When it was known that Dominique Strauss-Kahn (DSK) had Presidential ambitions and he was going to demit his office before the due date, a debate began as to what the proper form of governance was for the Bretton Woods institutions. It was obvious that the old rules of sharing the headships of the World Bank and IMF were outdated (as so much is about the global institutions set up after 1945). There should be transparency and open competition in appointments and not Buggins? turn.
The sudden resignation of DSK has frustrated these plans. Of course, the IMF Board had never discussed this matter and there was only a slim chance that change would be possible. Yet, we had precedent?the headship of UNDP had been advertised the last time around and a candidate had been appointed after a publicly advertised shortlist. Kemal Dervis, the former finance minister of Turkey, got the job in an open competition.
IMF could have opened out its appointment to such a public process. It would be much more in line with what we now know to be good practice. There are also other reasons for relaxing the stranglehold of G7 countries on the appointments. First, the economic centre of gravity has moved away from the West and North. The developed countries have made a mess of their financial systems. After all, the crisis following the Lehman Brothers was entirely confined to the western financial markets. The Asian financial markets managed without a crisis. Lastly, the developed countries with a few exceptions?Canada and Australia?are hopelessly in debt to their domestic and foreign creditors.
The best illustration of the mismanagement of western financial systems is in the Eurozone. To set up a single currency union without a fiscal union was forecast to be a disaster. But political considerations drove the agenda. Countries that should have been put to a severe financial entry test were allowed to enter with a wink and a nod. Today, we are paying the price for this nonsense. Indeed, I would add that if IMF has been indulgent to the Eurozone debtors, which it never was to the Asian economies in the 1997 crisis, it was entirely due to the Presidential ambitions of DSK.
Ideally, the Eurozone problem can only be tackled by a non-European. But, of course, this will be resisted. The crisis caused by DSK?s alleged priapic activities has shortened the search process. Now, what we see is blatant politicking. On the negative side, there was David Cameron ruling out Gordon Brown?s name even before all this saga started. I agree that Gordon Brown?s record as Prime Minister and Chancellor of the Exchequer counts against him?he relaxed banking supervision and sowed the seeds of the crisis at home while arguing about the Financial Stability Board globally. In his solution of the banking crisis, he proposed a banking merger of Lloyds Bank and HBOS, which has resulted in a fragile conglomerate. Even so, the dismissal was purely party politics.
Angela Merkel has said she wants a European candidate. France, to save its honour, needs a French candidate as a successor. Even the BRIC countries are putting forward names?Trevor Manuel, for example?rather than arguing the justice of the case. In India, there is excitement about Montek Singh Ahluwalia. There are, no doubt, other candidates, such as the finance minister of Singapore Tharman Shanmugaratnam and the governor of the Central Bank of Malaysia Dr Zeti. But these names are talked about without a proper job specification or a realisation of what qualities are necessary for the job.
Axel Weber, who has been mentioned in the German press, has recently resigned as Bundesbank President, thus throwing his chances of becoming the President of the European Central Bank in succession to Jean-Claude Trichet. He did that because he believed that the ECB had been too soft in accommodating the Eurozone debtors such as Greece in providing them with temporary financial support. He is the sort of hard man one needs if debtors are to be made less self-indulgent. But I suspect he may prove to be too strict and lacking in political flexibility.
All eyes and indeed all bets are on Christine Lagarde, the French finance minister. She is capable and has been good in the negotiations in both the 2008-09 financial crisis as well as the 2010-11 Eurozone crisis. Also, the Germans will accept a French candidate at the top of the IMF. It is sad but true that these things are always a shoddy compromise. This time will be the same again. Christine Lagarde will get the job and will be hailed as a brilliant choice. Yet, there have to be better ways of running the world than this. It is time the G20 put its feet down.
The author is a prominent economist and Labour peer