The IMF never tires of advising developing countries to improve their governance practices. No cronyism, more transparency and less corruption are the refrain of most policy documents released by the more powerful of the Bretton Woods twins. Yet the debate over the choice of a new Managing Director for that institution reveals its own adoption of a non-transparent, closed-door, ''informal'' process. That process is part of an arrangement between the US and Europe, which ''accepts'' that the chief of the Fund has to be a European, while the head of the World Bank should always be an American.

The current debate began when Horst Kohler, the IMF’s Managing Director, abruptly resigned in early March, on being chosen the compromise candidate for the post of the President of the Federal Republic of Germany. Even while Europe has since been scurrying to find a consensus candidate for the post of the MD, beginning with an unsuccessful lunch meeting of the EU’s Finance Ministers on May 9, developing countries have come out far more sharply than before in favour of a more open and transparent process.

Around the same time as the EU meeting, at the sidelines of a technical group meeting, Ariel Buira, the Director of the G-24 Secretariat, an official developing country think-tank functioning since 1972, declared that the selection procedure for the chief of the IMF reflects the fact that the governance structures of the IMF and the World Bank "lack representativeness" and "do not reflect the reality of the world economy". Speaking on behalf of the members of the G-24, Buira noted that though the countries of the South account for around 160 of the 184 members of the multilateral lenders, this presence is neither reflected in the voting system nor in the distribution of upper-level posts. Between 80 and 85 percent of the top posts in the IMF and World Bank are held by people from industrialised nations, said Buira, a noted Mexican economist.

The point being made here was not just about nationality or geographical origin. Since developing countries are the only ones that have used the lending facilities of the IMF and the World Bank for close to 25 years now, those with developing country experience are the ones who have hands on experience with the implementation of the conditionalities and programmes associated with such lending. Given the growing criticism of such programmes, especially during the spate of financial crises beginning with that in East Asia in 1997, "there is something to be said about having people who have experienced the programmes and conditionality, know what the cost is and perhaps are better able to understand the needs of the countries that borrow," Buira noted. So what was needed was a more participatory, open, transparent and democratic procedure "which leads to an objective assessment of the merits of potential candidates and attracts the best candidates regardless of nationality."

That Buira was not speaking without a brief became clear when days latter Finance Ministers attending a meeting of central bank governors and finance ministry officials from Africa, echoed the same sentiment. Addressing a media briefing during the conference, Burkina Faso's Finance Minister Jean-Baptiste Campaore said, the unexpected resignation on March 4 of IMF Managing Director Horst Koehler was an opportunity for developing countries in general, and Africa in particular, to "send a signal" about the importance of transparency and participation in choosing the leadership of the Bretton Woods institutions. Sudanese Finance Minister Zubair Ahmed Al-Hassan said the Johannesburg conference was not saying the next managing director must be an African. What they wanted was a more open and democratic selection process.

Subsequently, on March 19, 2004, an IMF press release made clear the position of a large group that had formed within the IMF itself, who together represented well over 100 countries. The release stated that this group, consisting of the G-11 Executive Directors, representing emerging and developing countries from Asia, Africa, Latin America, and the Middle East, Executive Directors from Australia and Switzerland, who each represent a range of countries, and the Executive Director from the Russian Federation, had in a meeting resolved that:

1. The … candidate nominated for the position (of IMF Managing Director) must be an eminent person, familiar with the goals of the institution.
2. The process of identifying and selecting the candidate must be open and transparent, with the goal of attracting the best person for the job, regardless of nationality. A plurality of candidates representing the diversity of members across regions would be in the best interest of the Fund.
3. All members of the Executive Board should be consulted in the process of considering candidates that lead to the selection of the Managing Director and informed in a timely manner regarding candidates, including their credentials and knowledge of the institution."

These developments indicate that this time around there is bound to be considerably more controversy surrounding the appointment of the Managing Director. Kohler’s appointment as IMF Managing Director in 2000 was itself the end result of a murky two-step process of selection. First, Germany was ''allotted'' the post in 2000 because at that time the NATO chief was from the UK, an Italian headed the European Commission and a Frenchman was to take over leadership of the European Central Bank. Using its ''opportunity'', Germany nominated Caio Koch-Weser as successor to former managing director Michel Camdessus of France. But the U.S. government blocked the IMF board's selection of Koch-Weser, and in a subsequent compromise Germany won approval of a second candidate, which was Koehler. Backroom deals in international finance are fought hard and not won easy.

