Throughout the IMF's 58 years of life, its managing directors have generally been good administrators, sometimes intellectual giants and often survivors. Lately, one or more of these qualities appear to have gone missing: Horst Kohler served only four years before leaving to become president of Germany; his successor, Rodrigo de Rato, the Fund's current boss, has been criticized for aspects of his performance and is said to hanker after high political office in his native Spain, after little more than a year in office.
Some say this has less to do with the quality of candidates nowadays for what used to be one of the most prestigious and coveted financial positions in the world, and more to do with the selection process. Others argue that the "marginalizing" of the IMF – with little say in global monetary issues, its role in advanced economies limited to "surveillance" and with a mission only to aid developing countries and act as handmaiden to the capital markets – has rendered it unattractive to the most highly qualified people.
All of these issues are coming to a head with the controversy surrounding de Rato, the 56-year-old former Spanish economy minister who became the IMF's ninth managing director on June 7, 2004. His first anniversary in office was marked not by accolades but by questions as to whether, as the International Herald Tribune puts it, he is "up to the task" of running the IMF. The paper cited critics who "accuse de Rato of being a hands-off manager who spends too much time abroad [and who] covets Spain's highest elected office".
Lines of communication
The IMF declined a request from Emerging Markets for an interview with de Rato to discuss these and other issues. But comments from sources close to the Fund, in Washington and elsewhere, paint a picture of an institution which, if not exactly in crisis, is at present certainly not the "happiest of ships", as one source put it. "De Rato has no agenda," one former managing director told Emerging Markets. "He has left the task of devising a strategic plan for the IMF to [first deputy managing director] Anne Krueger." But this has degenerated into a kind of "long-term budgeting exercise", said another source.
Not surprisingly, in view of the "extreme sensitivity" of the issue, several sources close to the IMF declined to comment on the managing director's performance in office. But they pointed to de Rato's sometimes "poor" relations with his board of directors, and his failure on occasions to communicate effectively with IMF management. Relations between de Rato and Krueger are also "bad", said one former official. And there were comments that de Rato is not always "up to speed" on important issues that come before the IMF Board.
There will be a number of such issues demanding attention at the annual meetings. These include the question of debt relief for the poorest countries, on which de Rato has observed that actions need to be carefully designed and well implemented. The implications of China's recent move to revalue the yuan is also expected to demand attention from the IMF's International Monetary and Finance Committee, since China is not a member of the G7 where such issues would normally be discussed. And a progress report on shareholder representation at the IMF and World Bank will also be on the table.
Fundamental problems
That a managing director of the IMF should face criticism so early in his term is unusual and may reflect in part the fact that internal divisions within the Fund tend to assume larger dimensions at times when external crises are absent. But the circumstances in which heads of the institution have come to – and left – office in recent years points to fundamental problems, sources close to the IMF said. These can be addressed only by widening the pool of talent from which the Fund (always known as a European fief) can draw its leader, they suggested.
Michel Camdessus, who served as MD for a record 13 years, from 1987 to 2000, was one of a trio of French "greats" (along with Pierre-Paul Schweitzer who led the IMF from 1963 to 1973 and Jacques de Larosiere who reigned from 1978 to 1987). Things began to go wrong when Camdessus stepped down five years ago – in effect to take responsibility for the IMF's much-criticised handling of financial crises in Asia and elsewhere in the late 1990s. Germany's "turn" had come and it nominated former finance secretary and World Bank official Caio Koch-Weser.
The US – unusually – demurred, however, under the interventionist (then) Treasury secretary Lawrence Summers, and Kohler was appointed as a compromise candidate. He came to office, as one former IMF senior figure put it, with a mandate to "shake up" the IMF after the Asian debacle, and he set to work making it more accountable to the global capital markets which nowadays supply the lion's share of funds to the developing world. Kohler's sometimes "irascible" manner did not endear him to everyone, but at least "he did have an agenda" and saw it through (almost) to the end, observed the former official.
At that time, "the French wanted the presidency of the European Central Bank" and did not press to put their man back in at the IMF, one source said. Germany "did not have a suitable candidate" and so de Rato was chosen. There were "always doubts about having a national from a non-G7 country," and Spain in particular sports only an alternate executive director at the Fund. But others pointed to the success of other non-G7 nationals such as Johannes Witteveen (from the Netherlands) who headed the IMF in the 1970s as well as two Swedes (Per Jacobsson and Ivar Rooth) and founding MD Camille Gutt from Belgium.
If de Rato were to follow the example of his predecessor and leave for political office, or for any other reason, before his term officially ends, this would almost certainly reopen the debate that surfaced several years ago (at the time of Kohler's appointment) over whether the top job at the IMF should be solely a European privilege. At that time, Japan and others nominated former "Mr Yen" Eisuke Sakakibara for the position, while a group of African and other states favoured former IMF first deputy MD Stanley Fischer for the job.
Shareholders
Meanwhile, the IMF has other issues to deal with apart from that of its leadership. One is that of "voice" and shareholding ("quota," in the case of the IMF). Some East Asian members are among the most under-weighted in terms of quotas. The quotas of South Korea, Japan and China in the IMF are 0.77%, 6.26% and 2.99% of the total, while their share of world GDP is 1.67%, 11.47% and 4.05%, respectively. A progress report on shareholder representation will be presented at the annual meetings. IMF management supports proposals for re-balancing, but any change will require the agreement of all shareholders, and "losers" in the process (such as Russia, some Arab countries and small European countries) may seek to block any change.
Another problem is the IMF's mission in life, and how this develops relative to the roles of the G7 and other governments' groups. De Rato is expected to unveil the IMF's own strategy during the annual meetings, and this may offer clues at to future directions. But not everyone is sure that there is sufficient political consensus nowadays among the Fund's major shareholders to give it the mandate needed to operate effectively in future – or to attract the best possible leadership from its global constituency.
The question of where the geographical focus of the IMF's attention should be is also under discussion in the international community. De Rato's globe-trotting has taken him mainly to Africa so far, although more recently also to Asia – a region where there are fears on the part of some officials that the Fund is "in retreat". Former IMF chief economist Kenneth Rogoff has noted that visiting Africa may help to reinforce the impression of the IMF as a "global institution" but the Fund's "main focus has to be on maintaining global financial stability," he insists