The grand bargain between the US and Europe over the leadership of the IMF and World Bank was once again challenged this week, after WB incumbent Robert Zoellick announced he was stepping down from the five-year post at the end of June. Thus kicking off a frenzy of speculation over his replacement while ‘stitch-up’ accusations snowballed. Embolden by the shift in global financial power, emerging nations, and others, called on the US to make good on its previously-vague promise to open the Bank presidency to a non-US citizen.
But with US giving Europe the green-light to install Lagarde at the IMF, it’s not clear the US will be willing to give up its leadership of the Washington-based lender in an election year.
But this is not new. We first broke the newsthat US would be unlikely to give up its right to appoint Zoellick's successor - from the horse's mouth - in September.
| The race to become the World Bank’s next president looks set to spark a diplomatic row, after the current chief hinted that the US would not give up its right to appoint his successor. Robert Zoellick suggested that the US would sacrifice the World Bank job only as part of a deal that saw an American take over another strategic or economic multilateral body. Asked by Emerging Markets whether he believed next year would see a president from an emerging or developing country, Zoellick said it was important the US played a “larger role” in multilateral institutions. “I have spent some 30 years of my professional life trying to encourage the United States to play a larger role in multilateral institutions – they may be the World Bank and the IMF, they may be the WTO, they may be NATO,” he said. “I think it is a good thing for the United States in some of these institutions to have leadership roles because ... even in the midst of these annual meetings, I have been working with Congress to try to build the financial support, and it helps to be able to communicate the perspective of a multilateral institution,” he said. “So, again, I think this is actually a good sign.” In a remark that will raise the idea of a global deal, Zoellick added: “It may or may not be the World Bank, but there are politics involved with a lot of these choices, and you haven’t seen a US head of the UN or WTO or IMF and others, so I just think it is important the US stay engaged in multilateral institutions as well.” |
In other words, the US does not occupy the top spot at any other multilateral institution, so it's only fair for Washington to retain control of the World Bank so take that emerging markets.
Now, here's EM's partial round-up of the debate in the media.
First, here’s John Cassidy of the New Yorker, with his list of candidates. In the DM ring:
| Timothy Geithner: Odds, 7/4 favorite Pros: Having already said he is leaving the Obama Administration after the election, he needs a new job. His father worked for the Ford Foundation in Asia, so he is familiar with foreign countries and development issues. Taking a post in Washington would enable him to keep up with his buddy and fellow believer in “no drama,” Barack. Cons: Has promised his family he is returning to New York. Said to get a bit bored by worthy but tortuous issues like “microfinance.” Since many people already think he used to work at Goldman Sachs, he might as well take a job there, or somewhere similar, and pocket some big bucks. Hillary Clinton: Odds, 3/1 second favorite Lawrence Summers: Odds, 10/1 Bill Clinton: Odds, 16/1 |
And in the EM ring:
| Luiz Inácio Lula da Silva: Odds, 25/1 Pros: Served as president of Brazil from 2003 to 2010. Led the fifth-biggest country in the world to a period of unprecedented prosperity. Introduced social programs that reduced poverty and reduced inequality. Cons: He’s not American. He doesn’t speak good English. He was recently diagnosed with throat cancer. |
Other potential EM candidates include: Trevor Manuel, Ernesto Zedillo, Sri Mulyani Indrawati, Ngozi Okonjo-Iweala, Kemal Dervis, and Montek Singh Ahluwalia.
And now, the pre-emptive backlash, via AFP:
| Brazil urged the World Bank on Wednesday to give proper consideration to developing country candidates to replace outgoing president Robert Zoellick and not just go with an American. “There is no reason that the president of the World Bank is a specific nationality. It should just be someone competent and capable,” Finance Minister Guido Mantega said, pushing for an end to the 65-year tradition. “Our goal is that emerging countries have the same chance to compete to lead these multilateral organizations.” “I believe that the United States will continue to insist that it will be one of its representatives,” he said. “We are working so that that does not happen.” |
But Obama’s hands might be tied, as Richard Adams of the Guardian explains:
| President Obama could take the bold decision to open the Bank presidency to a non-US citizen. But it remains too tempting to use that power to reward a political ally, especially for a desirable post that doesn't require a battle with Congress for confirmation. Obama has also come under fire from the Republican presidential contenders for "apologising for America" – in Mitt Romney's words – and for lacking leadership. Appointing a non-American to a job previously seen as a US satrapy by the US Congress could give substance to those attacks. With an election looming Obama may take the easy option, along with some window dressing of including one or two names of well qualified candidates from the developing world such as Nigeria's minister of finance Ngozi Okonjo-Iweala. |
(We think it will be a darn shame in the admittedly highly-unlikely event Okonjo-Iweala gets the gig given the huge number of fiscal and structural reforms needed in Nigeria and her domestic clout there)
So could Bill Clinton be the compromise candidate? Over to you, Adams:
| The attraction of a Bill Clinton candidacy is that his reputation makes him acceptable to Americans and many non-American critics alike, preserving the US government's commitment to an open appointment process while keeping the post in US hands. The only major question mark over Bill Clinton would be his health – if the 65-year-old is unwilling to undergo medical tests and the potential humiliation if he is rejected on grounds of fitness. One close observer of the Bank said that Bill Clinton "has the stature" to be a transformative president, "able to change the Bank and the courage to take it in new directions," by overhauling its management structure. |
Here are some views from the Twitterverse:
Wildcard suggestions include Nouriel Roubiniand Tony Blair. Meh. Enjoy those flying pigs.
Still, let’s put this commotion into perspective. Here’s a reminder of the World Bank’s relative financing power via the FT:
| Chinese state banks have lent more than $75bn to Latin America since 2005, and in 2010 gave more than the World Bank, Inter-American Development Bank and US Ex-Im Bank combined, according to a report which highlights China’s growing financial heft in the region. “On the positive side, it is clear that China is a new and growing source of finance in Latin America,” notes the independent academic report, New Banks in Town: Chinese finance in Latin America. |
Perhaps Beijing should appoint the head of the World Bank to give the institution the clout it really needs..