Issue 29 - September 21 - IMF Board Interviews Candidates, Will Select Next MD by September 28

New York, September 21, 2007 - The Executive Board of the International Monetary Fund has completed interviews of the two candidates for the next Managing Director (MD) of the Fund: Josef Tošovský and Dominique Strauss-Kahn. The Board expects to select a successor to current MD, Rodrigo de Rato by Friday, September 28 (see press briefing with IMF spokesperson, September 20).

Josef Tošovský, a Czech national nominated by Russia, had a series of bilateral meetings with IMF directors in Washington, DC on Monday, September 17 and was formally interviewed on Tuesday, September 18. Tošovský then released a statement to the Executive Board detailing his view of the Fund and the major issues confronting it in the future. On reform of the Fund, he said that it "needs to find a formula that is better representative of the facts on the ground and that, at the same time, reassures all countries that their voice will be heard." He is said to have a neo-liberal approach to financial matters, in keeping with conventional IMF views. For more information on his views, please see the chart below or click here.

Dominique Strauss-Kahn reportedly completed the same process in Washington with bilateral meetings on Wednesday and a formal interview yesterday, September 20. His statement to the Executive Board explained his vision for reform of the Fund. He said that he has realized "the extent to which the institution is at a crossroads." His statement appealed directly to the developing country membership, whom he says "does not feel sufficient ownership in the Fund [and] must be granted a greater voice and more effective representation." He qualified this, however, by saying that redressing staff under-representation of certain regions "of course cannot be done at the expense of the quality of staff."

He further stated, "Most emerging, developing and less developed countries do question the legitimacy of the Fund.... [R]eform cannot stop with a change in quotas." He advocated for the relatively radical double-majority system for voting on Fund decisions to "better ensure that key decisions command the appropriate level of consensus." (The double majority system requires two separate majorities, one based on "one-country, one-vote" and the second on economically weighted quotas. This model has been advocated by IMF reform groups from civil society.) Acknowledging that the Managing Director cannot make such policy changes unilaterally, he said that he would "nevertheless make a commitment to consider that any decision not likely to obtain the support of a qualified majority of chairs should be delayed by the MD."

Strauss-Kahn specifically addressed the selection process for the Managing Director. "The so-called agreement between the US and Europe ... is probably less and less defensible and the MD has to be chosen on merits without any reference to his or her nationality."

The Board has stated that the decision of the new Managing Director will be based on the candidates' "professional record and qualifications." (See statement of August 31.)

Despite these assurances, many observers consider the selection of Strauss-Kahn to be a foregone conclusion because he has the backing of the European Union and the United States. EU support for Strauss-Kahn was strengthened by the September 4 statement by the United Kingdom that they would join in backing his candidature. The UK reportedly had been reluctant to support him because it disagreed with the tradition of automatically appointing a European candidate to the post, especially before additional candidates had an opportunity to emerge.

It is unclear whether any concessions were offered in exchange for the UK's endorsement.

The US made its endorsement official on Wednesday, September 19 - presumably after Strauss-Kahn's bilateral meetings, but before his Thursday interview with the Executive Board. In a statement, Treasury Secretary Henry Paulson urged other members to support the candidature as well. The U.S. offered its support, he said, because Strauss-Kahn "will work to make the bold reforms necessary to lead a strong and relevant Fund into the future." He is prepared "to vigorously pursue reform of the IMF, including ... giving a greater voice to emerging market countries."

As for Tošovský (according to Russia's representative to the IMF), he has the "broad support" of many unspecified developing countries. Russia said it was depending on those countries' backing in the final decision-making process.

Under a long-standing agreement the EU chooses the Managing Director of the IMF and the United States chooses the President of the World Bank. Portuguese Finance Minister Fernando Teixeira dos Santos announced on September 15 after a two-day meeting with EU finance ministers that they would be willing to open the process after the selection of the next candidate. "We are willing to discuss, after the mandate of the next managing director, who we expect to be a European, a different procedure that could deliver a different outcome."

The EU is likely to insist that any reform in the selection of the MD of the IMF be matched with similar efforts in the selection of President of the World Bank.

The current salary of the Fund's Managing Director reportedly is $461,510 (USD), tax-free.

