Larry Elliott Monday March 29, 2004 The Guardian
Imagine Bill Gates announcing, out of the blue, that he is leaving Microsoft to spend more time with his family. Within minutes, Microsoft's finance chief says he reserves the right to choose the successor to Gates from his team. "That's the way we've always done things here," he says.
No, of course, you can't imagine it. If Microsoft or any other company were to choose its top executives in such a bizarre fashion, the share price would plummet and with good reason. There would be real doubt about whether the new CEO was up to the job.
Yet this is the scandalous way in which the international community is going about choosing the next managing director of the International Monetary Fund, a position of pivotal global importance. The previous MD, Horst Köhler, has resigned to stand for the job as president of Germany, and this Friday Europe's finance ministers are gathering to discuss who should be his successor.
Why just the Europeans you might ask? Simple. Ever since the IMF and the World Bank were created at the Bretton Woods conference in 1944, there has been an arrangement - stitch-up describes it better - under which the Europeans decide who should head the Fund and the Americans pick the president of the World Bank.
The absurdity of the situation doesn't end there, however, since the Europeans always squabble about who should be their anointed one. Köhler got the job last time because he was replacing Michel Camdessus, a Frenchman, and Germany insisted on getting a share of the action. The first nomination was vetoed by the Americans, so the IMF came to be under the control of a man who was not even the first choice of his own country. Köhler never managed to shake off the impression that he was a bit of a second rater, but was actually the victim of a dysfunctional process.
Since France and Germany have provided the last two IMF MDs, the Buggins'-turn set-up means the other three big EU countries - Britain, Spain and Italy - are in contention this time. Gordon Brown could have the job if he wanted it, but would rather hold out to be prime minister. Spain actually has a good candidate in its finance minister, Rodrigo Rato, but there was talk late last week that his chances could be scuppered by the success of his countryman José Manuel González-Páramo in securing a seat on the board of the European Central Bank. The response from Silvio Berlusconi was to advance the candidature of an Italian on the grounds that Spain cannot expect to walk away with all the top jobs.
All of which would be funny were it not all so serious. The IMF has some huge challenges coming up - making a better fist of poverty reduction, meeting the UN's development targets, curing the imbalances in the global economy - and it can ill-afford a power vacuum at the top.
Hopeless
The international community should learn from the Köhler debacle and the disastrous horse-trading which gave New Zealand's Mike Moore and Thailand's Supachai Panitchpakdi half a term each at the World Trade Organisation back in 1999. This was the fudge to end all fudges: Moore was hopelessly out of his depth in Geneva and three years were wasted while he floundered.
There can be times when there is an argument for trading off democracy for effectiveness. The ECB, for example, will have a choice when the accession countries join the euro - have decisions on monetary policy made by an unwieldy committee of 25 or more, or create a smaller body where not all central bank governors are able to vote all the time.
Yet in the case of the IMF, there is no such trade-off. The selection process does not ensure that the best qualified person gets the job, and it is flagrantly undemocratic. Little wonder, then, that there is consternation about the absence of a transparent and merit-based structure for making the new appointment. A group of executive directors at the Fund representing developed countries such as Australia, New Zealand, South Korea and Russia, as well as developing nations in Asia, Africa, Latin America and the Middle East, has called for an open process "to attract the best person for the job, regardless of nationality. A plurality of candidates representing the diversity of members across regions would be in the Fund's best interest."
Eminently sensible, you might think. Sadly, however, that's not the way the Fund works. Unlike the WTO, which is a one member, one vote organisation, clout at the IMF is decided by voting shares, and these reflect the way the world was 60 years ago, not the way it is now. It adds insult to injury for developing countries to find that they can have any old mediocrity foisted upon them by a system that is a relic of colonialism. There may have been logic in Belgium wielding more influence than Brazil when it was still running a big chunk of Africa, but it is an absurdity in 2004.
Those countries left out in the cold by the US-European carve-up have a strong case. Policies emanating from the Fund and the Bank never affect the west (although the US would be a prime candidate for a structural adjustment programme were it a developing nation), but every MD of the Fund since the war has been a European and every president of the Bank an American. Nor is there a shortage of qualified candidates. In terms of ability, the former Indian finance minister, Manmohan Singh, one of the names floated, is head and shoulders above most of the time-servers and placemen mentioned in Europe.
After the Köhler succession in 2000, the boards of the Bank and the Fund stressed the importance of more openness and transparency, but the findings were guidance to member states and were never formally accepted. This squalid get-out clause means that an institution which delivers endless homilies about the role of transparency in better governance will once again be a party to the nudge-and-wink cronyism that has operated in the past.
This process is corrupt and will damage the Fund. If Gordon Brown didn't know that, he knows now, following soundings he has taken with developing and developed countries. The government's own white paper on globalisation in 2000 urged "open and competitive processes", including a proper job description, head-hunting and a choice made on competence not nationality.
Brown is aware, however, that this is not going to happen. Europe will decide and the best he can hope for is that the Europeans throw their weight behind a suitable candidate. If it comes up with a Köhler mark 2, Brown should publicly repudiate the decision and support an alternative candidate. If he accepts the outcome of blatant horse-trading, the chancellor will deserve all the opprobrium that will be heaped upon him.
larry.elliott at guardian.co.uk