Emerging powers calling on the G20; IMF selection process so far not a good look for the G20
Now things are developing really fast.
In an unusual joint statement, the South African Finance minister Pravin Gordhan and Australian Finance minister Wayne Swan called on the G20 leaders on Sunday to stick to their commitment to ensure an “open and transparent selection process which results in the most competent person being appointed as managing director.”
The two ministers added that the next head of the International Monetary Fund (IMF) should be selected without regard to nationality – a phrase, which unfortunately does not figure in the G20 communiqués due to resistance from the US and presumably Japan and/or some European powers.
The ministers also chair the G20 working group for IMF reform. Their joint statement is actually not as unusual as it first appears because Australia and South Africa had already taken a stance against the Euro-Atlantic gentlemen’s agreement back in 2007 when the US-American Zoellick and the European Strauss-Kahn were pushed through at the World Bank and the IMF. Sharing the troika chair of the G20 at that time, Brazil, South Africa and Australia let the world know that the US and major European powers had not sticked to the commitments they made in the G20. They gave up resistance to the traditional selection process later when it had become clear that no promising alternative candidate would emerge and the candidates facilitated by the gentlemen’s agreement proved acceptable to many emerging and developing countries.
Since the search for Strauss-Kahn’s succession has informally started last week, the joint statement counts as the third time that officials from mostly emerging and developing countries (EMDCs) in the G20 directly address demands for the realization of a reformed selection process and for actually ending US-European back-door deals to the G20 .
Emerging and developing countries in the G20 are calling on the G20 to make sure and test if the G7 has been superseded – not just in rhetoric, but in reality – by the G20 as the premier economic forum.
EMDCs expect that the G20 lends itself to translate their growing economic weight into effective influence over results and to accommodate institutionally the increasingly perceived multipolarity in the international system.
Australia’s move to side with emerging South Africa is significant because Australia has been seen to be rather close to G7 positions in substantive economic issues in the last decade. But the move is also not surprising since Australia has pushed for governance reforms including the leadership selection at the Bretton Woods institutions consistently. See a 2007 paper commissioned by the Australian Treasury on the matter.
Australia is a Western country, but it does not benefit visibly from the Euro-Atlantic gentlemen’s agreement and its offshoot in the Asian Development Bank as Japan does. So it seems rational for Australia to work towards disrupting the status quo in international financial institutions‘ leadership selection.
Calling on the G20 is also an appeal to the G7 members Canada and Japan to abide by G20 commitments and rally behind a strong candidate from the developing world. Canada does not benefit from the Euro-Atlantic scramble for leadership positions neither directly nor indirectly. Japan might prefer an Asian candidate it would have a great say in choosing.
How G7 members will decide to align themselves is about to shed some more light on the question of what kind of governance pattern exists in the G20. Some scholars observed a shift of importance away from cohesive „likeminded blocs“ like the G7 to issue-specific alliances forming on an ad hoc-basis and aligning more often than not very unusual partners.
Because of the new „variable geometry“ the EMDCs will not entirely shatter their hopes relating to the G20 when the group’s commitment is not complied with in the succession race currently under way in the IMF to replace outgoing managing director Strauss-Kahn.
After all, it’s a reiterative game …
But, from the perspective of EMDCs, the instance will cast some doubt on whether the G20 tips the right balance between effectiveness and legitimacy in practice.
Cascades of endorsements or plaudits from European governments for Lagarde
As expected, European governments quickly rally behind French finance minister, Christine Lagarde, and support her as the next IMF managing director.
There were very positive comments, on Lagarde from Germany, France, Sweden, Italy and the Euro-zone chairman as early as last week.
On Saturday, Agence France Press announced that the Austrian finance minister, Maria Fekter, „can imagine that Austria will support“ Lagarde’s candidature (see also here ).
On the same day, the United Kingdom weighed in on the side of Lagarde shattering both the hopes of Gordon Brown’s bid for the job and of some observers who believed that Great Britain would do more to ensure an open and merit-based selection process without regard to nationality.
Gordon Brown, then long-serving former Chancellor, had tried to act as a broker between the European Union countries and the emerging and developing countries in the last two succession battles at the IMF.
