Some history of the IMF MD selection process (since 2000)

I thought it might help to have some background on what has happened in the recent selection processes for IMF Managing Director (2000, 2004, 2007).  There have been several false starts in the effort to democratize the process, with comical post-process candidacies, symbolic nominations, and a “G11” of rebels on the IMF Board.  Stanley Fischer, Mohamed el-Erian, and Josef Tosovsky have been the unlikely vehicles for reformers’ hopes.  This post is somewhat longer than most, but I think there’s enough amusement to keep people reading ….

Another search for a new Managing Director of the IMF.  Whatever happened to the days of long-term reigns, such as Michel Camdeussus’s (1987-2000)?

Ah Michel Camdessus, there was a worthy opponent. A nominal “French Socialist” (by party affiliation) and a true believer in neo-liberal orthodoxy, he made for the most charming defender of structural adjustment programs (SAPs) one could imagine. It was a lethal charm indeed – his reign coincided precisely with the most damaging years of SAPs. He was an executive M.D. – the face of the IMF to the outside world, the self-assured technocrat who spoke of his Roman Catholic piety and branded the IMF staff “missionaries of the poor” on the grounds that they could earn bigger salaries on Wall Street.

When we demonstrated outside the IMF headquarters with Camdessus masks complete with devilish horns, it seemed not at all over-the-top.

Since then it’s been a different story – two bland technocrats and the current occupant, Dominique Strauss-Kahn (known always as DSK), who, even before his weekend arrest, could hardly be accused of blandness.

But our concern here is how those people came to occupy the office. We all know the basics, I trust: back at the founding Bretton Woods conference a famous “gentleman’s agreement” was struck whereby the U.S. would name the President of the World Bank, and Western Europe would name the Managing Director of the IMF.  Given their lock on the majority of votes on both boards, the agreement has held for over 60 years.

But not without objections from the other members of the institutions, and not without a series of vague (and some not-so-vague) promises from the boards, from heads of state of powerful countries, and from IMF Managing Directors themselves, that the process would be opened up.

When Camdessus was finally eased out in 2000, the board took its time finding a replacement.  Japan and a few other countries made small sounds about the unfair process, but didn’t make too much trouble.  The Western Europeans  conceded to Germany that it was their turn – the previous MDs had been French, Dutch, Belgian, and Swedish. But the U.S. didn’t like the Germans’ first choice (Caio Koch-Weser), so they had to come up with another, which took awhile.  By the time they settled on Horst Köhler, impatience was running high.

And so it was that the first strike against Western European domination of the process was struck by José Pedro de Morais, then the Executive Director for the “Anglophone” African countries (and later the Angolan Finance Minister who in 2008 took pleasure in telling the IMF his country would not take its money).  Morais nominated Stanley Fischer, Camdessus’s deputy, on the grounds that Fischer, although a U.S. citizen, was born and raised in Northern Rhodesia (which became Zambia, one of the countries Morais represented).  I spoke to Morais at the time, who said his action was designed to register a visible objection to the closed process, and to the long delay in making the selection.  And like many others associated with the IMF at the time, he was very fond of Fischer, a genial man who was said to have done most of the real work that Camdessus neglected. Fischer, who is now, in another strange twist, the Governor of Israel’s Central Bank, said he was flattered, but declined to be considered.

Things went a little further the next time around. Köhler announced his sudden resignation in 2004, when he was offered the mostly ceremonial German presidency (which he resigned last year in semi-disgrace after suggesting that the German military was a necessary safeguard for Germany’s international trade).  This time, there was organized action at the IMF board: 11 of the 24 executive directors, representing middle and low income countries, signed a statement demanding an open process to select the MD on the basis of merit rather than geographical origin (predictably they were dubbed the G11 for a short spell).  But no serious candidate made a bid before the Europeans, acting faster this time, nominated Rodrigo Rato, of Spain.

And so, to satisfy the rumbling discontent, the IMF executed a virtually incomprehensible bureaucratic maneuver: after it had already been made clear that Rato was the confirmed choice, the IMF managed to arrange for Mohammed El-Erian, a former IMF Deputy Managing Director and an Egyptian (with dual Egyptian-French citizenship). Egypt was one of the louder voices among the “G11.”  The IMF conducted some sort of interview, which it publicized a good deal, and then announced that of the two candidates, Rato had attracted more support.

