A Quick Guide to the Upcoming Contest for the Next MD of the IMFby Arvind Subramanian and Nicolas Véron | May 17th, 2011 | 04:24 pm
This note provides a quick guide—in the form of a table—to the likely candidates to succeed Dominique Strauss-Kahn as next Managing Director (MD) of the IMF, assuming that he resigns shortly. It also highlights some key points that must guide the process of selecting the next MD.
Need for urgent action. The IMF is at a critical juncture with lots of problems to solve, not least in Europe. A leadership vacuum and uncertainty must be avoided, which requires urgent initiatives by the larger players—the United States, Europe, China, Brazil, India, South Africa and others.
Europe can no longer claim the job of MD: Europe no longer has the divine right to this job, irrespective of the circumstances of the European incumbent’s (assumed) departure. The world has changed, and antiquated if unstated arrangements dating from 1945, in which a European heads the IMF and an American heads the World Bank, must keep pace with reality. The next MD must be selected on the basis of merit, which is not to be found only in Europe.
The thoughtful Wolfgang Münchau of the Financial Times made the case yesterday that the successor to Dominique Strauss-Kahn should be another European. "The eurozone’s contagious financial crisis constitutes the biggest threat to global financial stability today," he wrote. "The IMF is a partner in the multilateral loan programme for Greece, and a structural partner in the eurozone’s financial rescue mechanism. The size of these programmes dwarfs whatever else the IMF is doing at the moment."
We disagree. For a start, it elicits the obvious question: During the Asian financial crisis, would Mr. Munchau have extended his logic and asked for an Asian to be head of the IMF? And for most of the history of the IMF, given the identity of the borrowers, should the head have come from the developing world?
Dominique Strauss-Kahn has played a key role during the Euro crises, especially last year, in persuading eurozone leaders to partner with the IMF in addressing the Greek crisis. But the next challenges will be of a different nature. Last year, the IMF leadership’s sensitivity to European politics was key to ensuring acceptance in Europe of IMF-led conditionality for the countries receiving aid. Now, if and when Greece comes back for its second tranche of borrowing, the MD will have to play a different role: to convince Europe, in what promises to be a heated discussion, that Greece has a solvency problem and requires debt restructuring; or, if the IMF concludes that Greece merits international support and all other options are worse, to convince the rest of the world to extend further financial commitments. Either way, there is less need for a European and more for an objective outsider.
Key US role: The leadership of the IMF and World Bank are linked. So, a corollary to Europe forgoing its monopoly rights to the IMF leadership is that the US right to leadership of the World Bank (and for that matter, to the Number Two position at the IMF) is no longer a given either. Although the United States supported a weak G20 commitment in 2009 to a merit-based selection procedure for both institution, it has been more recently sitting on the fence on this issue. But its leadership is needed to avoid weakening the Bretton Woods institutions in a 21st-century world that arguably needs them more than ever. The United States has always argued that American leadership at the World Bank helps persuade Congress to put up the money for development assistance. But that argument has been rendered obsolete by the realities of modern global politics and economics. President Obama or Treasury Secretary Timothy Geithner should say clearly that Washington commits to the principle of fair, transparent, and merit-based selection for the leadership of both institutions.
Strong emerging market candidates: As the attached table shows, the list of potential contenders from emerging market countries is very strong. There is absolutely no excuse therefore for not casting the selection net wide to focus on these contenders. The attached table also shows what the possible doubts about some of these candidates might be. Given the importance of the process and the break from the past that it would represent, the search should not be confined to those who are well-known in IMF and World Bank circles. In other words, even among those on this list, there are "insiders" and "usual suspects" and the process should not be biased towards them.
On the other hand, since Asia is at present the location of the world’s strongest-growing economies, and the countries of Asia are clamoring for more of a role in all international institutions, the IMF would do well to look carefully at candidates from that continent. In that spirit, serious consideration should be given to the Finance Minister of Singapore, Tharman Shanmugaratnam, who ticks many of the key boxes: he is an Asian who might be acceptable to other Asians; he has the right senior policy experience, both as central banker and as finance minister; and most important, he is highly regarded intellectually and has a track record of strong and thoughtful leadership. As many commentators have already noted, Kemal Dervis of Turkey, a former director of the United Nations Development Program, is also strong in the list, as a highly respected emerging-market figure who is also culturally and politically very close to Europe. Trevor Manuel, the finance minister of South Africa, has no obvious disqualifications. Perhaps less predictably, we also suggest considering a senior IMF career staffer, Ajai Chopra, who has distinguished himself during the European crisis in his handling of the Irish IMF program, even if he lacks political heft and connections compared with others in the list.
This is certainly not to say that there is no matching talent in Europe, or the United States for that matter. Christine Lagarde, finance minister of France, is highly respected internationally, and a first-ever female MD would be welcome. But our point is that there are more credible candidates from emerging countries this time than arguably ever before.
Pitfalls to avoid: There are two major dangers. One is that jockeying between Europe and the United States will lead to protracted uncertainty, creating a rush to make a quick perpetuation of the status quo as a means out of the IMF’s leadership instability. This underscores the need for the United States to be clear about selection procedures for both Bretton Woods institutions. A similar possibility arises if emerging market countries squabble among themselves and cannot agree on a common candidate. Unlike EU member states, these countries do not have strong institutional mechanisms to coordinate their positions, but they too should resolve their differences and get their act together.
In short, after years of talk about change, the time is ripe for genuine reform in the governance of international institutions to reflect the changing economic realities. The list of emerging market candidates for the IMF job is very strong. The United States should not cast itself as a defender of an antiquated status quo; and the decision should be made quickly. Letting this key negotiation drift would threaten the legitimacy and effectiveness of what are vital structures of international cooperation.
|A Guide to the Potential Non-European, Non-American Successors to Dominique Strauss-Kahn|
|Montek Singh Ahluwalia||Head, Planning Commission||India||Previous IMF experience; associated with successful Indian economic reforms||Will China agree to an Indian head of the IMF?|
|Agustin Carstens||Governor, Central Bank||Mexico||Extensive IMF experience||Is Mexico seen as too close to the US?|
|Ajai Chopra||Senior Staffer, IMF||India||Career IMF staffer; extensive Europe experience; handled recent Irish crisis||Is he viewed as having political heft?|
|Kemal Dervis||Vice-President, Brookings Institution||Turkey||Close to US and European policy-making; implemented a successful adjustment program in Turkey as Finance Minister; has headed an international organization (UNDP)||Will he command the support of his own country?|
|Mohamed El-Erian||Co-head PIMCO||Egypt||Combines IMF and private sector experience|
|Arminio Fraga||Senior Position, Gavea/J.P. Morgan||Brazil||Successful stint as head of the Brazilian central bank||Are public sector credentials seen as strong compared to his private sector background?|
|Trevor Manuel||Head, Planning Commission||South Africa||Successful national experience as Finance Minister during time of transition away from Apartheid; Led task force on reform of IMF governance|
|Il SaKong||President, Korea International Trade Association||Korea||Varied experience, including as Korea chaired last year’s G-20 summit||Will some be concerned about close ties to the US? Can two Koreans head major international organizations (IMF and UN) at the same time?|
|Tharman Shanmugarathnam||Minister of Finance||Singapore||Singapore seen as bridge within Asia||Is he as prominently known internationally as other candidates?|
|Zhou Xiaochuan||Governor, Central bank||China||Would represent rising power||Will other Asians agree and will China accept this level of international responsibility?|