We are back! As Lagarde announces surprise departure, time’s up for the ‘gentleman’s agreement’

Christine Lagarde announced on 16 July that she had submitted her resignation as IMF managing director, effective 12 September, following her nomination for the Presidency of the European Central Bank. David Lipton, the former deputy managing director, has assumed the position of acting managing director in the interim period.

In her resignation letter, Lagarde noted, “On July 2, 2019, the European Council proposed to nominate me to the position of President of the European Central Bank. I had agonized over this proposal during the previous 48 hours and eventually decided to accept.” Interestingly, the letter further noted that, “On the other hand (!) I realize that there is no perfect time to go. The work left to be done is challenging and I know that the Board, Staff, and Management will have their hands full.”

According to the IMF’s Articles of Agreement, the Managing Director, “shall be chief of the operating staff of the Fund and shall conduct, under the direction of the Executive Board, the ordinary business of the Fund. Subject to the general control of the Executive Board, he shall be responsible for the organization, appointment, and dismissal of the staff of the Fund.” 

An end to the ‘gentleman’s agreement’? Don’t hold your breath

Leadership selection at the World Bank and IMF is subject to a historic (and archaic) ‘gentleman’s agreement’, which has ensured that, over the past 75 years, the IMF managing director has always been European and the World Bank president is a US citizen. This agreement harks back to the creation of the institutions, when membership was limited to 45 states and when European powers still retained colonies.

John Maynard Keynes and Harry Dexter White at the inaugural meeting of the IMF’s Board of Governors in Savannah, Georgia, U.S., 1946
John Maynard Keynes and Harry Dexter White at the inaugural meeting of the IMF’s Board of Governors in Savannah, Georgia, U.S., 1946

When the US nominates a candidate for Bank president, Europe uses its large share of voting rights on the Board to ensure the US candidate is picked in exchange for the US supporting a European nominee for IMF managing director. In return, Europeans select their preferred candidate – the majority of whom have been French nationals – and await the seal of approval from the US.

Civil society advocates have long-since called for the IMF’s executive directors to ensure a genuinely open and fair appointment process, that leads to the appointment of a qualified candidate who will put people-focused finance at the centre of the Fund’s work. Given the importance of a robust and transparent process in setting the IMF’s course in the coming years, the demands raised by over 100 civil society organisations before Lagarde was appointed in 2011 remain relevant today:

  1. The candidate must gain the open support from at least the majority of IMF member countries, with no single bloc wielding excessive power. The best way to ensure this is for the winner to be required to gain the support of a majority of both voting shares and member countries. This need not require any formal changes to the IMF Articles of Agreement, but could simply be announced by the IMFC. To make this work, countries would need to vote independently, not through their constituencies, and declare their support publicly. We cannot afford to let traditional back-room deals install a candidate supported by only the richest countries. European countries should state openly that they do not intend to agree upon a single candidate, with each country waiting until after the final nominations are closed, before declaring support.
  2. The selection process needs to be significantly strengthened. This should include having a public application procedure open to anyone to apply or nominate, and sufficient time to allow proper deliberation, interviews and debates held in public, and open voting procedures.
  3. A clear job description and qualifications should be set out, building on the short version outlined in 2007. The right candidate needs to be – and be seen to be – independent, and able to work with a variety of stakeholders, including civil society groups. Given that developing countries constitute a majority of IMF members, and where the overwhelming majority of IMF lending and advice has been directed in recent decades, the new MD will need to be well versed in the particular problems of low- and middle-income countries. A focus on the key global economic problems of poverty, growing levels of inequality and joblessness will be essential.

Speculation runs wild…

Speculation has already begun to circulate around who will replace her in this influential position.

Thus far, some of the potential candidate list includes: Tharman Shanmugaratnam, chairman of the International Monetary and Financial Committee; Agustín Carstens, a former deputy-managing director of IMF; Mohamed El-Erian, the former chief executive of Pimco; Mark Carney, the departing governor of the Bank of England; Olli Rehn Bank of Finland Governor; French central bank chief Francois Villeroy de Galhau; Germany’s Bundesbank President Jens Weidmann; ECB executive board member Benoit Coeure; George Osborne, former Conservative UK Chancellor of the Exchequer; Jeroen Dijsselbloem, former Dutch finance minister and president of the Eurogroup who was already nominated for the post by the Dutch cabinet; Mario Draghi, current European Central Bank president; Kristalina Georgieva, Chief Executive Officer of the World Bank Group; Mário Centeno, current head of the Eurogroup and Portugal’s finance minister; and Nadia Calviño, the Spanish economy minister and a former senior European Union official.

…against a volatile backdrop

The leadership contest takes place against a backdrop of challenges facing the world today, from escalating debt crisis and the climate crisis to the rise of radical right nationalism and regressive governments globally. Further complicating the selection process is the fact that it is due to coincide with the 15th review of quotas. Far from an opportunity to bolster the Fund’s legitimacy with a comprehensive redistribution of countries’ voting rights on the IMF board, the review is expected to cement the structural inequities built into its governance structures. Moreover, the proliferation of new multilateral development banks and the rise of China as a global lender increasingly raises questions around the continued relevance of the Bretton Woods Institutions in the first place.

At this time of uncertainty, the IMF should seek to bolster its legitimacy, and back a truly open, democratic, and merit-based selection process for the next managing director.

Throughout the process, this platform will provide up-to-date media coverage and speculation, insider gossip, official reactions and key demands from civil society, so join the conversation and watch this space!

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