Rato proved to be a lacklustre MD, and his term coincided with the period in which countries began repaying their IMF loans ahead of schedule and making clear they would try to avoid the IMF in the future. The word “irrelevant” began to be linked to the IMF routinely, and so by 2007 it was decided that Rato had to go.

The maneuver in 2007 followed closely on an equally-unscheduled changing of the guard at the World Bank, where Paul Wolfowitz was forced to resign after his relationship with a staffer and charges of preferential treatment were exposed.  The U.S. quickly moved in to nominate his successor, Robert Zoellick, before demands for a more open process could gather momentum.

So the Western Europeans decided that to be consistent with their American allies, they’d have to fill the position one more time. French President Nicolas Sarkozy took an active role, pushing forward the nomination of Dominique Strauss-Kahn, former Finance Minister from the opposition party. It was assumed that Sarkozy was “kicking him upstairs” to a backwater, irrelevant office in order to rid himself of a potential political rival.

The Western Europeans tried to calm objections by suggesting that if everyone went along this time, the decision would be thrown open next time around. Luxembourg’s prime minister, and chair of the Eurozone finance ministers, Jean-Claude Juncker, was widely quoted saying, “Within the Eurogroup and among the EU’s finance ministers, everybody agrees that Strauss-Kahn will probably be the last European to lead the IMF in the foreseeable future.

This time around the loudest objection to the process came from Russia.  The IMF published a process for nominating candidates, and the Russians decided that someone should try to exercise that option: on the last day for nominations they nominated Josef Tosovsky, former Finance Minister of the Czech Republic, and at the time the head of a division of the Bank for International Settlements (BIS).  The Russians lobbied allies, especially in Latin America, where disdain for the IMF ran high, to support their candidate.

The reaction among establishment IMF-watchers to the nomination of DSK was negative. The Financial Times, which had been a nominal supporter of reforms in the past, became strident in voicing its disappointment with the Western Europeans’ behaviour, and savaged DSK as “a man who is neither qualified nor legitimate.”  It didn’t have much to say about Tosovsky, but was offering his candidacy at least indirect support – which was more than the Czech government would offer, choosing instead to side with its EU allies in supporting DSK.  (Note to Gordon Brown: while it would certainly be helpful to have Prime Minister Cameron’s support, it is not absolutely necessary to be a candidate.)

Tosovsky’s candidacy represented a challenge to the domination of the institution, and the global economy, by the U.S. and the E.U.  But in light of a manifesto of sorts that DSK published in the Wall Street Journal and the comments he made in an extensive world tour promoting his candidacy (even before Tosovsky’s name was mentioned), it appeared that in fact he was the more progressive choice. He was calling for a “double-majority” voting, a long time demand of civil society to democratize the institution (though he backed a milder version), and he was trying to appeal to poor countries as someone who would give their interests more attention. All this just won him more contempt from the FT and other establishment figures.  Tosovsky was less vocal in declaring his positions, but made clear that he was far more satisfied than DSK with the status quo.

The Wall Street Journal’s long-time IMF reporter, Bob Davis, ridiculed DSK by saying “he also finds `interesting’ an IMF proposal to get ready for the next economic crisis by pre-approving countries for emergency loans. If the latter sounds a bit desperate — somewhat like department stores mailing customers preapproved credit cards — it is. With the world economy humming along, the fund and the bank are at loose ends.”

These words were written in October 2007, on the eve of the biggest global financial crisis since the Great Depression. Indeed, many analysts would later concur that the impacts of that crisis had already started at that time, though they were as yet not recognized. And now DSK has implemented something like the proposal Davis mentions, though the more elaborate version, proposed officially by the South Korean government last year at the G20, is not yet approved.

But DSK, for all his manifest flaws, has changed the IMF more than any of his predecessors – most recently by breaking with the IMF’s longtime fervid opposition to capital controls — and would probably be judged as the most successful Managing Director in recent history by most observers.  Derided by some as a politician without the technical expertise necessary to run the institution, DSK demonstrated that what the IMF really needed was to acknowledge that it is a political institution, not just a technical one, and that it needs a politician at its head to meet its potential.

