IMF Head Resigns; Developing Country Board Members Demand Open Process on Successor

Vol. 7, No. 2

April, 2004

by Soren Ambrose
50 Years Is Enough Network

IMF Head Resigns; Developing Country Board Members Demand Open
Process on Successor

Implications for Choice of Next World Bank President in 2005

By Soren Ambrose
50 Years Is Enough Network

In one of the most rapid top-level changes in the history of the International
Monetary Fund, Managing Director Horst Köhler announced his resignation
on March 4 in order to run for President of Germany. The center-right
coalition in the Bundestag, which holds a majority and is therefore virtually
assured of naming the President, chose Köhler as a surprise compromise
candidate on the evening of March 3.

Köhler took office in 2000 and his term was due to end in 2005, but it was
generally assumed he would be re-appointed. His predecessor, Michel
Camdessus, held the post for 13 years.

Speculation began to fly immediately not only about who would replace
Köhler, but how that person would be selected. An unwritten agreement from
the time of the founding of the IMF and World Bank allows the Western
European countries to choose the IMF’s Managing Director and the U.S. to
choose the President of the World Bank. While the geographical restriction is
the most blatantly politicized aspect of the selection process, the absence of
democracy and transparency extends to a total lack of scrutiny of nominees.
The candidate is simply presented without hearings or even the illusion of
alternatives.

Köhler’s resignation took effect immediately, so the IMF is now being headed,
on an interim basis, by Deputy Managing Director Anne Krueger. Like the
World Bank’s President, James Wolfensohn, she is a U.S. citizen. In fact, the
apportionment of offices on a geographic quota basis extends beyond the top
job at both the IMF and World Bank: at the IMF, the top Deputy is always from
the U.S., and the second deputy is from a borrowing country. Unlike
Wolfensohn, who was appointed in 1995 by President Bill Clinton, Krueger is
a Bush Administration appointee, a former high-ranking official at the World
Bank, and a former fellow at Stanford University’s right-wing Hoover
Institution. Krueger has been particularly outspoken in recent months in her
hard-line statements toward Argentina, the site of the IMF’s most spectacular
recent fiasco.

The 2000 Controversy

The selection of Köhler in 2000 was the most contentious selection process in
the history of the institutions. Just as with the German presidency, Köhler
emerged late in the day as a compromise candidate. In a disruption of
international decorum less common in those days of the Clinton
Administration, the U.S. publicly declared that the candidate Western Europe
finally settled on, Caio Koch-Weser, a top-level World Bank official, did not
have the gravitas for the job. The German government, whom the Europeans
had decided should have its turn at selecting the head of major international
institution, tried to stand by its original choice, but eventually relented and
nominated Köhler, then the head of the European Bank for Reconstruction
and Development (the equivalent of the Asian, African, or Inter-American
Development Banks – a regional institution focusing on the former Soviet
Union and Soviet bloc countries).

The U.S. disruption opened up several weeks of uncertainty in the selection
process. Debate raged among IMF board members, in finance ministries, in
the op-ed pages and financial newspapers, and among academics. For the
first time, a range of voices, from economists to activists to politicians, all
voiced disapproval of an IMF selection process so dramatically anti-
democratic and out of step with the institution’s demands of client countries for
transparency. Jeffrey Sachs, one of the most prominent international
economists, loudly demanded an open process, and advocated for his own
favorite candidate, a former Polish Finance Minister. Sachs and others called
for figures from the Global South to be considered on an equal basis with
Europeans and other Northerners. The Japanese government, which despite
being the second-largest IMF shareholder is usually a quiet partner,
demanded that one of its officials be considered for the post. An African
executive director at the IMF, impatient with the stalemate, and partly to open
up the same questions, formally nominated Stanley Fischer, a U.S. citizen
who was then IMF Deputy Managing Director, but who was born in Northern
Rhodesia (now Zambia). Had the U.S. government taken the bait and
supported Fischer, the corrupt selection process could have been broken up,
but it did not. The decision was ultimately resolved behind closed doors by
the G7 governments.

