Up Front

IMF Leadership Succession – Time for a Real Change

Johannes F. Linn

The speculation about the leadership succession of the International Monetary Fund was already in full swing before the shock announcement on Sunday, May 15, that the IMF’s current managing director and presumptive French presidential candidate, Dominique Strauss-Kahn, had been arrested in New York City. After the embarrassing spectacle of the premature departure of Paul Wolfowitz from the helm of the World Bank in 2007, this event once again shines the spotlight on the selection process for what must count among the most important and prestigious international posts.

After falling into near oblivion before the recent global economic crisis, the IMF reemerged as a critical player in international financial affairs during and after the crisis. Few would doubt today that the world needs a strong, legitimate international financial institution to help manage the relations among major global economic players, to offer support to countries in crisis — such as is now the case in Europe — and to provide an impartial voice in assessing the need for corrective action when countries fall into financial, fiscal or foreign exchange misalignment. The IMF has many strengths, but some glaring weaknesses in its governance. The most obvious weakness is that the selection of its leadership has been artificially constrained, with the customary prerogative for European governments to select one of their own nationals.

This rules out the search for the strongest possible candidate. It reinforces the perception of a continued bias in the IMF’s decisions toward European interests, especially at a time when Europe needs the IMF. It undermines the trust in the IMF of other key member states, especially of the major emerging markets in Asia and Latin America. And it creates a situation where when things go wrong — as in the case of Wolfowitz and Stauss-Kahn — the result is intensely embarrassing for the countries which have pushed their candidate so hard against the presumption of a fair and legitimate selection process that would be open to the best candidates from any nationality.

The recent G-20 summits have affirmed that the leadership selection of the IMF and World Bank should be based on merit, but they did not specifically state that it would be without regard to nationality. This leaves open the door yet again for a deal between the United States and the Europeans that, when leadership change occurs at the IMF (and in due course at the World Bank, where the United States traditionally has selected the winning candidate), the traditional trans-Atlantic bloc will prevent an open, unbiased and legitimate selection process.

This would be wrong. It would weaken the international financial institutions by undermining their legitimacy and their effectiveness in dealing with the continuing critical global financial challenges. It would send another signal that the “old powers” are not ready to accept the new economic reality, where fairly shared international responsibility and privilege among the new and old players will be the key for effective management of global affairs. It would create the spectacle of the Europeans and the United States holding on to prerogatives whose time has passed and whose exercise results in national embarassment such as we have seen in the wake of recent leadership upheavals at the World Bank and IMF.

The bottom line is it is in the interest of the international community, of the Europeans and of the United States that we have strong and legitimate international financial institutions. This requires a fair, open and merit-based leadership selection process unconstrained by nationality. The Obama administration should make the case for such a process to the Europeans, to Congress and to the American people.

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