The future of the International Monetary Fund (IMF) was thrown into confusion on Thursday after the shock resignation of its MD, Rodrigo de Rato, which could lead to a shake-up of the selection process for his successor.
De Rato’s decision to resign in October, midway through his term of office, reawakens the controversy over how the heads of the IMF and World Bank are appointed, and puts pressure on Europe’s governments to give up their power to place a European in the job.
In the past, European powers have chosen the IMF chief while the United States government has picked the president of the World Bank — a long-standing arrangement that was heavily criticised during the turmoil that led to the resignation of Paul Wolfowitz as head of the bank last month.
“The timing of this is good because it puts pressure on the Europeans to act in a way that’s consistent with what they have been saying in recent months,” said Colin Bradford, a senior fellow at the Brookings Institution, a think tank in Washington.
If Europe voluntarily gives up its prerogative, Bradford said, then it could force the US to follow suit the next time a new president for the World Bank is chosen.
Development agencies called for De Rato’s successor to be appointed through fair competition, and for the post to be opened to candidates from all nationalities.
“We hope that European governments will have the strength to finally end the backroom deal with the US that has perpetuated the outdated carve up of the leadership at the IMF and World Bank,” said Romilly Greenhill, of Action Aid.
“Rather than limiting the search to Europe, the governors of the IMF should open up the playing field and draw on the expertise of leaders in developing countries,” said Bernice Romero, of Oxfam International.
Leading candidates from developing countries would include the South African Finance Minister, Trevor Manuel, and the highly regarded Indian economist and former IMF staff member Montek Ahluwalia.
Last year, De Rato himself endorsed opening up the process, calling for a “transparent procedure for the selection of the managing director”.
Bradford said it is important for the IMF to have input from the likes of China, Brazil, India and the Muslim world, to give it credibility and support.
Bombshell
De Rato’s term was to run until 2009, but the former Spanish finance minister abruptly announced that he is to step down in October this year and return home. He will have been in the post for just three years.
The announcement took De Rato’s colleagues at the IMF unawares. “It’s a complete bombshell. No one had any idea this was coming,” an IMF staff member said.
According to his statement, De Rato is stepping down because “my family circumstances and responsibilities, particularly with regard to the education of my children, are the reason for relinquishing earlier than expected my responsibilities at the fund”.
De Rato is separated from his wife, and has three children who live in Madrid. The furore over Wolfowitz, who resigned after having given his girlfriend a substantial pay deal, has increased media scrutiny of senior staff at the two institutions.
Spanish media speculated that De Rato is returning to a senior role in the opposition Popular party, where he was passed over for the leadership of the party, following José Maria Aznar.
De Rato’s resignation comes at a critical time for the IMF, which has struggled to redefine itself in the changing international economy. Established as part of the Bretton Woods post-war infrastructure, in recent years the fund has found itself without a role in an era of floating exchange rates.
The IMF remains bruised by the spectacular failures of its policies in Argentina in 2001, although more recent policy interventions in Turkey and Brazil have been successful.
In an era of global growth, the IMF has had little call on its funds to support failing economies. De Rato was overseeing plans to give the fund a greater role in tackling global financial imbalances. But it remains a shadow of its former self in the 1970s and 1980s, when it was a vital part of the international economy. — Guardian Unlimited Â