IHT: The IMF is not the property of the rich
Augusto Lopez-Claros
15th March, 2004

As Horst Köhler prepares to step down as managing director of the International Monetary Fund to take up his new office as president of Germany, one can imagine the fierce competition to succeed him. Which European Union country will get the prize this time? Will the next director be French, again? Or might Germany press to complete Köhler's term? Isn't it time Italy had a go? 

There's another alternative. Köhler's departure offers a golden opportunity to break with the convention adhered to ever since the IMF's creation that the managing director must be from the EU. (The president of the World Bank is traditionally an American.) 
The IMF is too important, and its mistakes too costly in human terms, for nationality to be the determining factor in choosing a managing director. The United States and the EU hold the notion that because they, as large shareholders, "contribute" more to the organization, they are entitled not only to have the largest vote on the IMF board, but also to oversee its day-to-day operations. The convention exemplifies that very inefficiency which IMF officials are quick to condemn in dealings with the Fund's member countries. 

The fact, however, is that the salaries of the Fund's entire staff - including the managing director - as well as other administrative expenditures are entirely financed from the interest paid by taxpayers in Brazil, Turkey, Russia and other users of Fund resources. Whereas IMF lending operations have no budgetary implications for the United States or the EU. Indeed, they do earn a return on their special-drawing-rights reserve assets. A country such as Russia, by contrast, has, since August 1998, paid close to $4 billion in interest charges on Fund loans. 

These practices have inevitably contributed to the tendency for the markets, borrowers and other economic agents to view the Fund as subservient to its main shareholders; as a proxy for the Group of Seven's foreign policy. 

Such a perception is deeply damaging to the IMF's ability to act effectively. It encourages countries to gauge their relationship with the IMF in terms of short-term political advantage rather than lasting economic gain. In Russia, for instance, the government concluded in the mid-1990s that IMF money was coming no matter what, and the will for policy reforms died. 

A similar calculation was in evidence in Argentina and Turkey in recent years, as the countries amassed a mountain of debt to the IMF, confounding all historical parameters linking the amount of external funding to the scale of the policy adjustment and destroying the long-respected Fund principle of equality of treatment across its member countries. 

The present organizational structure also has implications for the IMF staff, which, under the present regime, cannot be held accountable for policy miscalculations, inasmuch as the controlling influence rests with the large shareholders, who may be answerable to various "strategic" (read political) interests. The staff is deprived of freedom to make independent assessments and is constrained to act merely as executors. To the extent that IMF officials are viewed as mere functionaries, their ability to act as advocates for change is impaired. 

Since the 1944 Bretton Woods conference at which both the IMF and the World Bank were created, the world has changed beyond recognition, and, with the emergence of one global economy, the case for an institution identified with international cooperation and the promotion of economic policies that support improved efficiency and equity has only become stronger. 

An important step in furthering these goals would be to choose the new managing director from the entire membership. Such an act of statesmanship on the part of the EU would signal that the IMF belongs to all of us, and that the IMF managing director is chosen, first and foremost, to serve the interests of the entire international community, not only those of its largest shareholders. Let's find the world's best candidate for the job. 

Augusto Lopez-Claros is chief economist and director of the Global Competitiveness Program at the World Economic Forum. He was the resident representative of the IMF in Moscow from 1992 to 1995.