The International Monetary Fund’s Executive Directors from the BRICS economies have openly revolted against the prospect of the Fund’s Managing Director role reverting to a European, deepening the woes of an organisation that was recently rocked to its very core by the resignation of former Dominique Strauss-Kahn following sexual assault allegations.
In an unprecedentedly explicit articulation of long-standing resentment over the convention of selecting the MD, “in practice, on the basis of nationality,” IMF Directors from India, China, Russia, Brazil and South Africa said in a public statement that this “undermines the legitimacy of the Fund.”
The BRICS group, including India representative Arvind Virmani, called for the abandonment of the “obsolete unwritten convention,” that required the head of the IMF necessarily to be from Europe. There has been no reaction yet from any other quarter within the IMF.
While the Fund regularly recommends painful reforms packages to crisis-ridden developing nations, the BRICS Directors’ comments are a stinging critique of the IMF’s failure to speed up its own internal restructuring process. Europe’s grip over the MD’s seat dates as far back as 1946 yet it has come under fire especially since 2005 when the G20 group of major economies called for far-reaching reform to improve the Bretton Woods institution’s “governance, strategy and operations.”
Bringing a hard-to-repudiate argument to the fore the Directors said that their common understanding was that the recent financial crisis had actually erupted in developed countries and its provenance “underscored the urgency of reforming international financial institutions so as to reflect the growing role of developing countries in the world economy.”
Pressing their main point on the altered landscape of economic power today, the BRICS Directors noted, “We also believe that adequate representation of emerging market and developing members in the Fund's management is critical to its legitimacy and effectiveness.”
Referring to several international agreements that had already outlined the need for a “transparent, merit-based and competitive process” for choosing an MD, the BRICS Directors said that a more credible and legitimate route would be require the MD to be selected “after broad consultation with the membership.” As it stands, the IMF announced last week that the nomination period would commence on May 23 and will close on June 10.
In a prescient statement that came before Wednesday’s announcement of candidacy for the influential IMF job by French Finance Minister Christine Lagarde, the Directors said, "We are concerned with public statements made recently by high-level European officials to the effect that the position of MD should continue to be occupied by a European."
Hitting back at such statements, they argued that such remarks contradicted public announcements made in 2007, “when Mr. Jean-Claude Junker, president of the Euro group, declared that “the next MD will certainly not be a European” and that “in the Euro group and among EU finance ministers, everyone is aware that Strauss-Kahn will probably be the last European to become director of the IMF in the foreseeable future.””
On the other side of the Atlantic U.S. officials including Treasury Secretary Timothy Geithner have consistently called for an “open process that leads to a prompt succession for the Fund's new MD,” yet Nancy Birdsall, a former top official at the World Bank and the Inter-American Development Bank said that the question now is “whether and how this commitment [by the G-20, to a merit-based process] will be honoured.”
In a clear signal that the shift in the global locus of power would continue to be a point of contention the BRICS Directors cautioned that in addition to the Fund’s next MD having solid technical background and political acumen, they should be "a person that is committed to continuing the process of change and reform of the institution so as to adapt it to the new realities of the world economy."