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Georgieva’s exoneration revives longstanding worries over IMF credibility

IMF Managing Director Kristalina Georgieva and Argentina's Economy Minister Martin Guzman attend a conference hosted by the Vatican on economic solidarity, at the Vatican, February 5, 2020. REUTERS/Remo Casilli

Kristalina Georgieva has survived as the IMF’s managing director but some believe she is now a compromised figure with her credibility damaged

After a month of allegations and rebuttals and no fewer than eight meetings of the International Monetary Fund’s executive board over the fate of Kristalina Georgieva, the IMF chief will finish this week’s annual meetings still at the helm.

But the row that almost cost the Bulgarian economist her job has raised issues that may dog her as she continues with the remaining three years of her term as head of the multilateral watchdog.

Georgieva was accused of — and strenuously denied — putting pressure on staff at the World Bank, where she was CEO at the time, to alter data to favour China in its now-defunct Doing Business report.

The episode has left observers with doubts and concerns.

Mark Sobel, US chairman of thinktank Omfif and a former US executive director of the IMF, said Georgieva would remain in office as a “compromised figure” in the wake of the public airing of the allegations.

“Airing the spat over her future so publicly has aggravated a bad situation, making it harder to resolve and uphold public trust,” he said.

Simon Quijano-Evans, chief economist at Gemcorp Capital in London, echoed that, telling GlobalMarkets: “The damage has been done on the data side and on the credibility side.”

Georgieva said it had been a “difficult episode” but did not talk about the impact on her role, saying: “Trust and integrity are the cornerstones of the multinational organisations that I have faithfully served for more than four decades.”

‘Gentlemen’s agreement’

The debate over her job has also revived longstanding complaints from emerging and developing countries that the top IMF job always goes to a European as part of a “gentleman’s agreement” that a US citizen takes the helm at the World Bank.

Ahead of Georgieva’s selection in 2019, the fund officially adopted an “open, merit-based, and transparent process”. However, that was not tested as only one candidate was put forward. A selection for her replacement would have led to calls for a fully open process.

Paul Cadario, a fellow at the Munk School of Global Affairs and Public Policy at the University of Toronto who knew Georgieva when they were both at the World Bank, said that was the reason Georgieva’s ouster was never likely.

Her ejection would have required leaders in the United States, Europe and other advanced economies, which hold more than half the votes on the executive board, to sanction a new selection process. “There’s no bandwidth in Washington or in Europe,” he told GlobalMarkets.

The Biden administration is struggling to avert a default on US debt while also striving to push through two fiscal stimulus bills totalling $4.7tr, while Germany’s finance minister Olaf Scholz is working in putting together a coalition after his narrow election victory.

Civil society groups that have long campaigned for wholesale governance reform at both the Bank andFund will step up the pressure. Luiz Vieira, co-ordinator of the Bretton Woods Project network, said he wanted to see an end to the “gentleman’s agreement”. “One of the key things is to base the leadership selection on actual merit, rather than nationality,” he said.

Other reforms that BWP and partners are demanding are greater representation of borrowers on the executive boards of both the Fund and the Bank, and economic research hubs that are immune from geopolitical interference.

“The World Bank’s and IMF’s research and policy framework are not well insulated from geopolitical influences,” he told GlobalMarkets.

Sobel at Omfif said US and European leadership of the Bank and IMF had at times been “less than stellar”. “The US and Europe could commit to ending the duopoly at this year’s annual meetings, opening up these jobs to the world,” he said. “Imagine a future IMF run by the globally respected Singaporean senior minister Tharman Shanmugaratnam.”

While European powers and powerful emerging economies including China and Russia had backed Georgieva, the US has indicated it will continue to monitor ‘her performance’.

In a statement US Treasury Secretary Janet Yellen said she told Georgieva in a phone call that the report into the data-rigging allegations raised legitimate issues and concerns. “The US believes proactive steps must be taken to reinforce data integrity and credibility at the IMF,” Yellen said.

The executive board said it would support Georgieva in maintaining the “highest standards of governance and integrity” in the data, research and operations of the IMF. It now plans to meet to consider “possible additional steps” to ensure the strength of institutional safeguards in these areas.