Noting the merits of Brown, who presided almost a decade over the IMF’s key ministerial committee, Larry Elliot, opinion leader from the UK-based newspaper „The Guardian“, has bashed the turn of the British government:
„The government’s support for Lagarde appears to be based on the fact that she is not Brown rather than on
what the French finance minister plans to do with the IMF. Again, this is depressingly parochial.“
Elliot thinks that Brown is a better candidate than Lagarde. I think that may be true. Brown has undoubtedly more experience with financial matters and the IMF than Lagarde. Brown has been a long-serving finance minister, an important player at the IMF and a head of government.
Chancellor George Osborne tried to mask the power politics behind the decision by couching it in the language of the G20 which had agreed to meritocratic selections for the heads of international institutions in 2009:
„On the basis of merit, I believe Christine is the outstanding candidate for the IMF — and that’s why Britain will back her.“
The gender aspect has been added in keeping with my expectations:
„We support her because she’s the best person for the job, but I also personally think it would be a very good thing to
see the first female managing director of the IMF in its 60-year history“. (Agence France Press)
The UK move is disappointing because the role of Great Britain in the last two selection processes for the IMF top job, ironically under the tutelage of the now embarrassed Gordon Brown, has given rise to – admittedly, tempered – hopes that the new centre-right government could act like sand in the clockwork of a Europe rallying behind a single European candidate.
The British Prime Minister, David Cameron, had signalled in April that the rise of nations such as India and China should result in a non-European IMF managing director soon ruling out support for Gordon Brown as a possible candidate.
Compared to the last selection process, the UK government’s step of backing Lagarde is to be seen as a break with longstanding aspirations harbored in the Department for International Development to put an end to the traditional stitch-up reserving the top post at the IMF for an European.
Now that the support of the Big-3 – Germany, France and Great Britain- is secured for Lagarde’s candidature, European Council President Herman van Rompuy and European Commission President Jose Manuel Barroso are ready to gather the rest of the European Union countries to make them follow.
Larry Eliot, the journalist from the Guardian, wrote that the agenda of the IMF is packed and that potential candidates should be measured „against this template.“ He then posed the rhetorical question: „Will this happen or will the IMF job be subject to the usual mix of carve up, power politics and backstairs intrigue? Silly question, to which we already have the answer.“
Funny: Bloomberg’s Tom Keene playing back the gender card
Caroline Atkinson, the spokeswoman for the International Monetary Fund, talks in this interview about the process for selection of a new IMF managing director.
Anchorman Tom Keene is asking her right in the beginning how the emerging countries can bring forward e.g. Zeti Akhtar Aziz, the Malaysian central bank governor, as a candidate in this „not secret but opaque ballet“ while a picture of the governor is fading in.
It is the first time I have seen the name of Zeti Akhtar Aziz touted as a possible candidate.
I find this a funny riposte to European arguments like this:
“I would argue that Christine Lagarde has outstanding credentials,” Swedish Finance Minister Anders Borg said in a Bloomberg Television interview today. Her gender is an “advantage” since “half of the world has not been represented as managing director” of the IMF, Borg said.
There is a bit of a focus in Western media set on the many implications of the Strauss-Kahn case for gender relations in various contexts including that of the leadership selection. Western policy makers will increasingly try to exploit the very legitimate concerns about this matter.
It is refreshing to see the tables turning on them in this one.
Oh, and IMF staffer Atkinson expressed, if somewhat stammering, the view that the selection process should be merit-based.
IMF staff generally is not in favour of the „gentlemen’s agreement“ although I am not aware of any demands in this regard during the last selection process. Contrary to the selection process in 2004, IMF staff did not express dissent publicly in 2007. May be they were censored as in the World Bank, genuinely satisfied with the formal selection procedure or simply happy to keep the Europeans at it for financing.
If you know the answer, please feel free to share…
Does Angela Merkel want an European interim head for the IMF?
German chancellor Angela Merkel said:
„I am of the opinion that we should propose a European candidate.“
„We must also account for the fact that Mr Strauss-Kahn’s time in office was not completed. That means that the change is taking place within this period of office, and I believe that could be an argument perhaps for the emerging countries to consider.“
Now imagine her saying that with her unique voice and German accent and you might boost a laugh.
Anyway, I don’t think the emerging powers will be impressed very much by this argument.
It is supposed to be a bargaining chip, though.
She probably wants to say: This is the last time we lead the IMF ( for a full term). After that you can have it.
