After the European stitch up of the IMF top job, the case for major reform is clearer than ever

Date: 30 June 2011

Hadiru Mahdi, Bretton Woods Project

It matters who the head of the IMF is, and it matters how they are chosen. It matters for the legitimacy of an organisation that, through the stringent conditions often attached to its loans, has a powerful hand in economic policy making – and hence politics – in many countries, particularly poorer ones. It matters for the effectiveness of the Fund, which is struggling to adapt to an emerging world order where the old Western powers are gradually being eclipsed by faster growing, larger southern countries.”

                                  Heading for the right choice? A briefing on a fair selection process

As Christine Lagarde is briefed on her new job as the managing director of the IMF (the World Bank’s sister organisation, set up post-war to promote economic stability) we are left to reflect on the rigged selection process and sad inevitability of her appointment. The legitimacy of the Fund, already in pieces, was dealt a further blow by this debacle.

Lagarde was crowned long before the formal selection process had even begun. European leaders brazenly ignored their previous commitments to an open, merit-based and transparent process. Using the Eurozone crisis as an excuse both for the speed of the process (cut from ten weeks to six), and the need for a European head, they praised and promoted Lagarde’s candidacy, openly undermining the selection process. This necessity for local knowledge and understanding clearly wasn’t the case when Africa, Asia and Latin America were in crisis.

 

 

                                                                                         Photo: Flickr/tom.tziros

Emerging markets, expecting for the first time to have a fighting chance at breaking the gentlemen’s agreement that ensures western dominance of the Bretton Woods institutions, found themselves on the back foot. The BRICs (Brazil, India, China and South Africa) were under pressure to put their collective support behind one candidate but were unable to do so. Many saw this as a sign of weakness, despite the diversity of interests within the group and without questioning the fairness of a recruitment process that makes such a tactic necessary.

Symptom of a broken system
 

The European stitch up was facilitated by the IMF’s outmoded and unfair governance structure. One that gives EU countries 32.7 per cent of the vote and thus, a formidable head start for their candidate of choice. One that that hands the US 17 per cent of voting shares and with it effective veto power, waiting in the wings to rubber stamp whomever the EU favours.

History is bound to repeat itself unless the selection process and governance of the Fund are reformed. Voting shares must be changed to give more voice to, and better reflect the growing influence of, emerging markets in the global economy. The selection should be truly open, with job descriptions, timetables and application procedures publicly available and open to any individual. The post must be genuinely open to candidates of any nationality and the convention that candidates be supported by the government of their home country dropped. It should be merit based and transparent with interviews held in public. The successful candidate should have to win a ‘double majority’ of both member governments and voting shares.

These reforms are vital not only for a fairer selection process but also for policy issues. Policies which are dominated by the economic interests of the US and European powers and the financial elites which guide them. Alone, the new head cannot change the whole institution, but if willing they can begin to lead it in the right direction.

However, within moments of her appointment Lagarde showed us that she will very much play the role of the enforcer. She urged Greece to accept an IMF package that will force spending cuts in times of recession and impose further austerity measures upon a beaten people and economy. This saga may serve to push some emerging markets further away from the Fund, seeking regional or bilateral alternatives and steering clear of the institution’s neoliberal policy conditions.
Major reforms are needed no matter who heads the Fund, unfortunately, Lagarde is unlikely to deliver.

www.imfboss.org tracked the IMF leadership selection process – providing analysis, commentary and candidate assessments