THE INTERNATIONAL Monetary Fund is a paradoxical institution. A bastion of economic orthodoxy, the IMF lends chunks of its $340 billion in resources to indebted countries, typically on the condition that they eliminate market-distorting political interventions such as state ownership of utilities or food price subsidies. Yet when the time comes for the IMF to hire its own operational chief — known as the managing director — politics rules.
Oh, sure, after Dominique Strauss-Kahn’s sudden resignation, the IMF’s executive board has promised an “open, merit-based, and transparent” process. But if the board actually delivers on that pledge, it will be a first. The fund has never chosen a managing director because he was the best candidate, pure and simple. Instead, the board votes according to how much each country or region contributes to the fund, and the United States and Europe pick one of their own since they give the most money. And one more thing: The winner has to come from Europe, because the World Bank’s president has to be an American, and it wouldn’t be right to have both the bank and the fund headed by Yanks. Or so it was agreed long ago, after the great conference in a place called Bretton Woods.
Mr. Strauss-Kahn became managing director not only because of his undeniable political savvy and economic know-how, but also because he was European — and because it was France’s “turn” after a German and a Spaniard. Also, French President Nicolas Sarkozy wanted to get his political rival out of France for a while. An internal IMF report circulated shortly after Mr. Strauss-Kahn’s selection acknowledged “many weaknesses” in the process.
If technical merit were truly the only consideration, the job might go to someone like Israeli central bank chief Stanley Fischer, who has presided brilliantly over that country’s thriving economy. But Israel is not popular in world politics. There are those who argue that it’s time for someone from the developing world to take the reins; on that theory, Mexico has nominated its able Central Bank chief, Agustin Carstens. U.S. and European officials meanwhile appear to be coalescing behind French Finance Minister Christine Lagarde, who declared her candidacy on Wednesday.
The campaign for an emerging-market candidate merely substitutes one form of regional politicking for another. China, India, South Africa and Mexico may be driving the global economy, but the fact remains that the United States, Europe and Japan fund the fund. As it happens, the IMF’s current focus is Europe: Its biggest borrowers are Greece, Romania and Ukraine. That might make Ms. Lagarde, also very talented, a better fit than Mr. Carstens.
Mr. Strauss-Kahn did a creditable job in the political and financial aspects of the IMF job. His career’s implosion suggests, however, that there is more to being a good managing director than keeping politicos happy and negotiating bailouts — and that the selection process is not optimally designed to vet for character and other intangibles.
Moribund before the financial crisis, the IMF is once again a linchpin of the international financial system. It needs a managing director equal to the job — whose priorities should include helping the board devise a truly open, merit-based and transparent process for choosing a successor.
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