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TWN Info Service on Finance and Development (Jul07/06)

18 July 2007


IMF BOARD DEBATES SELECTION OF ITS NEXT CHIEF

The Executive Board of the International Monetary Fund (IMF) has published a candidate profile and made public an agreed procedure for selecting the successor to its outgoing Managing Director last week, including the eligibility of candidates from all member states regardless of nationality.

The Board’s decision was made at its meeting on 12 July, just a day after the IMF’s Independent Evaluation Office (IEO) published a background paper critical of the current leadership selection process.

The Board meeting was also characterised by criticisms from developing country members about the decades-old practice that a European is appointed to the IMF’s top post, according to news reports.

Below is a report on the recent developments of the IMF selection process. It was published in SUNS #6294 Tuesday 17 July 2007.

With best wishes
Martin Khor
TWN

IMF Board Debates Selection of Its Next Chief

By Celine Tan

The Executive Board of the International Monetary Fund (IMF) has published a candidate profile and made public an agreed procedure for selecting the successor to its outgoing Managing Director last week, including the eligibility of candidates from all member states regardless of nationality.

The Board’s decision was made at its meeting on 12 July, just a day after the IMF’s Independent Evaluation Office (IEO) published a background paper critical of the current leadership selection process.

The Board meeting was also characterised by criticisms from developing country members about the decades-old practice that a European is appointed to the IMF’s top post, according to news reports.

In accordance with this tradition, European finance ministers met on 10 July and apparently agreed to propose a single candidate (former French finance minister, Dominique Strauss-Kahn), which many see as a move to pre-empting any reform of the current system.

Under the 60-year-old “gentlemen’s agreement”, European countries select the IMF chief while the United States selects the Deputy and the World Bank President. Europe and the US hold 53% of the voting rights in the IMF.

However, developing countries have put up a fight, at least for the principle of a more democratic system.

The Observer on Sunday reported Amar Bhattacharya, director of the Secretariat of the Group of 24 (representing developing countries at the IMF), as saying that it was important for the process to bring forward the best possible candidates and that “every Board member should be willing to evaluate the candidates on their merits and not where they came from”.

Bhattarchaya added that the G24 members would monitor the process established by the IMF Board to ensure that each country abides by the rules of the selection procedure announced and that “there is genuine competition” for the post of Managing Director.

The Financial Times reported that at the Board meeting, France and its European allies faced down a proposal by developing countries led by Egypt to establish “an executive search committee that would actively solicit candidates in addition to Mr. Straus-Kahn”.

[The establishment of an advisory group of eminent persons supported by such a committee was proposed in a 2001 draft report by Bank and Fund working groups established to examine the leadership selection issue.]

However, at the meeting, the UK and a group of developing countries overcame French resistance to the long period of nomination as well as the candidate profile, including new language on the eligibility of candidates from all nationalities, the newspaper said.

In a public statement issued after the 12 July Board meeting, the Executive Directors said: “The IMF Executive Board has decided to adopt a process for selecting a successor to the current Managing Director, Rodrigo de Rato, by establishing a candidate profile and a selection procedure for the next Managing Director”.

A “successful candidate” for the position “will have a distinguished record in economic policymaking at senior levels” as well as “an outstanding professional background” and demonstrate “the managerial and diplomatic skills needed to lead a global institution” in addition to being a national of the IMF’s 185 member states, said the statement.

The candidate profile also highlighted the requirement that “as chief of the Fund’s staff and as Chairman of the Executive Board, (s)he will be capable of providing strategic vision for the work of a high quality, diverse and dedicated staff; and will be firmly committed to advancing the goals of the Fund by building consensus on key policy and institutional issues, including through close collaboration with the Executive Board, under whose direction, (s)he will fulfil his or her responsibilities”.

The Executive Board also stressed that the incumbent Managing Director will also “have a proven understanding of the Fund and the policy challenges facing the Fund’s diverse membership” as well as being “an effective communicator”.

According to the Board, any individual satisfying the requirements may be nominated for the position of Managing Director, with the nomination held in confidence by the Board until the Dean of the Board (the longest serving member - currently, the Iranian Executive Director Abbas Mirakhor) on behalf of the Executive Board, “obtains confirmation from the nominee of his or her willingness to be considered as candidate”.

The nomination period commences immediately and closes on 31 August. Mr. de Rato has announced that he will step down after the World Bank and IMF Annual Meetings in mid-October.

The selection process outlined by the Board includes Board assessment of each nominee “on the basis of the above candidate profile without geographical preferences” and thereafter the Board will meet to discuss the nominated candidates and make a selection in September.

The Board stated that while it may select a new chief “by a majority of votes cast, the objective of the Executive Board is to select the Managing Director by consensus”.

