In an unprecedented move, late on Tuesday in Washington, the IMF executive directors that represent Brazil, Russia, India, China and South Africa issued a joint statement on the IMF selection process. The statement of course demands a “truly transparent, merit-based and competitive process for the selection of the Managing Director of the IMF and other senior positions in the Bretton Woods institutions.” What is more important is that it shows unity and the demand that the next IMF head be a reformer. This will be a blow to the hopes of Mexico’s Augustin Carstens but also a sharp rebuke to the Europeans and a warning to the US.
The unity of the BRICS countries is unique. So far the media speculation has been swirling about their lack of coordination and inability to coalesce behind a single candidate. The statement bodes well for that effort. But more important is its policy and the expressed desires of these countries around the future of the Fund. It is worth quoting at length:
“… This requires abandoning the obsolete unwritten convention that requires that the head of the IMF be necessarily from Europe. We are concerned with public statements made recently by high-level European officials to the effect that the position of Managing Director should continue to be occupied by a European.
4) These statements contradict public announcements made in 2007, at the time of the selection of Mr. Strauss-Kahn, when Mr. Jean-Claude Junker, president of the Euro group, declared that “the next managing director will certainly not be a European” and that “in the Euro group and among EU finance ministers, everyone is aware that Strauss-Kahn will probably be the last European to become director of the IMF in the foreseeable future”.
5) We believe that, if the Fund is to have credibility and legitimacy, its Managing Director should be selected after broad consultation with the membership. It should result in the most competent person being appointed as Managing Director, regardless of his or her nationality. We also believe that adequate representation of emerging market and developing members in the Fund’s management is critical to its legitimacy and effectiveness.
6) The next Managing Director of the Fund should not only be a strongly qualified person, with solid technical background and political acumen, but also a person that is committed to continuing the process of change and reform of the institution so as to adapt it to the new realities of the world economy.”
That last sentence is the most important. The new realities of the world economy include the rise of emerging markets in geopolitical terms, but they also include the destruction of the Washington Consensus economic policies. The IMF and some of its staff have made baby steps in the this direction: acceptance of capital controls as a tool of economic policy, the rejection of strict inflation targeting as the sole goal of central banks, the focus on work with the ILO on unemployment, the need for wholesale reform of the international monetary system based on the dollar as the world’s reserve currency, and some belief in the usefulness of fiscal stimulus during downturns. These ideas have not been mainstreamed with the IMF yet and there is much reform to be done. The BRICS are now raising their voices to demand it, will the ancien regime ignore them?
And ancien regime it is, as Martin Wolf ably demonstrated in the Financial Times today. He argues that “Europe should not control the IMF” and that he “do[es] not think the case for a European head of the IMF is made overwhelming by the current crisis.” Martin joins the chorus of commentators saying the European jig must be up!