New leadership required to reform IMF
July 11, 2007
by ROY CULPEPER
The Toronto Star
Once again the issue of leadership selection at the world’s pre-eminent global economic organizations has burst into the news. Rodrigo de Rato, the International Monetary Fund’s Managing Director, recently announced that he is stepping down, putting into motion a recruitment process to select his successor. By a tradition that is increasingly discredited, European members select the head of the IMF, just as the United States chooses the president of the World Bank. It is time this outdated practice be discontinued in favour of an open, merit-based selection process, one that Canada should actively endorse.
Earlier this year Paul Wolfowitz, President of the World Bank, was removed from office under a cloud because of his favouritism towards his girl-friend working at the Bank. Mr. Wolfowitz had been appointed by President George W. Bush. When Mr Wolfowitz resigned, there were many calls to open up the selection process to candidates from all member countries. Regrettably, even though the Bank’s Executive Board kept the door open, no other candidates came forward, paving the way for President Bush to select his former U.S. Trade Representative Robert Zoellick, who was appointed to the post last month.
Mr Wolfowitz was the first World Bank president to be removed from office. European members were particularly active in seeking his removal. However, it is clear that the Europeans were mostly keen to redress the glaring issue of the World Bank president’s accountability and conflict of interest. They are much less keen on disturbing the quid pro quo whereby the U.S. has the prerogative of selecting the World Bank president and, in return, the Europeans have the privilege of selecting the IMF’s managing director.
The change in leadership at the IMF comes at a crucial juncture in that organization’s history. Fewer and fewer countries facing a financial crisis willingly submit themselves to the strictures of the IMF. The draconian cutbacks and sweeping policy changes demanded by the Fund in return for its financial support have often resulted in social and political turmoil, and are increasingly viewed as unjustifiable intrusions into the sovereignty of its member countries. As a result, the IMF is running out of paying customers, leading to a financial crisis in its own operations.
In other words, it is time to reform the overall structure and mandate of the IMF. This has been acknowledged even by some of the Fund’s most conservative institutional supporters, the central banks of the industrial countries. For example, last year David Dodge, who was at the time the Governor of the Bank of Canada, argued that the IMF be a much more “independent, impartial umpire, ready to call out countries that break the rules”. He was referring not just to the weaker and poorer member countries—the only ones called to account by the IMF—but to the rich and powerful as well.
Where better to start this process of reform than at the top? By inviting eligible candidates to be nominated by any member country, and subjecting them to a rigorous review by the Executive Board, the best possible person can be chosen for the post. Surely an organization charged with overseeing the world’s economic and financial stability demands no less.
Canada’s official position on recruitment of the leaders of the two Washington-based institutions explicitly endorses an open, merit-based process. This position was reiterated in Finance Minister Jim Flaherty’s most recent report to Parliament on these institutions. Mr Flaherty should instruct his officials in Ottawa and Washington to press the Europeans to pull back from their traditional prerogative of selecting the IMF’s managing director. Instead, they should show their leadership in beginning a process of reform at the Fund, by encouraging other members to nominate candidates to succeed Mr de Rato.
Roy Culpeper is president of The North-South Institute, an independent research organization that focuses on issues related to international development and foreign policy.