August 23 - Issue 25 - Second Candidate Nominated for IMF Managing Director

New York, August 23, 2007 – A second candidate for Managing Director of the International Monetary Fund emerged yesterday (Wednesday, August 22). Russia’s representative on the IMF Board of Governors made the nomination upon the consent of the candidate, Josef Tošovský of the Czech Republic.

 

According to media reports, sources on the IMF Board have indicated that Latin American countries may also nominate a candidate before the August 31 deadline. Iran also has indicated that it may submit a nomination.

 

In general, non-European candidates reportedly have been reluctant to be considered, believing their loss is assured with the EU’s traditional monopoly on the position.

 

Reaction from Czech Republic

 

The Czech government did not endorse the nomination. Despite the fact that the official nomination period for the next Managing Director is August 31, the Czech government’s reaction to the new nomination focused on its prior commitment to the European Union candidate, Dominique Strauss-Kahn of France. The Czech Republic is a member of the European Union, whose council of economic and finance ministers (ECOFIN) informally agreed to support Strauss-Kahn on July 10.

 

The Prime Minister of the Czech Republic said: “Mr. Tošovský was not and is not the Czech Republic’s candidate.” He said that as his government had already endorsed Strauss-Kahn, it would not be “trustworthy” to support a different nominee. Czech’s Finance Minister said that his government would “respect the conclusions of the council of economic and finance ministers of the EU.” The Deputy Prime Minister reiterated the above: “Mr. Tošovský is not the Czech Republic’s candidate.” Due to its prior support for the EU’s candidate, it would be “proper to change that position.”

Tošovský’s agreement to be nominated also received criticism. A former Czech finance minister said, “It is a very non-standard move for Tošovský, who is a citizen of an EU member country, to run against the county’s official candidate for the post.” Tošovský has consented to be nominated. In accordance with the IMF procedure, this consent is needed in order to publicize information in the nomination of the candidature. Another former finance minister, who served in the Cabinet when Tošovský was Prime Minister, said it was “strange” for him to consent, as it made him a “figure in ... a game,” and called his involvement “awkward.”

Tosovsky’s Background

Josef Tošovský worked for the Czechoslovakia National Bank, and when the country split in 1993, he served as head of the Czech National Bank (CNB). He then served as “caretaker” Prime Minister of the Czech Republic, from 1997 to 1998. After his prime minister tenure he resumed leadership of the Central Bank, and served in this post until 2000.

Tošovský now chairs the Financial Stability Institute, which is part of the Bank of International Settlements and based in Switzerland. His reputed specialties are macroeconomic management and financial policy.

Tošovský as been the subject of controversy over alleged collaboration with the Communist police while working at the Central Bank, which he has denied.

Possible Factors in Russia’s Nomination

Observers and IMF insiders have suggested several reasons for Russia’s decision to nominate Tošovský. They are: a desire for an open, competitive selection process for IMF head, a desire for a non-European IMF head, a result of tensions with the Czech Republic, a result of tensions with the European Union, and an effort to challenge overall political dominance of the U.S. and E.U.

1. IMF Governance Reform – Competitive Selection Process Russia is one of several large, emerging-market countries with an interest in ending the tradition for selection of the IMF and World Bank heads. According to this tradition, the EU and US respectively select the leaders of the two institutions, and the Boards support their choices.

 

The Russian Finance Ministry made statements of disapproval after the EU agreed on a candidate at the July 10 ECOFIN meeting (see previous Monitor). Mr. Kudrin met with Strauss-Kahn on on August 9 and then said that the selection process did not appear “open to free competition,” since EU ministers made a decision before waiting for additional candidates to emerge. “We don't know all the nominees yet and are studying other possibilities.” Russia will base its decision on the candidates’ “economic program and professionalism,” he said.

The Ministry argued that the selection tradition prevented the IMF from improving its legitimacy and prestige. It said in a statement that Russia had “conducted wide consultations with colleagues from other countries and became convinced that the majority of them stand for choosing the managing director competitively on the basis of professional quality.”

Thus the nomination could be seen an effort to create a competitive process. Russia’s nomination of Tošovský amounts to “real elections,” said Kudrin.

Nomination of a national of an EU country, specifically, could be an effort to garner support from EU ministers not committed to DSK. (The nomination of a national of another country is allowed under the rules recently articulated in a statement of the IMF Board (July 12).

2. IMF Governance Reform – Non-European Managing Director

A slight variation on the above analysis is that by nominating a second European candidate, Russia could split the European votes and create space for a candidate for a developing country to be appointed.

Nominating two EU nationals was a strategy suggested by observers last month to set the precedent of a non-European Managing Director.

As the deadline is August 31, a third, non-European candidate would need to come forward within the next several days in order to be considered by the IMF Board.

3. Relations with Czech Republic Russian-Czech relations have been tense recently, according to Moscow-based analysts. The United States has asked the Czech government to allow it (along with Poland) to locate a radar station for a U.S. missile-defense system within its territory. Russia reportedly is concerned that the station is a security threat. They said agreement would be “a big mistake” and asked Czech to withhold a decision. The nomination could be an effort to influence its decision.

