Wednesday 06 Oct 2021 | 18:00 | SYDNEY
Wednesday 06 Oct 2021 | 18:00 | SYDNEY

How to break up the IMF old boys club


Stephen Grenville

30 May 2011 11:55

Don't get me wrong: I'm not arguing that a European should be the next head of the IMF. Just that realpolitik makes that outcome inevitable. Regardless of fairness, logic, the re-balanced world economy, natural justice, the moral case, past promises, or the competence of the candidates, the chances of an emerging-economy candidate getting the job are effectively zero.

The key obstacle is that the emerging countries have no institutional mechanism for generating a consensus behind a single candidate. The G20 — with some help from the East Asia Summit — could change all that.

There are at least a couple of excellent emerging-country candidates, with Montek Ahluwalia (India) and Tharman Shanmugarathnam (Singapore) probably the best qualified (a full listing is here). But where would such candidates go to generate job-winning support? Europeans, commanding one third of the votes, have the European Union (with its myriad linkages), the G7/8 and the IMF Executive Board itself (where Europe is still grossly over-represented), each forum providing an inner conclave where members can lobby and do their deals, as they have for many years.

The best the emerging countries could offer this time around has been via the BRICS (Brazil, Russia, India, China and South Africa), the gimmicky brain-child of an investment bank's PR department, with no common history, no unifying characteristics and few common interests.

While they registered a general call for an emerging country to get the job, they couldn't even offer a specific candidate. You can't beat somebody with nobody. Within days, Russia, the one BRICS member with overlapping membership of G8, had acquiesced to the inevitability of continuing French tenure.

Latin American regional groupings might provide support for the Mexican candidature, so far the only competition for the French Finance Minister Lagarde. But they simply don't have the numbers. Emerging countries in other regions can be bought off, one by one, by the Europeans. It seems that China and South Korea have already given their support to Lagarde.

Getting a winning consensus for an emerging-country Managing Director will take much more than simply asserting that it is a good idea. The place to do this is in G20, a new institution, less tainted by ossified allegiances and quid-pro-quo legacies of past deals. It already has an interest in this topic, with the G20 IMF Reform Working Group (chaired by Australian and South African) urging an open process for the selection of a new IMF MD.

But consensus can't be initiated around such a big table: this needs to be done in a smaller group. So the countries of the East Asia Summit need to see this as an opportunity to demonstrate that they can work together for a specific 'deliverable'.

Maybe China will be reluctant to accept an Indian candidate; maybe Singapore's characteristically self-interested approach to international relations would hobble its candidate. But at least the EAS provides a trading forum with ongoing common interests where a deal might be stitched together. And it is big enough to deliver the necessary numbers. With its current membership, the EAS accounts for six of the nineteen G20 member countries. With the proposed addition of the US and Russia, the EAS would have close to a majority at the G20.

Rather than thrash around with futile demands that some unspecified emerging-country candidate should replace Dominique Strauss-Kahn, the immediate goal should be to shift the decision-making out of the old-boys' coterie of the IMF Executive Board to the G20. With that achieved as a quid-pro-quo for Lagarde getting the job now, the stage would be set for an Asian emerging-country candidate to get the job next time round.

Photo by Flickr user woodleywonderworks.