The race to be head of the IMF

The talk among finance ministers meeting in Brussels this week will be who will lead the International Monetary Fund. And every nation seems to want their man at the helm. By Sean O'Grady

Tuesday, 10 July 2007

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You don't have to be French to head the IMF, but historically, it has certainly helped. However, the European Union finance ministers meeting in Brussels this week look unlikely to agree on their nominee for the next managing director of the International Monetary Fund, despite the strong and public lobbying by the French President, Nicolas Sarkozy, in favour of the former French finance minister Dominique Strauss-Kahn.

Even the informal convention that a European fills the post while its sister organisation, the World Bank, is headed by an American is increasingly under fire, with the Chancellor, Alistair Darling, yesterday joining the ranks of those condemning the post-war tradition as outdated and suggesting that Rodrigo Rato's unexpectedly early departure this October could be an opportunity for reform.

M. Sarkozy this weekend declared: "I know this post is very coveted. To get it you need to have a lot of credibility, undeniable credibility and be a polyglot. Dominique Strauss-Kahn has these qualities. He and I have the same vision for the workings of the IMF."

A Portuguese spokesman played down the chance of a candidate emerging from the EU meeting, despite M. Sarkozy's efforts. "I expect to have a broad exchange of views between the ministers on the head of the IMF ... I do not expect to have a name coming out from the meeting, but we will see."

The Austrian Finance Minister, Wilhelm Molterer, also said that no common European position on the IMF had been agreed, and Gordon Brown's spokesman said it was "very early days".

Nonetheless, a spokesman for the German Finance Minister, Peer Steinbrueck, said that Germany held M. Strauss-Kahn in high regard as a "good European candidate", while Luxembourg's Jean-Claude Juncker added: "Dominique Strauss-Kahn has all the qualities you need in order to become managing director of the IMF."

There is a growing lobby challenging the convention whereby Europeans head the IMF with US support and an American leads the World Bank with Europe's blessing. Japan has long been disadvantaged by this unwritten rule, as, more recently, have emerging nations such as China and Brazil. Developing countries also feel that they deserve a turn; an Egyptian candidate was turned down in favour of Mr Rato in 2004.

When he stood down as IMF chief seven years ago, the Frenchman Michel Camdessus said it was time to think again: "This was justified in 1950, when the rest of the world was not there except for a few countries from Latin America. Now the emerging countries are there, now the poorest countries must have their say."

However, the US Treasury Secretary, Henry Paulson, said yesterday that the US would not stop Europe from naming the next IMF head.

A number of other European names are being canvassed, including another former French finance minister, Laurent Fabius; the head of the European Bank for Reconstruction and Development, Jean Lemierre; the former head of the National Bank of Poland Leszek Balcerowicz; the former Swedish prime minister Goran Persson; the Briton Sir Andrew Crockett, formerly of the Bank for International Settlements; and the former EU competition commissioner Mario Monti, from Italy.

The former Dutch finance minister Gerrit Zalm, the Governor of the Bank of England, Mervyn King, the Italian Finance Minister, Tommaso Padoa-Schioppa, and the governor of the Italian central bank, Mario Draghi, have ruled themselves out.

The IMF Group of 11, or G-11, which represents more than 110 emerging and developing countries, have called for the next IMF head to be selected on merit, and have pledged to put up a candidate.

The European/American World Bank-IMF duopoly is maintained because in both institutions voting is largely determined by how much money ("the quota") members put into the fund, that is to say economic power. Despite some recent reforms to governance, the US has 17 per cent of the vote in the IMF, whereas India, with more than three times the population, has about 2 per cent. Constitutional changes in the IMF require 85 per cent of the vote, so America has a veto.

It is unlikely that there will be any radical changes at the IMF, despite growing disquiet about how the institution is run, from anti-globalisation campaigners and President Chavez of Venezuela to former staff members - that is, allegedly, for the benefit of the rich nations and large corporations. And while the IMF's "medicine" - Structural Adjustment Programmes - to deal with currency and other economic problems have never been popular, there have been cases where the austerity and free-market treatment has arguably been worse than the illness. Many economists, such as Joseph Stiglitz, for example, feel that IMF intervention in nations such as South Korea and Thailand after the east Asian financial crisis a decade ago and in eastern Europe after 1989 exacerbated their difficulties; many of the loans paid to Russia in 1998 and to Kenya in 1993 were stolen, while perhaps the most notorious example of marketing zeal happened in Bolivia, where the IMF facilitated a situation where collection of rainwater was banned to help privatised water companies.

DOMINIQUE STRAUSS-KAHN, 58.

Nationality: French.

Background: Socialist Party minister from 1991. Current job: Leads think-tank A Gauche en Europe.

Chances: Backed publicly by Nicolas Sarkozy and Thomas Mirow, German deputy finance minister.

LESZEK BALCEROWICZ, 60

Nationality: Polish.

Background: As Polish central bank chief, planned post- Communist economic reform.

Current job: Member of UNDP's Commission on Legal Empowerment of the Poor.

Chances: Would be first IMF chief from an emerging market country.

GORAN PERSSON, 58

Nationality: Swedish.

Background: Prime Minister, 1996-2006.