The New York Times has mentioned the idea of an European stopgap to complete the remainder of DSK’s term, after which the emerging powers would get their turn.
We know of similar promises made in the past. Until there is real change I feel like history keeps repeating itself.
US wants an open process leading to a prompt succession for IMF Managing Director
Okay, the first statement of the United States is in:
„We want to see an open process that leads to a prompt succession for the Fund’s new Managing Director.“
US Treasury Secretary, Timothy Geithner, does not seem to be willing to put an end to the traditional stitch-up reserving the top positions at the Bretton Woods institution for the US and Europe.
The US called the selection of Zoellick at the World Bank “open” as well. So this wording, without the markers „merit-based“ etc., does not bode well.
The US apparently has decided not to stick to the commitments it made in the G20.
In the present context, a „prompt succession“ must be translated by an European candidate getting the nod. Accordingly, the European Union President Herman von Rompuy urged a quick decision hinting at the need for leadership to tackle the Greece tragedy. It was clear from the start that the emerging powers will take a little longer to flock together.
Meanwhile, German newspaper Handelsblatt reports that chancellor Angela Merkel backs French finance minister Christine Lagarde. Her finance minister Wolfgang Schauble is also set to support Lagarde alongside France and Sweden to take the IMF top job, speaking highly of her.
But Merkel’s spokesperson did not want to confirm the Handelsblatt report, according to Bloomberg.
Most importantly, the Handelsblatt also reports that the US has expressed support for Lagarde. But the same here, it is not confirmed in the Bloomberg piece. The information of the Handelsblatt seems to be an insider information circulating in Berlin.
However, the Bloomberg piece cites an article written by Geithner in 2009 for the Time magazine in which he enthusiastically praised Lagarde as well.
This seems pretty consistent.
Global coalition of campaigners calling for end of the Northern hold on IFI leaderhsip
A global coalition of campaigners, including the Bretton Woods Project, Oxfam, and the Third World Network, has called for an open and merit-based process to elect the next IMF head.
The anachronistic nationality principle as embodied in the „gentlemen’s agreement“ between the US and Europe allowing each other to encroach the leadership positions at the Bretton Woods institutions should be immediately abandoned, campaigners say.
Most interestingly, they demand a „double-majority vote“ guiding the election of the IMF managing director as a decision-making rule. See this piece from Nancy Birdsall on the topic. The rule entails that, for a leader to be elected, he or she must win both a majority of votes and a majority of governors or directors. This rule is used in all of the biggest regional development banks in presidential elections and in the Global Environmental Facility (GEF). It tends to lessen the influence of rich countries based on financial resources in favour of smaller countries. It can be seen as a more democratic decision-making rule and tends to move the Bretton Woods institutions away from the „one dollar-one vote“-system to the „one country-one vote“-order to be found in the General Assembly of the United Nations.
Outgoing Strauss-Kahn, who presented himself as reform candidate, had promised that he would prepare every decision on the board on the basis of the double majority. Has anything come out of this? I guess not.
Relatedly, campaigners stressed that the head of the IMF „should display a commitment to reducing levels of global inequality and poverty.” To achieve this goal, in-depth knowledge of the problems of low- and middle-income countries was indispensable, activists say.
UK to distance itself from the Euro-atlantic gentlemen’s agreement at the IMF and the World Bank
UK chancellor George Osborne told Channel 4 News that the UK will concentrate „on who is the best person for the job.“
„With the work the IMF is now doing, it is even more important that we have someone who commands authority around the world and commands respect.“
Let’s see how long the UK will take this stance. It will face pressure when a unified continental Europe decides to push for a single candidate. This looms large already this time around.
In the last selection process, that ended up with the election of Strauss-Kahn, the UK had been sidelined by a unified front of EU finance ministers and finally turned around to support the Frenchman.
At this point the UK seems at least willing to project its internal tradition of meritocratic appointments to the international level by trying to respect commitments made by its ministry for development (DfID) in terms of a fair process for IFI leadership selection. Since about 2000, the DfID has supported a merit-based selection process.
Japan up to a merit-based selection process at the IMF
As you can see here and here, I have not expected this one. I expected Japan to tacitly endorse the reimpositon of the gentlemen’s agreement and to end up voting for an European candidate. Japan has benefited just recently from the traditional stitch-up of leadership positions by seating one of their own as IMF Deputy Managing Director not complying with prior G20 commitments. Japan has been laying claim on this post for quite some time now. The nationality principle guides the selection of senior management positions in the Bretton Woods institutions as well.
