Mon, May 30, 2011 - Page 9 News List

Who should be the next managing director of the IMF?

By Jeffrey Frankel

Every time the IMF awaits a new managing director, critics complain that it is past time for the appointee to come from an emerging-market country. But whining won’t change the unjust 60-year-old tradition by which a European heads the IMF and an American leads the World Bank. Only if emerging-market countries unite behind a single candidate will they have a shot at securing the post.

Unfortunately, that is unlikely this time around, too, so the job will probably go to a European yet again. After all, the oft-repeated principle that the IMF’s managing director should be chosen on the basis of merit rather than nationality need not mean a departure from past practice. French Finance Minister Christine Lagarde (Europe’s choice) is impressive and capable.

However, the proposition that the ongoing sovereign-debt crisis on Europe’s periphery is a reason to appoint a European is wrong. (Lagarde herself seems to acknowledge this.)

Europe has lost its implicit claim to be the best source of serious people with the experience needed to run the international monetary system. Once, there may have been a kernel of truth to this. In the 1980s, for example, the IMF was run by highly capable managing directors from France, during a period when huge budget deficits and even hyperinflation ran wild in the developing world. However, that time is past.

There are three respects in which Europe can no longer claim to be a special seat of wisdom and responsibility. First, many large emerging-market countries have done a better job than Europe at managing their economies over the last decade. These countries do not have the excessive budget deficits that many European countries ran up during the last expansion — and that are culminating in today’s mismanaged sovereign-debt crisis.

Second, the Europeans have now chosen three managing directors in a row who resigned before the end of their term. True, neither of Dominique Strauss-Kahn’s two predecessors left amid scandal as he did. Then again, both of those resignations suggested that the men in question had not taken the job seriously enough.

Finally, many of the best candidates this time around are from emerging economies. So the merit criterion happens to coincide well with the much-recognized, but never-honored need to give emerging-market countries more weight in the IMF’s governance, in line with their new weight in the global economy. Indeed, the number of excellent emerging-market candidates is remarkable.

Of course, not everyone being put forward by his or her government is a good candidate. When Turkey’s leaders say they have at least10 good candidates, they show that politicians often don’t know what the job requires. (No country has 10 good candidates.)

I count nine emerging-market candidates who are unusually well qualified to lead the IMF. Six seem to be live candidates, and they come from all parts of the world:

— Agustin Carstens, the governor of Mexico’s central bank, has been described as the leading prospect among the group. However, even Latin America is not unifying behind him (Brazil has not been supportive), let alone other developing countries.

— Arminio Fraga, the former governor of Brazil’s central bank, is another good candidate with extensive experience. However, it is not clear that Latin America’s other governments are prepared to unify behind someone from the region’s largest country. Indeed, it seems that any candidate linked to a large regional power is more likely to provoke jealousy than solidarity from others.

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