FT Online

Published:
2019-07-04 11:02:55 BdST

IMF forced into leadership search early by Lagarde exit


The reshuffle of leadership positions in Europe now forces world finance officials into a search for a new manager for the International Monetary Fund two years ahead of schedule.

After her nomination on Tuesday to lead the European Central Bank,
Christine Lagarde has stepped away from post she has held since 2011 and in
which she led the IMF bailouts to restore order following the global
financial meltdown.

But the outcome of the search for her replacement almost certainly will
end in the same place that it has since the global crisis lender was created
in the aftermath of World War II: with a European picked to serve as managing
director.

While large emerging market nations have long called for more
representation in important financial bodies to reflect their increased
weight in the global economy, the choice earlier this year of American David
Malpass to lead the World Bank, the IMF’s sister institution, showed the
unwritten rule remains in place.

“The ease with which the US preserved the duopoly, means the Europeans
will definitely want to keep their mitts on it,” former US Treasury official
Mark Sobel told AFP.

A French government source agreed: “It must be a European,” he said.

Five of the IMF’s 11 leaders have been French nationals and they have been
the longest serving in the institution’s 75 year history.

Early candidates mentioned as possible successors to Lagarde include Bank
of France chief FranØois Villeroy de Galhau, French politician Pierre
Moscovici, the EU finance commissioner, and Mark Carney, a Canadian who also
holds British and Irish citizenship and whose term as leader of the Bank of
England is up next year.

Another possibility is Kristalina Georgieva, the Bulgarian chief operating
officer of the World Bank, who served as its interim president before Malpass
was named. If selected, she would only be the second woman to lead one of the
institutions.

– A more open process –

Advanced economies were the epicenter of the 2008 global financial crisis,
and in the aftermath the leaders of the Group of 20 countries agreed that
major developing nations like China, India and Brazil should have greater
representation in the multinational institutions, including serving in
leadership roles.

But when the top job at the IMF suddenly opened up in 2011, the European
nations balked. With the crisis at their doorstep, and Greece almost
literally going up in flames, leaders argued that the time was not right.

Emerging markets called out the hypocrisy but never unified behind Agustin
Carstens, then head of the Mexican central bank and now leader of the Bank
for International Settlements, and a veteran of senior posts at the IMF and
widely seen as qualified.

Carstens was the lone candidate to challenge Lagarde in 2011 but never
received sufficient support.

When the World Bank job opened up this year there was no competition to
the US choice.

“My view is it should be open to everyone in the world,” Sobel said. But
the emerging markets “didn’t step up to the plate.”

With 16.5 percent of the voting shares, the United States has a veto at
the IMF, as do the EU members with just over 21 percent combined, although
they are dispersed among different voting blocs.

The IMF board includes 24 directors representing the 189 members, with
only the Washington, Tokyo (6.2 percent) and Beijing (6.1 percent)
representing their countries alone.

Last week, before the leadership change, Carstens told AFP it was “urgent”
to reform the IMF to give the emerging markets more voice since that would
improve the fund’s legitimacy.

“If they are represented, that would give more legitimacy to the advice
that the fund provides,” he said. “I think that is an urgent reform and
hopefully we can move more quickly in that direction.”

In principle, the IMF board has established an open, merit-based selection
process for choosing a managing director, and now accepts nominations from
any member country. Candidates would be narrowed down to a short list of
three and then interviewed.

The board has said a candidate “will have a distinguished record in
economic policymaking at senior levels. He or she will have an outstanding
professional background, (and) will have demonstrated the managerial and
diplomatic skills needed to lead a global institution.”

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