60th anniversary of the landing at Normandy, they hope to grab it back through the person of Jean Lemierrie, present head of the European Bank for Reconstruction and Development. Having had one go at the job, the Swedes, Belgians and Dutch are not in the race now.

The world, however, is changing. While the transatlantic victors of the Second World War who created the Fund and the Bank at a conference in Bretton Woods, north of New York, in 1945, still try to control these two multilateral organisations, there are other powers knocking on the door for the job. Next year the Bretton Woods institutions would be celebrating their 60th anniversary. If the last MD of the Fund was from one of the vanquished powers of the war that preceded its birth, shouldn8217;t the next chief be from the other power that has emerged since as the world8217;s second biggest economy?

The Japanese are curiously disinterested this time. Ten years ago they fielded the governor of the Bank of Japan, Toyo Gyohten. Then they canvassed the candidature of a former finance ministry official, Eisuke Sakakibara. This time they have sat back and showed no interest. In the meanwhile, the US has made some noises about talent rather than geography determining the nationality of the next MD, hoping the world will readily recognise the talent of such Americans as the former IMF deputy MD, Stanley Fischer, and the former US treasury secretary and current boss at Citigroup, Robert Rubin.

Not to be totally ignored in this business, the developing world has let it be known that it exists too. The claims of the developing countries were first flagged by a senior former IMF official from Mexico and head of a Third World think-tank who identified, among other developing country worthies, two highly qualified potential candidates from India, namely former finance minister Manmohan Singh and Reserve Bank of India Governor Y. Venugopal Reddy.

The developing country executive directors, dubbed the G-11, have since come out with an official statement calling for a professional and transparent selection process based on at least two principles: an open and transparent process in which all members of the executive board are consulted, and a plurality of candidates representing a diversity of members across regions. 8220;The aim being to select the best person for the job, regardless of nationality.8221; said the G-11 statement. The G-11 represent more than 100 countries in Asia, Africa, Latin America, the Middle East, and Switzerland, Australia and Russia.

Supporting the G-11 view and criticising the 8220;democratic deficit8221; and lack of 8220;transparency in IMF8217;s governance8221;, India went a step further in a speech delivered by Reddy at the Fund8217;s Spring Meetings, in the absence of Finance Minister Jaswant Singh, and called for a wider review of the quota formulas and voting rights in the Fund and the principles governing the composition of the board.

8220;The present quotas, based on a flawed formula with variables and weights chosen to produce a pre-determined result, do not reflect positions that are truly representative of many countries8217; profile in the world economy,8221; said Reddy, seeking a new formula based on a transparent and objective set of criteria. 8220;In order to be truly representative of the size of economy and capacity to contribute to Fund resources, the chosen formula should assign maximum weights to GDP and reserves, and GDP should be computed on purchasing power parity PPP terms.8221;

It will be awhile before such principles are accepted by developed countries, but the global and open debate on the principles of selection and credentials of the next IMF chief, paralleling a similar debate at the WTO when Supachai Panitchpakdi of Thailand was selected its director-general, has placed merit above nationality in the selection process.