The controversy led the IMF and World Bank to appoint parallel working
groups to come up with guidelines for future selection of the respective head
positions. That they did, recommending the formation of a committee of
“eminent persons” to review candidates in an orderly process, and regardless
of candidates’ country of origin. But the IMF board of directors did not adopt
the recommendations, so it is not bound by them (though it said it would rely
on the recommendations for “guidance” in the future). And indeed no move
was made following Koehler’s resignation to set up such a committee.

Developing Country IMF Board Members Demand Reform

Just as in 2000, commentators and critics have been insistent that the system
needs to be reformed. The Financial Times printed several editorials and
opinion pieces calling for an open and transparent process that considers
candidates from borrowing countries. But for two weeks no officials from
developing countries (or Japan, for that matter) made any statements on the
process.

That all changed late in the afternoon of Friday, March 19, the time media
consultants traditionally reserve for announcing news their institutions would
prefer gets little attention. The IMF External Relations Department posted to
the IMF website a release from 11 Executive Directors (of 24 total)
challenging the customary selection process and calling for reforms along the
lines of those recommended by the joint IMF/World Bank working groups.
The G-11, as they’ve chosen to call themselves (an echo, perhaps a little
humorous, of the G-7 industrial counties and numerous other alliances),
represent a total of 126 countries.

The statement (below), while short, is, in the diplomatic terms in which it is
written, blunt, and will likely be difficult for the major powers at the IMF to wish
away. It demands that all members of the Board be fully involved in the
process, that they have a range of nominees to choose from, and that the
nationality of potential nominees should not be considered in determining
their eligibility or suitability. They are calling for an open and transparent
process – implicitly but clearly saying that the processes in the past have
been anything but.

This is an unprecedented challenge coming from within the IMF’s own Board
of Directors. We know of no previous instance where a significant group of
Board members has issued a public statement calling on the board as a
whole – and the most powerful members on the board as individual actors --
to change their behavior.

Most of the IMF’s developing-country members endorsed the statement.
Russia, a major borrower, but also a world power, is one of the signers. Two
“mixed” constituencies – that is, groups of countries represented by a single
Executive Director that include both developing and developed countries –
have joined. One, chaired by Switzerland, includes Poland, Tajikistan,
Serbia, and a few others; the other, chaired by Australia, includes the
Philippines, South Korea, New Zealand, and most of the Pacific island
countries.

On March 31, the Egyptian representative to the IMF (who also represents
other Arab countries) nominated three candidates: Stanley Fischer; Andrew
Crockett, a British citizen who has worked at the IMF and until recently
headed the Bank for International Settlements; and Mohamed El-Erian,
worked for Fischer at the IMF and holds both French and Egyptian citizenship.

The European Candidate

Until the G-11 statement, it looked probable that Rodrigo Rato, Finance
Minister of Spain, would be awarded the position through the usual process of
closed-door deals left up to the Western European members of the IMF.
European officials appeared to be rallying around Rato starting on March 8,
when both Luxembourgian Prime Minister Jean-Claude Juncker and British
Chancellor of the Exchequer (Finance Minister) Gordon Brown made widely-
quoted statements of support. Toward the end of the month, however, France
and Germany indicated they would support a French candidate, Jean
Lemierre, the current president of the European Bank for Reconstruction and
Development (whence Köhler came).

For a time it appeared the EU countries were determined to maintain the
advantage accorded by the Köhler’s sudden resignation by acting swiftly,
before opposition to their claim to the seat could build. With the G-11
statement, that window seems to have closed.

Statements from the British government at the end of the month indicated it
might consider supporting a non-European. They are alone in issuing such
hints, however. In the days after Köhler’s resignation, Romano Prodi, the
head of the European Commission, made a short but clear statement
asserting Europe’s claim on the position (“this position should be occupied by
a European in view of the international significance of Europe"). That
statement was echoed by the German and French finance ministers at a joint
press conference on March 22.