DSK used his considerable political skills to start to move the IMF away from many of its most archaic and calcified positions and practices. He also restored the IMF’s power and prestige – though in this he was aided greatly by the financial crisis of course. He has not made the IMF a progressive institution, but he has made it less retrograde, a little bit harder to hate (though it’s still not too hard).  Until a few days ago, he had also made himself into a respected world figure and a formidable candidate to oppose Sarkozy for the presidency of France, which most polls suggested he could well win in 2012.  While it appeared that Sarkozy may have outsmarted himself by pushing for DSK’s appointment, the past weekend’s events throw everything into chaos, both in French politics and the IMF.

For our purposes, the question now is what we will get after DSK: will the next MD continue his legacy, or start shutting it down? Surely most of the “usual suspects” that might be nominated, from either the North or the South, fit more comfortably in the mould of Rato and Köhler than DSK.

But what we’re concerned with now is how that successor will be chosen.  Even if, ironically, arguably the best MD resulted from a process that nearly everyone, including DSK himself, would argue was fundamentally flawed. It would be nice to prove now that someone better, more accountable, less in thrall to neo-liberal orthodoxy (which DSK still was) would be selected by a more transparent, open process.  Let’s see.

6 thoughts on “Some history of the IMF MD selection process (since 2000)

  1. Thanks Soren, but four queries:

    * was de Rato a ‘bland technocrat’ – or an ‘ultra-rightist’? http://www.counterpunch.org/navarro06162004.html ;
    * was Fischer genial? He certainly blew his top when John Pilger (“New Rulers of the World”) probed his institution’s corruption and structural adjustment, and from where I sit today, in Palestine, his institution and his own role amplifies the power of Israeli apartheid;
    * did the IMF understand the merits of (inward) capital controls in 2011 thanks to DSK – or back in 1995?
    * appreciating your caveats, with DSK allegedly ‘less retrograde’, why did his staff apply such extreme neoliberal ideological conditions, including last year in Libya, Tunisia and Egypt, and last month in Palestine? These DSK proteges are mean to MENA and everyone else so it makes little sense to cut him a break on ideology even though he has learned to talk left, walk right.

    Hey speaking of MENA, isn’t it nice to finally see a successful “IMF Riot”, where ordinary citizens protest sufficiently to toss out a high-profile local IMF Resident Representative? – ok ok, it was the Upper East Side of Manhattan this week, but still, you have to start somewhere…

    Cheers,
    Patrick

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    1. And thank you Patrick. Here’s what I’d say to those questions –
      1) Rato does, I understand have a quite remarkably fascist political pedigree, like so many of those old rightists in Spain. But I think you’d have to agree that if he was trying to alter or stiffen any IMF practices, he didn’t really succeed. Regardless of his political beliefs, I think the results were those of a bland technocrat.
      2) As for Fischer, well I never had the pleasure of meeting the man, but he did seem to have a remarkable capacity to cast a spell over people, with even people who violently disagreed with him talking about how nice he was. But it’s certainly true that while Camdessus was preaching the SAP gospel, Fischer was doing the dirty work of imposing it, and very effectively. I would not be surprised to hear that he has a similar record in his new job.
      3) As for capital controls, I do believe that the current movement on that would probably not have happened without DSK or someone equally willing to accept change in the MD’s seat. As for when some of the IMF staff might have or should have rethought it, I think we can all agree that should have come long ago.
      4) Less retrograde doesn’t mean less neo-liberal. Maybe less dogmatic, which I would link to being more of a politician: consistency is less important for a politician than a technocrat. Indeed I think several of DSK’s innovations, including promising debt cancellation for Haiti (to the unending irritation of the IMF board), talking about using SDRs as a foundation for a climate fund (a proposal with many flaws, but another one that drove the board to distraction), and his drive to sound more progressive on conditions (without much substance) came from the fact that foremost in his mind was his candidacy for the presidency of France, and having to counter Sarkozy’s moves on the international stage.
      That said, I don’t think DSK was paying attention to every country, or even every region, so it’s not surprising that most conditions didn’t change much. Europe was clearly his focus, with enough attention to Africa to be able to tell French voters he cared about it.

      Soren

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