How Not To Pick The IMF’s Chief

Trying to get away from the emotionally traumatising, this article caught my eye. Clearly it relates to my earlier post, and does have a Spanish connection, if only a rather tangential one.

I thoroughly endorse what the Financial Times has to say. We need multilateralism now more than ever. We should not simply think ’Europe First’, and:

The IMF needs considerable reform: its voting structure is out of date; its resources are too small; and its ability to lead the global debate on macroeconomic adjustment and exchange rates is too weak.

Here, here. Especially the point about leading the debate on macroeconomic adjustment and exchange rates. If you want to fight terrorism more effectively, perhaps here might be a good place to start.

How not to pick the IMF’s chief

Europeans believe in multilateralism. We know this is true, because they say so. Europeans are, they insist, quite different from those unilateralist Americans. Europeans would not foist a new managing director upon the International Monetary Fund. They are too aware of the malign consequences for the legitimacy and effectiveness of both candidate and institution.

Alas, the reality is different: what the Europeans have, they hold. The IMF is a bastion of European power. For historical reasons, the 15 members of the pre-enlargement European Union hold 30 per cent of the quotas (and so votes) in the IMF. This dwarfs the US share, which is close to 17.5 per cent. Including Japan, east and south Asia possess only 16 per cent of the votes. Excluding Japan, these countries possess less than 10 per cent. Yet again, the developing world will have to live under a European macroeconomic emperor, albeit one who rules with US consent.

It appears that the most likely European candidate is Rodrigo Rato, the Spanish finance minister. In truth, Mr Rato is a tolerably well-qualified candidate. He has the political weight. Alhough not an economist by training, he has also had substantial experience in the management of what was, until recently, an emerging market economy. For all that, Mr Rato will not be the best qualified person in the world, partly because he is not, but also because an intra-European selection will fail to demonstrate that he is.

Selection of the head of the IMF by a group of countries that will never use its credit is bound to undermine the legitimacy of the candidate and the credibility of the institution. Yet, apart from giving European policy makers the pleasure of throwing their weight around, their insistence upon making the selection among their number will give Europe no benefits whatsoever. No sane European should care whether the IMF’s head is European, since it impossible to run the institution to meet narrowly European objectives. To demonstrate this the managing director tends to accommodate the concerns of powerful developing countries. The result is not an IMF that is far too tough, but one that is often too weak.

The IMF needs considerable reform: its voting structure is out of date; its resources are too small; and its ability to lead the global debate on macroeconomic adjustment and exchange rates is too weak. These challenges will not be met overnight. But the Europeans could make a wonderful start by recognising that the most effective candidate would be one chosen by a disciplined and transparent global search.

It is, in this case, easy to find superb candidates in developing countries, since it is in these countries that policy-makers have done what the IMF demanded. Such a policy-maker would have a credibility that few, if any, Europeans possess. If Europe really did wish to show it is a different sort of great power, this would have been a wonderful place to start, in its own interests and the world’s.
Financial Times