Global Trends by Martin Khor

Monday 16 July 2007

Undemocratic selecting of world’s top jobs

Democracy is the watch-word of today but not it seems in selecting the top jobs of the World Bank and the International Monetary Fund.  They always go to Americans and Europeans.


In recent weeks, we have been witnessing the change-over process in leadership of two of the world’s most powerful institutions – the World Bank and the International Monetary Fund.

It’s not a nice show.  It confirms that the major powers – the United States and Europe – are determined to keep the top posts to in their regions, not on the basis of merit, but of citizenship.

So much for “democracy.”  The Western powers insist that governments and institutions are not democratic or legitimate unless there are democratic processes, including elections, and especially when there is a change-over from one President or government to the next.

But it seems democracy stops when it comes to international economic institutions and relations.  These controlled by the big Western powers, and they want to perpetuate their monopoly.

The US and European countries between themselves control 53% of the votes on the Board of the IMF, and also a majority share in the World Bank’s board.  So they can collude and carry any policy they choose to.

Decades ago, they agreed between themselves that the President of the Bank will be an American, and the Managing Director of the IMF will be a European.  And it’s been that way ever since.

There have been rumblings about this anti-competitive practice from developing countries, and even a few developed countries.  They have argued that these top jobs should be open to citizens from any member countries, and the most capable should be appointed on merit.

But the US-Europe monopoly has continued, and is continuing as the latest events show.

The saga of Paul Wolfowitz’s appointment to World Bank President and even more his leaving seriously damaged the Bank.

It showed how the US President can appoint a personal crony who has no experience of managing a bank nor of the development process.  Big mistakes can be made when appointments are made not on the basis of merit but on how to reward a friend by transferring him away from another big job (the war on Iraq) which he botched up.

After Wolfowitz left in disgrace, there was talk that now is the time when the candidacy for the new Bank President should be thrown open to citizens of the whole world. 

But Bush insisted on the old club rule that another American be appointed, proposed Robert Zoellick, the Europeans agreed, and we now have him as the Bank chief.

Then two weeks ago, the IMF’s managing director Rodrigo de Rato, a Spanish, surprised everyone by announcing he was resigning. 

The question arose again, whether his successor would be selected on merit from candidates from around the world.

But a few days ago the European countries have proposed a single candidate, Dominique Strauss-Kahn, a former French Finance Minister. The United States announced its support.  So it is a foregone conclusion that he will get the job.

“It is the second lost opportunity in as many months for reform of the anachronistic governance of the international financial institutions,” said Peter Chowla of the Bretton Woods Project based in London.

But senior officials from some developing countries (and at least one developed country) have voiced dissatisfaction with this undemocratic process, so there might still be a bumpy road to Strauss-Kahn's formal appointment.

The old-boys’ club process was used in getting European unity around Strauss-Kahn.  He was selected at a breakfast meeting of European finance ministers on 10 July. US Treasury Secretary Hank Paulson confirmed that the appointment was a European prerogative and that the US would support any European candidate of "real stature".

The day before the European finance ministers met, the UK's new chancellor Alistair Darling publicly declared: "The Managing Director job needs to be filled following an open process. I don't think Europe can simply say, That position is ours and we are not prepared to discuss it with anyone else'".  After the meeting, the UK Treasury said that "we don't feel bound by that discussion".

A few developing countries and some NGOs demanded that the selection process be opened. The spokesperson for South Africa's Finance Minister Trevor Manuel commented: "We believe that the process must be open and transparent and that the selection of the candidate to replace Mr De Rato must be based on merit and not the continent the person comes from, or the country."

According to Chowla, the IMF Board had previously broadly endorsed guidelines set down in a 2001 report by a joint Bank-Fund committee looking into the selection processes. It called for an open, merit-based process driven not by national nomination but by an external advisory group of eminent persons.

The IMF's Medium-Term Strategy has also called for more transparency in the selection process. The board issued a statement on 9 July confirming that the board plans to make a decision in "an open and transparent manner" and agreeing that "any executive director may submit a nomination, regardless of nationality, for the position".

Developing country officials inside the IMF have indicated that they are again interested in putting forward a candidate, but no names have been announced.

But since the Europeans and US have a 53% share of votes on the IMF Board, it is a foregone conclusion that the European candidate will win.

This shows how important it is to change the governance system of the IMF and the Bank. Counties are given “quotas” of equity shares in these institutions, and votes are weighted according to the quotas.

There is a reform process going on, to give developing countries more voice and participation in the IMF.  But it is slow and inadequate.  Not fast enough to prevent the monopoly continuing in this latest change-over of top jobs in the two institutions.