Who Should Lead the IMF?

By Jeffrey Frankel

Every time the International Monetary Fund awaits a new managing director, critics complain that it is past time for the appointee to come from an emerging-market country. But whining won’t change the unjust 60-year-old tradition by which a European heads the IMF and an American leads the World Bank. Only if emerging-market countries unite behind a single candidate will they have a shot at securing the post.

Unfortunately, that is unlikely this time around, too, so the job will probably go to a European yet again. After all, the oft-repeated principle that the IMF’s managing director should be chosen on the basis of merit rather than nationality need not mean a departure from past practice. French Finance Minister Christine Lagarde (Europe’s choice) is impressive and capable.

But the proposition that the ongoing sovereign-debt crisis on Europe’s periphery is a reason to appoint a European is wrong. (Lagarde herself seems to acknowledge this.)

Europe has lost its implicit claim to be the best source of serious people with the experience needed to run the international monetary system. At one time, there may have been a kernel of truth to this. In the 1980’s, for example, the IMF was run by highly capable managing directors from France, during a period when huge budget deficits and even hyperinflation ran wild in the developing world. But that time is past.

There are three respects in which Europe can no longer claim to be a special seat of wisdom and responsibility. First, many large emerging-market countries have done a better job than Europe at managing their economies over the last decade. These countries do not have the excessive budget deficits that many European countries ran up during the last expansion – and that are culminating in today’s mismanaged sovereign-debt crisis.

Second, the Europeans have now chosen three managing directors in a row who resigned before the end of their term. True, neither of Dominique Strauss-Kahn’s two predecessors left amidst scandal as he did. Then again, both of those resignations suggested that the men in question had not taken the job seriously enough.

Finally, many of the best candidates this time around are from emerging economies. So the merit criterion happens to coincide well with the much-recognized but never-honored need to give emerging-market countries more weight in the IMF’s governance, in line with their new weight in the global economy.

Indeed, the number of excellent emerging-market candidates is remarkable. Of course, not everyone being put forward by his or her government is a good candidate. When Turkey’s leaders say they have at least ten good candidates, they show that politicians often don’t know what the job requires. (No country has ten good candidates.)

I count nine emerging-market candidates who are unusually well qualified to lead the IMF. Six seem to be live candidates, and they come from all parts of the world:

Agustín Carstens, the governor of Mexico’s central bank, has been described as the leading prospect among the group. But even Latin America is not unifying behind him (Brazil has not been supportive), let alone other developing countries;

Arminio Fraga, the former governor of Brazil’s central bank, is another good candidate with extensive experience. But it is not clear that Latin America’s other governments are prepared to unify behind someone from the region’s largest country. Indeed, it seems that any candidate linked to a large regional power is more likely to provoke jealousy than solidarity from others;

Tharman Shanmugaratnam, who has excelled as Singapore’s finance minister and was just promoted to Deputy Prime Minister, is my favorite. (Full disclosure: he was my student at Harvard in 1988-1989.) In March, he was chosen to head the International Monetary and Financial Committee, the panel of ministers that advises the IMF on strategy twice a year. He has strong political skills, and, coming from a non-threatening country, might be the sort of candidate behind whom emerging markets could unite;

Sri Mulyani Indrawati is another highly qualified candidate from Southeast Asia. She became one of the World Bank’s three managing directors last year, after apparently being forced out as Indonesia’s finance minister for doing too good a job. Incidentally, she is young and could be an excellent candidate next time around too (as could the first three);

Leszek Balcerowicz, Poland’s former finance minister and central bank governor, is also a credible candidate. Poland would be a compromise with respect to nationality, because it is both a European Union member and an emerging-market country;

Trevor Manuel was a great success as South Africa’s finance minister. It would be good to make better use of him than the current government is doing.

I can think of at least three other candidates who would perform well, but are apparently not actively in contention:

Kemal Dervis, Turkey’s former minister of economic affairs, would have been excellent, but he took himself out of the running early.

Stanley Fischer, whom I thought should have been picked in 2000 (he was Deputy Managing Director at the time). Doing so would have been a first step toward accommodating developing countries’ legitimate desire to break the monopoly of European and US officials on the top jobs in the IMF and World Bank (Fischer was born in Zambia).

Montek Ahluwalia is Deputy Chairman of India’s Planning Commission, a position far more important than it sounds. But there is a presumption that the candidate cannot be over 65, which would exclude him (and Fischer).

June 10 is the deadline for nominations. Any of the nine would do a good job.  Personally, I would urge emerging-market countries to support Shanmugaratnam. But it is far more likely that they will remain divided. In that case, it will go to Lagarde.

Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University’s Kennedy School of Government.
Project Syndicate