The IMF announced today it would welcome candidates from any country in the search for a new managing director, just as a former French finance minister emerged as the frontrunner for the position.The statement follows widespread unease that the selection of a European for the top job under an unwritten convention would further sap the Funds credibility, at a time when its influence is in marked decline.
Within Europe, there is mounting concern that the EU is focusing on retaining its traditional hold on IMF leadership rather than addressing the disarray of the blocs own economic policymaking agenda.
Caio Koch-Weser, vice-chairman of Deutsche Bank and himself a one-time candidate for the IMF post, believes the EU should prioritize internal coordination over attempts to dominate the Fund.
A single high representative for the EU on international economic affairs such as global imbalances and currency policies is more important than a European managing director for the IMF, Koch-Weser told a recent meeting of the Euro50 Group in Rome.
A senior IMF official has also referred to inconsistencies in the European stance on substantive issues, noting confusion in a recent meeting of European representatives to discuss their response to the Funds recent exchange rate surveillance initiative (see IMF currency plan under fire).
The German government put out a statement afterward, but nobody seemed sure if this was on behalf of the EU or Eurozone, the European members of the G8 or G20, the European constituencies at the IMF, or simply as the German government, the official said.
Koch-Weser advocated restructuring the four European voting constituencies in the Fund, all of which are currently a mix of EU and non-EU members. He suggested replacing this with three constituencies: Eurozone countries; the non-Eurozone EU and European Economic Area (EEA) countries; and the non-EU and non-EEA countries, mostly in Eastern European and the Balkans.
Emerging Markets understands that the Australian and South African governments have been lobbying through the G20 group of countries for non-European candidates to be considered as a replacement for outgoing Fund chief Rodrigo de Rato. Brazil has also publicly voiced this demand.
The former French finance minister, Dominique Strauss-Kahn, on Monday won broad EU backing to become the next head of the IMF, trouncing a rival Polish candidate.
Mr. Bush has appointed his candidate to the World Bank, so the European governments will be reluctant to give up their own nomination for the IMF at this time, former French economy minister Edmond Alphandery told Emerging Markets, adding that a European managing director therefore remained the most likely outcome.
Whoever takes over, the IMF must reconsider its role: there is no point being an organization to tackle financial crises if there are no financial crises, Alphandery said.
Meanwhile, analysts are bemoaning the decline of the Washington multilateral. It concerns me that we are heading into the turn in the credit cycle without the global economic leadership role traditionally provided by the IMF, David Lubin, head of emerging market economics at Citi, recently told an investor forum in London.
The petrodollar paradox means that there is now a big global bid for assets, cutting global risk premiums. But actually, this means the risks themselves are increasing, as erstwhile creditors are pooling their own reserves and managing their own liquidity. The IMF could be disintermediated, Lubin warned.
For the IMFs own statement on the selection process, please click here.