The U.S. Position: Looking to the World Bank Succession

No U.S. officials have commented on the G-11 statement, Rato or the
succession process. It is generally assumed that the Bush Administration has
no desire to disrupt the process this time around. It is acutely aware that
James Wolfensohn’s term as President of the World Bank comes to an end in
2005, and the Bush Administration wants to avoid provoking any challenges
to its own “right” to unilaterally designate a successor. (If the Democrats win
the November election, there is a slight chance that Wolfensohn could be
reappointed, but his age – he recently turned 70 – and an explicit
recommendation by the institutions’ panels on the selection process that no
head serve more than two terms seem to mitigate against it.) The most recent
rumors on who the Bush Administration might select as the next World Bank
President frequently center on Colin Powell. It would be a face-saving way to
end his tenure as Secretary of State, where he has clashed with the hard-right
ideologues that dominate the Administration such as Vice President Dick
Cheney and Defense Secretary Donald Rumsfeld.

The prospect of Bush being able to select the President of the World Bank
unchallenged is generally viewed as more dangerous than the European
choice at the IMF, given Bush’s record as a right-wing unilateralist. Indeed it
is likely that the G-11 statement is in part anticipating the Bank’s selection
process. Given the resentment and fear that Bush’s approach to international
affairs has caused around the world, even the EU governments might see the
argument for giving up their prerogative if it will set a precedent useful in
limiting the potential for further U.S. abuse of the international system.

Could There Be a “Good” IMF Managing Director?

The ultimate question is: does it matter? Can any process, however reformed,
open, or transparent, produce a candidate who will, or can, do anything other
than preside over an institution with far too much power, far too rigid an
ideology, and far too corrupt a structure?

The new Managing Director, whoever it may be, will be a staunch defended of
neo-liberal pro-corporate economic programs, and will be heading an
institution dedicated to defending the current global economic system.
Whatever process emerges out of this is certain to designate someone who
will continue to oversee the imposition of disastrous – indeed, murderous –
policies on vulnerable populations around the world.

For campaigners, the succession process is mainly an opportunity for
exposing how completely undemocratic and unaccountable the institutions
are. The media and the public should be encouraged to look into the
secretive and anti-democratic process used to choose the most influential
people at the institutions that run the global economy. The response,
whatever it may be, to the G-11 statement, will demonstrate whether the IMF
has any capacity for change.

But we can take a little encouragement that a tiny bit of the spirit of Cancún
may be rubbing off on the developing country members of the IMF Board of
Directors. At the September WTO meetings in Cancún, a broad array of
developing countries refused to accept the trade policies that the European
Union, Japan, Canada, and the United States were insisting on. Just as
important, they made clear their excellent reasons for refusing, and left the
wealthy governments with no face-saving way to explain the collapse of the
talks or the exploitive policies they insisted on.

This development at the IMF is not as significant as Cancun – except that it
represents a crack at the most impervious and important of the institutions
designing and enforcing the rules of corporate globalization. If it is true that it
will be a long, step-by-step process to transform the IMF (and many find it
hard to feel reconciled to such patience in the face of such devastation), then
this looks very much like a first step.

Statement by a Group of IMF Executive Directors on the Selection Process for
a New Managing Director

A group of IMF Executive Directors made the following statement today on the
selection process for a new Managing Director.

"The G-11 Executive Directors, representing emerging and developing
countries from Asia, Africa, Latin America, and the Middle East, joined by a
group of Executive Directors from Australia and Switzerland, who each
represent a range of countries, along with the Executive Director from the
Russian Federation -- well over 100 countries -- met today to discuss the
selection process for a new Managing Director of the IMF, arising from the
resignation of Mr. Horst Koehler.

1. The above group is of the strong view that the candidate nominated for the
position 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."

http://www.imf.org/external/np/sec/pr/2004/pr0455.htm

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