The publication of the candidate profile and selection process can be viewed as the IMF’s response to the criticisms of the current leadership selection process as un-transparent, anachronistic and undemocratic, particularly in light of its ongoing governance reform process and the controversy elicited in the recent uncontested enthronement of US appointee Robert Zoellick as a replacement to his scandal-ridden predecessor, Paul Wolfowitz, at the World Bank.

Peter Chowla of the London-based Bretton Woods Project said: “It is a positive step that the IMF Board has outlined a candidate profile for the position of managing director, but the process outlined by the Board only goes so far.

“As long as industrial countries monopolise voting rights at the IMF, developing countries will find it difficult to end the gentleman’s agreement that carves up the leadership of the Bank and Fund. To really change the process would require comprehensive governance reform covering not just the MD’s selection but also voting rights, Board structure and transparency.”

A day before the Board meeting, the IEO, the Fund’s evaluation unit, published a background paper critical of the current selection procedure, as part of a larger IEO evaluation of IMF governance.

According to the paper: “There are clearly many weaknesses in these processes judged on the criterion of whether they are likely to produce the best possible field of candidates and best eventual appointments” for the positions of both the Managing Director and the First Deputy Managing Director (FDMD).

The paper by IEO staffer David Peretz highlighted the democratic deficits of the current process, in particular, the fact that the selection process is contingent upon political processes and horse-trading negotiations outside the IMF boardroom.

“The formal selection processes - by the Executive Board for the MD, and by the MD for the FDMD - lack transparency and are to a degree detached from the substantive decision making processes, which to a large extent take place elsewhere in direct discussions between capitals, for example, in the EU, the G7 and within the US administration.”

The paper criticises the convention that the MD be a European and the FDMD a US national as clearly reducing the choice for selecting the best candidate for the job. It is also critical of the lack of a formal process “for searching for defining the qualities, expertise and experience that candidates should have” as well as “for searching for candidates” themselves.

Peretz argued that the convention that candidates be nominated by their governments not only reduces the choice of eligible candidates but also renders the process contingent upon domestic and international political factors. For example, it has contributed “to a degree of deal-making’ between national governments, trading off one international appointment against another”, with such a decision, for example, becoming “part of a wider set of explicit or implicit agreements between member states” of the European Union.

The paper referred to proposals for reforming the World Bank and IMF leadership appointment processes contained in an April 2001 joint draft report by Bank and Fund working groups established to examine this issue.

It recounted the fact that the report was endorsed by the Executive Boards of both institutions and submitted formally to the International Monetary and Financial Committee (IMFC), the Fund’s political oversight body, but its recommendations have not been implemented.

It also recalled that the Fund’s current Executive Board, in a report to its governors on the issue of voice and representation in August 2006, had indicated its intention to review the matter as part of the two-year programme of governance reforms at the Fund.

The Executive Directors had said then that there “is considerable agreement on the importance of ensuring that procedures for the selection of the Managing Director are open and transparent” and that it will consider whether further steps beyond those contained in the 2001 proposal or the steps undertaken in the selection of Mr. de Rato in 2004 are needed to enable this fully transparent process.

Peretz said that while the imperative of time was cited as a reason for not implementing the proposals in the 2001 draft report following Horst Koehler’s resignation in 2004, “it seems likely that concern to maintain the long standing nationality convention explains the reluctance of the European countries or the US to put the proposals into practice for the most recent selection processes in the Fund and Bank”.

The author noted that although several non-European candidates were nominated to the IMF position in 2004, of whom one allowed his name to go forward, the “selection of the EU nominee with support from other G7 countries” was never in doubt.

The paper also commented on the recent Bank presidency selection in June. Although there were “some minor improvements in the procedure” - including specifications of a candidate profile; invitations for applications and nominations; and the establishment of “a clear timetable for the process, including a provision for interviewing candidates” - there were no other nominations than Mr. Zoellick and the US nominee was appointed by default.

The Bank selection episode casts considerable doubt on whether the IMF’s publication of its candidate profile and selection process will result in a genuine reform of the current selection procedure, especially given the support shown by the majority of European countries for the nomination of Mr. Strauss-Kahn and the US’ tacit backing for the Europeans’ choice.

Nonetheless, there is a split within the European camp on Mr. Strauss-Kahn’s swift coronation, notably the resistance by the UK which has publicly indicated its support for reform of the process.

The announcement of Strauss-Kahn’s candidacy came from the Portuguese presidency of the EU just as UK Chancellor of the Exchequer Alistair Darling was briefing journalists about his expectations that the selection process should be open and transparent.

The UK Treasury has since said that it was not bound by the decision to nominate Strauss-Kahn as a European candidate.

 


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