Emerging markets need a game plan. The battle for the International Monetary Fund’s top job is becoming ugly. The old order is asserting itself brazenly, with Europe determined to retain its prerogative of appointing the fund’s managing director. For all the promises to make the selection process more transparent and merit-based, the Europeans are in effect saying that emerging markets’ time will come – just not yet.
The arguments trotted out for anointing a European are laughable. Speed is of the essence, but surely it is more important to get the right person for the job. The argument that a European head would better manage the debt crisis in Europe, now the focus of the fund’s lending operations, is unworthy of rebuttal.
Emerging markets, led by Brazil, Russia, China and India joined by South Africa, have forcefully argued that it is high time to break Europe’s stranglehold and make the selection process open and transparent. Unfortunately, for all their rising economic might, this episode is proving to be an object lesson for them on the realities of global political jockeying.
Europe has shown tremendous alacrity in circling the wagons around its preferred candidate, Christine Lagarde, and may swiftly create a fait accompli by bringing other advanced economies on board.
The BRICs are pushing hard for a competitive vote with more than one viable candidate, rather than just a pro forma process intended to confer legitimacy on the presumptive winner. There is a brief window of opportunity for emerging markets to make their point, even if they lose this round of the battle. To grab it, they must quickly up their game.
Japan and the US are the swing votes. They have restated support for a transparent and merit-based process, and have not taken sides yet. But neither wants the outcome to threaten its own privilege of appointing a deputy managing director. Therein lies an opportunity.
Emerging markets must first unify around one candidate. Each of the big players has its own agenda, so picking a candidate from among them may be a hard sell within the group itself. Agustín Carstens of Mexico has already thrown his hat in the ring and there are other excellent candidates from “neutral” countries, like Tharman Shanmugaratnam from Singapore, who could step into the breach.
Second, they must ensure China’s support by pushing to elevate Zhu Min, the highest-ranking Chinese representative at the fund, to a new, fourth deputy managing director position. Third, they must strike a bargain with Japan and the US to support them retaining their own deputy managing director positions for the next five years. Fourth, their candidate should draw up a clear list of governance reforms and a plan for acting on them to line up support from other developing economies.
This approach may seem mercenary. But it is time for emerging markets to shed the grand vision of pure merit-based selections and get down to the bare-knuckled politics that Europe is practising. This is not just in their own interests but also for the greater good of an institution that is now central to global financial stability.
Recently, various reforms have given developing countries a greater say in the fund’s policymaking. The institution has genuinely become more responsive to the needs of a broad group of countries rather than just bowing to the dictates of the most powerful. This progress will be set back if Europe, the US and other advanced economies end up being the kingmakers on this round.
Thanks to Dominique Strauss-Kahn, the fund is now a prize worth fighting for. It is too important to be conceded without a fight to a candidate who, for all her superb skills as a policymaker and politician, leads the pack mainly because of the passport she holds. If she wins, let it be with a fair and open vote that will only add to rather than detract from her legitimacy and effectiveness.
Emerging markets have an opportunity to flex their muscles and transform their economic might into a show of real power on the world economic stage. The time has come.