Next Steps

  • Election of next Managing Director by IMF Board of Directors: September 28
  • Current Managing Director Rodrigo De Rato's final day: October 31
  • New Managing Director begins work at the Fund: November 1

Prospects for Reform

Russia's nomination of Tošovský is "the most public challenge to the absurd IMF nomination process yet," according to one analyst (see imfleadership.org). It provides a precedent for a Board member to put forward a candidate from another country. Also, Tošovský is Eastern European, which according to this analyst could open the door to future nominees from developing countries.

Although multiple candidates have been considered in past MD selection processes, those contests were "insider affairs, little reported on in the press." And unlike the recent process to select a new head of the World Bank, this situation presents the IMF board with a choice. While this is an important challenge to the EU's control of the selection process, Russia's nomination of an alternative candidate is only a first step toward a process that could yield candidates from developing countries.

A key civil society analyst noted yesterday, "Despite fiery rhetoric on the need to change the Fund, not a single developing country stepped forward to nominate a candidate for MD that would do just that - spitfire leaders in Ecuador and Venezuela included. If, as Russia repeatedly claims, Tošovský has support from a wide range of developing countries, this is a sad indication of how demoralized developing countries have become in pressing demands for change at the [international financial institutions]."

Statements by developing country groupings have said that they would need clear assurances from the U.S. and EU that their candidates would be given fair consideration before the Board.

If Strauss-Kahn is selected, it will be on a platform that emphasizes the need for far-reaching reform, including increased decision-making power for developing country members and transparency and fairness in choosing the Managing Director. (See excerpts of his statement above.)

Countries' endorsements of Strauss-Kahn's candidature have also come with encouragement to realize these commitments:

  • UK's endorsement cited his commitment to "confront the reform challenges."
  • US also endorsed him on a reform platform (see above).
  • Argentina set a condition for supporting his candidature that he establish a double-majority voting system for IMF decisions and conduct periodic updates of the quota and voting power of the members, to better reflect the growing economic power of developing countries.

If he is elected, these calls for and commitments to reform could set a promising tone for reform during his tenure.

Further, according to the Financial Times, there is a private understanding between France and Britain that they will unite in advocating for a more transparent process to fill the next vacancy.

Comparison of Statements by Candidates for IMF Managing Director

 

Issue Discussed in Interviews

Josef Tošovský

Dominique Strauss-Kahn

IMF Budget

 

Both argue for the need for a new income model (how the IMF is funded and how it generates income). They both agree that the Crockett Report (a study on sustainable long-term financing of the IMF) is a useful possible alternative.

 

Both expressed commitment to making changes to the income model through consensus.

IMF Relationship with Developing Countries

Decision-making must be inclusive and a new formula is needed that represents facts on the ground and gives each country a voice

Most developing countries question the legitimacy of the fund.  It is one of the main issues the Fund faces.

Relations between IMF and World Bank

 

Work of the Fund and the Bank must be complementary, as the Fund is focused on the short and medium term, and the Bank is focused on the long term.

Fund should work closely with other partners, especially the World Bank.

Quota Reform

 

The resolution passed on quota reform in Singapore in 2006 was just one part of a larger process that must now be completed.  It only initiated the reform plan.

Advocates a double majority system - which requires two separate majorities, one based on one-country one-vote and the second on economically weighted quotas.

Both believe that quota reform should be just a small part of a bigger process to ensure legitimacy.

Spillovers (spread of economic policies between countries)

The IMF is well positioned to play a role in dealing with negative spillovers of national policies.

The IMF can provide independent analysis of spillovers, and when countries are reluctant to cede control of economic policies, the IMF may be able to use analysis and persuasion to convince them.

Surveillance (oversight and monitoring of economic and financial policies, attempts to identify weaknesses before they affect systems)

 

Surveillance takes place on two levels, national and international/multilateral.

 

The foundation of the IMF's surveillance system is a 1977 agreement on the scope of surveillance regarding exchange rates. It stipulates that states will not manipulate their exchange rates for gain or to avoid payments. This agreement has not been updated in keeping with the financial changes of the past 30 years, such as those relating to private capital and foreign direct investment.

 

This year the Fund revised the 1977 agreement to say that countries cannot manipulate their exchange rates to cause external instability, regardless of the purpose.

 

China views this as an extension of U.S. power for renminbi revaluation. Other developing countries are concerned about the expansion of the scope of the Fund's surveillance.

Cautions against making "robust" decisions; there is a need for multilateral surveillance

Need to put more emphasis on multilateral surveillance

Both agree with this year's revision of the 1977 agreement.