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Choosing the Heads of the IMF and World Bank

Dec 18th, 2015 | By | Category: Features, Front Page

Dec 18, 2015

The International Monetary Fund (IMF) and the World Bank (WB) are two major components of the international financial system. They were established at the end of World War II, with differing objectives. The IMF was meant to provide short-term loans to member countries that found themselves in balance-of-payments crises—typically situations where countries were running short of foreign-exchange reserves to finance imports of necessary goods.

The WB’s original mission was to provide financing for the reconstruction of Western Europe; but this goal being quickly met, the attention of the WB turned to issues of the developing world, viz. poverty, education, health and the like.

Both these institutions have come in for variegated criticism over the decades. Here, I look at one particular strand of discontent: the manner in which the leaders of the organizations are chosen. The head of the IMF is appointed by Europe, that of the World Bank by the United States. This arrangement is not the result of some constitutional requirement; it just happens to be tacitly followed each time a vacancy arises at the top. There are no selection committees, no search for the most qualified person, no process whereby merit is determined and rewarded; instead, the candidates for the top position are nominated by the heads of governments in the US and Europe.

The fact that the richest and most influential member countries appoint the leaders of the organizations that are largely meant to serve the developing world has become increasingly problematic, but neither the US nor Europe is in a hurry to give up this particular privilege. After all, having their own people as the heads of these entities affords the developed countries considerable latitude in influencing their policies and direction.

The criticism has mounted in recent years as some of the appointments have turned out to be controversial. In 2005, the Bush administration appointed as the WB president Paul Wolfowitz, a gent with scant background in development issues but who, as a neocon in the Bush government, was closely involved with the war in Iraq. Mr Wolfowitz did not last long, but in his two years at the helm, he did manage to embroil himself in a scandal involving the provision of a high-paying job at the WB to a female companion.

On the IMF side, too, there have been some notable embarrassments. Dominique Strauss-Kahn assumed office as managing director in 2007, but a large man with large appetites, Mr Strauss-Kahn was forced to step down after he was accused a raping a hotel employee in New York. That allegation was never proved in court, although a civil suit was settled for an unknown amount.

After the excesses of DSK (as he was known), Cristine Lagarde’s appointment in 2011 as his successor to lead the IMF was regarded as a breath of fresh air. A lawyer by training, Ms Lagarde proved to be a competent and effective leader. She faced some difficult challenges, notably the loans made to crisis-wracked Ireland and Greece, but she seemed to have managed them adroitly.

But now comes news that Ms Lagarde has a distraction to deal with. She has to defend herself in a French court in a case involving a decision she made in 2008 as France’s finance minister. Turns out she awarded $440 million to an investor as compensation for a loss incurred in a business dealing; investigators argue that the funds were paid to secure his political support for her party.

Ms Lagarde’s term expires in July. Will she will be re-appointed? Or will Europe choose someone else to replace her?

There is another possibility. It’s a remote one. And that would be to select the next head of the IMF in a fair and transparent process that yields the best candidate for the job.

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