 

4. Relations with European Union

As for the nomination’s broader impact in the EU, the prospect of splitting EU states over support for Tošovský or Strauss-Kahn could be another goal of Russia’s nomination. Russia reportedly is dissatisfied with the EU’s growth to include former Soviet Republics.

5. General Challenge to U.S./E.U. Power A fourth explanation for Russia’s nomination of a second candidate is that it wishes to resist US-EU dominance in global relations generally, and to assert itself and its right to participate in international decision-making.

Support for Tošovský and Selection Reform

When Tošovský accepted the nomination he reportedly said, “I am pleased that my proposed nomination received a positive reaction from finance ministers and governors of several countries from all regions.” According to the Russian Finance Minister, Brazil, China, and India fully support Russia’s nomination. These three countries previously argued for a competitive and open selection process.

Other countries have indicated they would wait until the August 31 deadline had passed to support any nominee. Japan, for example, said in late July that it had not decided whom to support.

South Africa's Finance Minister said he supports appointing the head of the IMF and other international financial institutions based on an open and transparent selection process that doesn't restrict candidates based on nationality. In July South African President Thabo Mbeki called Strauss-Kahn a "good candidate" and "a very competent person" but said he wanted all countries' input to be considered.

The United Kingdom, Netherlands, and Norway were pushing for the new, more merit-based guidelines in the IMF Board in July.

On July 19 the U.K.’s finance minister wrote to the Bretton Woods Project, an NGO that had sent a letter regarding the need to reform the selection process. Minister Darling responded with the following commitments: “the UK supports an open, transparent, and meritocratic process for selecting the next Managing Director.... The UK will support whoever we believe is the best candidate for the job, regardless of nationality.” Further, “the UK’s Executive Director at the IMF will be working with is colleagues to deliver such a process.”

He added that “whoever is appointed ... will be strengthened by going through a rigorous process that is widely perceived as open and transparent.”

Others who announced their desire for a reformed process that was based on qualifications and/or included more developing country input were: Australia, United Kingdom, Italy, Canada, Colombia, Argentina, and Nordic and Baltic states.

Even Strauss-Kahn said in July, “I share the opinion of those who have said that the next head of the IMF should be chosen on the basis of his proper merits and not only on the basis of his nationality.”

Support for Strauss-Kahn

While Russia indicated that China supported Tošovský’s candidature, Strauss-Kahn said from Beijing on August 22 that China had decided to give “vigorous support” to his own candidacy.

Senegal and Benin have announced support for Strauss-Kahn.

Strauss-Kahn has said that he also has the support of Saudi Arabia and Brazil, but there are mixed reports about Brazil’s true position. According to French President Nicolas Sarkozy, Egypt also backs Strauss-Kahn.

Voting Structure Debate and U.S. Position on Candidates

Currently, the IMF is struggling to reach agreement on reforms to the voting structure of the Fund. The proposed reforms would give greater weight to developing countries, somewhat reducing the influence of the European Union members and the United States. It is uncertain whether the debate will be resolved before the October annual meeting of the World Bank and IMF, because approval would require an 85% majority. Even if agreement is reached, it is “highly unlikely” that the outcome will affect the selection process for the next Managing Director of the IMF, according to analysts based in Washington, DC. The power that the U.S. and E.U. have over MD selection is largely political, according to Washington, DC-based analysts, and this overshadows the weights assigned to their votes. If they agree on a candidate, they likely ensure his or her selection, because few other countries would be willing to risk upsetting relations with the U.S. and E.U.

In this context, it has been significant whether the United States supports the candidatures of either Dominique Strauss-Kahn or Josef Tošovský, and so far it has avoided doing so.

In July U.S. Treasurer Paulson commented that Strauss-Kahn was a “strong candidate” but did not formally endorse him. Upon Tošovský’s nomination the U.S. Treasury said, “We look forward to working with our colleagues at the Fund to select a new managing director who will continue the reform efforts at the IMF and provide leadership to this vital institution,” and that Treasury Secretary Henry Paulson “looks forward to speaking with any candidate.”

Next Steps

 

After August 31, the IMF Board’s deadline for nominations, the Board of Governors will begin consideration of all candidates based on criteria specified in July statement.

Relevant Documents

South Centre - Statement on Selecting IMF's Managing Director - August 6, 2007

UK Finance Minister - Letter of Response to Bretton Woods Project on IMF Leadership - July 19, 2007

Press Release: IMF Executive Board Moves Ahead With Process of Selecting the Fund's Next Managing Director - July 12

Bretton Woods Project - UK government urged to open IMF selection process after Rato – June 28, 2007

In the News

US Mum After Russia Names Candidate in IMF Race – Channel News Asia, August 23

Josef Tosovsky: Caught Up In Controversy – Forbes, August 22

Russia Challenges Europe on IMF – New York Times, August 22

Russia Backs Czech to Head IMF, But Czechs Don't – CNBC, August 22

Czech Vice PM Says Government Supports Strauss-Kahn IMF Bid – Dow Jones, August 22

Russia Counters EU's IMF Bid With Czech Ex-Premier – Bloomberg, August 22

Russia Proposes Czech Ex Cen-Banker for IMF Job – Reuters, August 21

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