But I think the Japanese move may be an encouraging sign for the prospect of a non-European IMF chief.
Japan is sort of a veto player given the current voting structure in the IMF.
Either it is just lip-service or Japan is bound to support an Asian candidate, may be the Finance Minister of Singapore, Tharman Shanmugaratnam.
According to Peterson Institute’s Arvind Subramanian and Nicholas Veron, Singapore is seen as a bridge within Asia.
An adviser to the Chinese central bank pointed out that a managing director from a small country would be the best choice, since big countries such as Brazil and India had too much national interests.
May be the Asian countries are right in the middle of figuring out a new pecking order.
Here is the report:
Japan Noda: should choose next IMF chief in transparent manner
TOKYO | Thu May 19, 2011 3:11am EDT
(Reuters) – Japanese Finance Minister Yoshihiko Noda said on Thursday that the next managing director of the International Monetary Fund should be chosen in an open and transparent manner, after Dominique Strauss-Kahn resigned as head of the organization.
Noda declined to comment when asked if Strauss-Kahn’s successor should be from Europe or from an emerging economy, only saying that the person should be chosen based on ability.
Positions of emerging and developing countries in the current IMF leadership selection
China:
– reiterated her stance: „In principle, we believe that emerging and developing countries should have representation at senior levels.“
„We have all along believed that the IMF should continue to reform its structure and governance and choose its senior leadership based on the principles of fairness, transparency and merit.“
– Li Daokui, an adviser to the Chinese central bank’s monetary policy committee, agreed that the chances of a European stepping in to the position are slim this time, but he said supporting a Chinese candidate is not a best choice for the country.
„I think a talent from a neutral and small country would accord more with the interests of the world including China, because big countries such as India and Brazil have too many national interests,“ he said.
– Central bank chief Zhou Xiaochuan:
„The make-up of top management should better reflect changes in the global economic structure and better represent emerging markets. G20 nations had already decided that IMF leaders and high-level management must be elected through an open, transparent and meritorious process.“
India:
– Financial Times: India said almost nothing reagrding the current selection process, keeping a much more low-profile stance than South Africa.
Brazil:
Before the resignation of Strauss-Kahn:
Finance Minister Guido Mantega:
„I am all appalled by this situation and I really hope that the situation gets resolved so Dominique can return — he is probably one of the best IMF chiefs that we had in the past years. I am really rooting for a good resolution of this so he can return to rule the institution.“
A senior Brazilian government official said:
„We think it would be appropriate to have someone from emerging countries. We believe India and Brazil would be good options. But we also believe that Europe is likely to keep its deep stranglehold on the position, and so we’re not planning to push very hard on this issue for now.“
After the resignation of Strauss-Kahn:
Finance minister Mantega in a letter to his G20 counterparts:
„Any eventual new appointment should be based on merit, and should represent the broad membership of the IMF. If the Fund wants to maintain its legitimacy, its managing director must be selected after broad consultation with the member countries. The managing dirctor shouldn’t be reserved for a European appointment, as has historically been the case. Nor should the Group of 7 developed nations determine the post, as that has been replaced by the G-20.“
Mantega added that the next leader of the IMF must be in favor of reforming the institution.
Russia:
Central bank Deputy Chairman Sergei Shvetsov said a developing country should be given the chance to run the IMF to better reflect the role of those economies in global trade.
South Korea
South Korea’s central bank governor made similar remarks as Russia before the announcement late yesterday that Strauss-Kahn would resign.
South Africa:
Finance minister Pravin Gordhan (see also Financial Times) said the next IMF chief should be from a developing country as emerging and developing countries should have more say in global economic policy making. Europeans should adapt to a changing world. He brought up the name of Trevor Manuel, a former South-African finance minister, pointing out that Manuel commands high respect across the world.
South Africa’s finance minister said that the new IMF chief should come from a developing nation to reflect the interests of all countries.
“It is against this background that South Africa calls for a candidate from a developing country to be given the opportunity to be the Managing Director of the IMF,” Pravin Gordhan said in a statement. “Such a candidate will bring a new perspective that will ensure that the interests of all countries, both developed and developing, are fully reflected in the operations and policies of the IMF.”
