(Cross-posted from the Citizens for Global Solutions blog here.)
Since last year, international observers have anticipated Dominique Strauss-Kahn’s resignation as IMF chief this summer. Polls in his native France showed him easily defeating Nicolas Sarkozy in the 2012 French presidential contest and DSK (as he was fondly called) was expected to throw his hat in the ring this July. His resignation this week however came for an entirely different reason, one that has effectively ended his political career. 
Regardless of the reason, proponents of IMF reform have been preparing for this summer’s anticipated vacancy. Since the Fund’s creation in 1945, the post has been held by a European per a “gentlemen’s agreement” that likewise gave leadership of the World Bank to an American in perpetuity. With the shift in the global financial order and growing influence of new economic powers (the BRICS group, for example), demand that all nationalities have a shot at the post is growing.
Today Citizens for Global Solutions joined over one hundred leading human rights, development and pro-democracy organizations in an open letter to the IMF Board of Governors urging them to push for an open selection process by the Fund’s Executive Board. The letter calls for implementation of the more “open, merit-based, transparent process” recommended by an internal IMF experts committee in 2009 and recommends selection through a double majority of individual member states and of weighted voting shares held by those members. CGS and its international partner the World Federalist Movement joined One World Trust, the Bretton Woods Project, New Rules for Global Finance, Americans for Information Democracy, CIVICUS and Oxfam among others in issuing the call for reform. (A full list of signatories can be found here.)
CGS Board Chair James Riker recalled that there have been prior instances where the Board of the IMF recognized the need to open up the selection process, only to capitulate to extenuating circumstances. “Each time, European officials promise that the next time an opening arises a fully fair and democratic process will occur,” he noted. “The need for democratically accountable global governance institutions is a clear cut issue, and this constitutes another moment to reaffirm our commitment to that principle.”
This year’s selection process, adopted by the Executive Board less than a week following DSK’s arrest, provides for a speedy three-week nomination period and a final decision by the end of June. Once nominations close on June 10, Board members will indicate their preferences for up to three nominees, taking into account the weighted vote held by each Director. The short list of candidates will be made public and the Board will carry out interviews with each candidate in the subsequent weeks. The Board will attempt to reach consensus on the new Managing Director by the end of June, resorting to voting by shares only if necessary.
Nominations are open to nationals of any Fund’s member states, but only European governments have so far shown a willingness to unite behind a single candidate. French Foreign Minister Christine Lagarde has already secured the endorsements of Germany, Austria, France, the United Kingdom and Italy, with the remaining European states expected to announce their support prior to the G8 Summit on May 26. In contrast, emerging economic powers such as China, Brazil, India and South Africa have loudly called for a transparent and merit-based process but have so far failed to agree on a common nominee to challenge Ms. Lagarde.
A number of issues with the announced selection process concern CGS and the letter’s other signatories. These include the limited voting by shares only, European leaders pressure on each other to support a common European candidate, and pre-emptive endorsements of Ms. Lagarde by a number of European leaders. The letter urges remaining European governments to withhold endorsements until the nominations process is closed and to act freely in supporting the candidate of their choice. Oxfam spokesperson Elizabeth Stuart said, “The only way to give the new IMF head legitimacy and authority is through open voting, with the winner backed by a majority of countries, not just a majority of shares.”
The United States has refused to commit to a European candidate before nominations become official, but that may not last long. Despite its arm-twisting earlier this year to provide emerging economies more weight in IMF decision-making at the expense of European members, the U.S. will almost certainly back Europe’s choice for Managing Director in exchange for support during the 2012 election for World Bank President. Given the domestic ramifications should the U.S. face losing its hold on the Bank’s top post during President Obama’s re-election campaign make any other scenario extremely unlikely.
In terms of transparency and accountability, open voting for candidates would be preferable to, if messier than consensus building. Yet, if Europe unites behind Ms. Lagarde, the remaining short list candidates will represent the top two preferred candidates for emerging economies and the rest of the world. Any potential rival to the European candidate will need to emerge with a strong backing from multiple governments very early in the short listing process. Any obstinacy among non-European governments will push fence-sitters into Ms. Lagarde’s camp as concerns over the global financial crisis (including Europe’s sovereign debt crisis) takes precedence over regional squabbles.
A former U.S. official, speaking with the Wall Street Journal, suggested that “the only way to block the France’s Ms. Lagarde would be for the so-called BRICS developing nations-Brazil, Russia, India, China and South Africa-to quickly agree on a candidate and force the U.S. and EU to respond.” As of today, no such singularly impressive non-European candidate has been unanimously endorsed.
The choice made this year however does not need to be only either continued European dominance or a shift to leadership from an emerging power. David Bosco, author of the Multilateralist blog, tweeted last week that “One possibility for IMF compromise would be taking the principal deputy MD slot away from the Americans and opening it to the world.” This approach however would risk almost guaranteed support from the U.S. for the European candidate in exchange for a short-lived acquiescence from other governments.
The more practical avenue forward would be a compromise brokered, not by the U.S. or Europe, but by China, India, Brazil and other leading powers among the emerging economies. Those governments could secure the necessary majority support, if not consensus, for the election of another European to the post with the limitation that he or she only serve through the end of Dominique Strauss-Kahn’s original term next year.
This would put emerging economies on notice to identify potential nominees around whom majority support could be secured over the course of the next twelve months. While it could not (and should not) guarantee election of a non-European Managing Director in 2012, such a compromise could force open next year’s process to a much greater degree by encouraging early and intense campaigning among potential candidates and a much higher likelihood of a merit-based, open process so desired by CGS and other reform proponents.