Mexico:
The Mexican foreign ministry released following statement late on Wednesday:
„Mexico reaffirms its conviction that the process of selecting the governing body of the fund must be done through an open, transparent process based on the merits of the candidates without regard for nationality.“
„Mexico expresses its readiness to actively participate in the process of selecting a new chief of the International Monetary Fund.“
Turkey:
Finance minister, Mehmet Simsek, proposed himself: „I don’t have even the tiniest shortage in terms of experience or knowledge.”
„There is a gravity shift in the world from the West to the East.“
Chile:
Central bank president José De Gregorio:
„One could argue that you have to be very careful of conflicts of interest with a European running the institution.”
Competence should be the sole criterion in the selection process. He demands an selection process that is “open, transparent and merit-based.”
„This is a great opportunity for the Fund to really move forward and strengthen the selection process.”
Chilean Finance Minister Felipe Larrain:
„Without forgetting that there are people with much merit in industrialized countries, we also believe that there are people in the emerging world fully capable of leading the monetary fund.“
Thailand:
– Korn Chatikavanij, Thailand’s finance minister, told the Financial Times on Thursday that the emerging market economies increasingly have available high quality candidates for the IMF top job and that reimposition of the gentlemen’s agreement would be unjust. As a global institution, the IMF should search for the best candidate in all member states, he added.
– In another interview Finance Minister Korn Chatikavanij on Thursday said that Asia has “good candidates.” He floated the name of Singapore Finance Minister Tharman Shanmugaratnam noting that he is “one of the most capable, technically sound, well rounded and experienced finance ministers in the world.” He described former Indonesian Finance Minister Sri Mulyani Indrawati as “capable.”
Indonesia:
Finance minister Agus Martowardojo:
“So far the leader of IMF is always from Europe. We would welcome an opening to a candidate from Asia.”
First phase of European search for an European consensus candidate is under way
Let’s have a look at the unfolding traditional story of the many European voices advocating an European IMF chief externally whilst searching for a consensus candidate internally:
Germany’s finance ministry backpeddled yesterday by stating that it was too early to actively engage in the search.
According to the Handelsblatt , a spokes person of finance minster Wolfgang Schauble said today that an European should get the job. He added that emerging and developing countries could get a hold of the job in the long term.
„Long term“ sounds even more scary than „mid term“ which was chancellor Merkel’s wording on Monday.
Members of the German ruling coalition begin to demand a German national to take the job. I bet that Schauble would be fine with French finance minister Christine Lagarde. Schauble has pitched the phrase „irrespective of gender“ into his statements to the ministerial International Monetary and Financial Committee after it had become increasingly likely that Strauss-Kahn would leave the Fund to run for the French primaries.
But chancellor Merkel has got every incentive to scan for a credible German candidate having lost the tussle with France and Italy over the presidency of the European Central Bank (ECB). In addition, Merkel is suffering from the German public perception of French president Sarkozy having pulled a fast one on her in the Greek bail-out negotiations last year.
I assume that a significant fraction of German voters will have some doubts on whether just another French IMF boss is the right way to go. Some might wonder what the service in return for those favors could be. That’s why I expected from the beginning to hear an intensifying German voice pushing for a German candidate. Let’s wait and see how the intra-European Union rivalries for European Union leadership appointments will spill over into the global realm this time around.
In addition, Sweden, the Netherlands and Ireland declared assertively to prefer an European IMF chief today . Dutch central banker Welling has floated the name of current ECB president and Frenchman, Jean-Claude Trichet, calling him a „fantastic candidate“ on TV. Swedish Finance Minister Anders Borg said: „I would argue that Christine Lagarde has outstanding credentials.” As I had suspected earlier, many European leaders are shedding their previous position to open the selection process because they feel the stakes are too high now of really allowing for a non-European to lead the Fund.
European governments seem to desperately want and need an European in the IMF top job, not least because of domestic factors, forcing them to show external strength in the face of the growing populist resentment against the European monetary union and, by extension, the entire political project of European integration. It’s no suprise that we have not heard one single official voice from Europe yet to abandon the longstanding gentlemen’s agreement at the Bretton Woods institutions. The European political establishment appears more united and tough on the succession battle than in the last selection process.
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