Thus, even if Europe has as per an informal deal between the US and Europe the right to nominate a Managing Director to the IMF, it has to first find a consensus candidate and second win US approval for that candidate. Not surprisingly, as soon as the post once again fell vacant in March, speculation in Europe started over the likely nominee. Initially, the name of Gordon Brown, UK’s Chancellor who also chairs the IMF's International Monetary and Financial Committee, was doing the rounds, since he was a considered in 2000 as well. But given his ambitions to become Prime Minister, he did not join the race. Now there are three names reportedly being considered by the EU: Jean Lemierre, the French president of the London-based European Bank for Reconstruction and Development; Rodrigo Rato, former finance minister of Spain, and Mario Draghi, the former head of Italy's treasury who is now at Goldman Sachs. Rato’s chances may have been adversely affected by the election results in Spain, since he may not win approval even from the new Spanish government itself.

But even if one of these candidates were to win the support of Germany and France, as Lemierre is expected to, there are three other obstacles to be crossed. That which could be created by the UK and the US; that being set up by the developing countries; and, finally, the weight of informed public opinion against the current cronyist appointment procedure being widely expressed in the international media.

Reportedly, Gordon Brown has been sounding out other members of the IMF's International Monetary and Financial Committee, including the developing country members. The UK has called for a more open selection process and indicated that there cannot be too early an agreement on a European candidate for the job. A British Treasury official is reported to have said that UK wanted "a very wide range of countries" to be involved.

The US too has chosen to remain in the sidelines, letting the EU handle the matter, but conscious of the fact that it needs to retain its ''customary right'' to nominate a successor when the current World Bank President James Wolfensohn’s term ends next year. However, to keep its legitimacy going it has backed the call for openness and transparency. John Snow, US Treasury secretary, recently told reporters: "We want an open process that focuses on merits and selects the most qualified person." In practice, however, it is likely that the UK and the US would go along with any Western European consensus candidate, so as to avoid one more bone of contention with Europe, to add to those like the Iraq war and agricultural subsidies. They would at most extract a concession or two on other issues.

So we are soon likely to see Europe running the course to the second obstacle: developing country opposition. The problem here too is one of agreement within a large and varied bloc. We must recall that most developing country governments have ''owned'' Fund-Bank type policies, are competing for US-EU friendship and would be averse to upsetting precariously balanced relationships. This could lead to proposals that are either no challenge to the IMF decision making process or to disagreements that are unlikely to be resolved.

Already, reports have it that Shakour Shaalan, Egypt's executive director at the IMF, has followed up the G-11 statement with three proposed nominations to the MD’s post: Stanley Fischer, a Zambian-born US citizen, currently with Citigroup, who is an economist who has served as first deputy managing director of the IMF as well as chief economist of the World Bank. Andrew Crockett, a UK citizen, who works at JP Morgan Chase, earlier headed the Bank for International Settlements and has worked at the Bank of England and at the IMF. And, Mohamed El-Erian, who holds both Egyptian and French passports, who has served the IMF for 15 years, rose to the position of deputy director of the Middle East region, and currently is a fund manager at Pimco.

The panel is indeed surprising. When the system is already loaded so heavily against the developing world, why on earth should the G-11 EDs recommend an American and an Englishman? It definitely is not because there are no other deserving individuals from the South besides Mr. El-Erian. It should be obvious that from the point of the view of the IMF and international financial capital, these are individuals with impeccable credentials. The only major difference between these candidates and those likely to be recommended by the EU is the fact that their track record includes a successful stint at the IMF. That could be a drawback rather than an advantage. It could mean that their entry into the top position in the Fund is unlikely to make any difference to the Fund’s positions with regard to the developing countries. Fortunately, it is not still clear whether Egypt’s suggestions are likely to be received well by all the G-11 EDs; probably not. But the division this involves could be exploited by the US and the EU to push through an EU nominee with similar credentials. The point of the whole exercise of dissent and opposition may be lost.

This leaves global public opinion as the final obstacle. But, if the war in Iraq is an indicator, this is unlikely to make any difference. Moreover, how could public opinion matter if the developed countries are unwilling to accept the procedures that the IMF itself has recommended. We must recall that at the end of the last round of back-door deals that elevated Kohler to the position in question, the controversy it generated had forced the IMF and the World Bank to set up separate Working Groups to review the process for selection of the heads of their respective institutions. The Groups had recommended a procedure involving the creation of an advisory group of eminent persons with adequate geographical balance that would prepare an unranked shortlist for consideration by the board of the institution concerned. Thus far, there is no sign of this procedure being adopted for selecting the next IMF head. In the event, we are likely to see one more instance of lack of transparency and openness in the selection procedure.

In sum, despite the blatantly scandalous procedure being adopted by the EU and the US, there are no signs of voluntary reversal. This indicates how important the IMF is to the developed world, even in a situation where it is directly responsible for a small share of international capital flows, the ratio of which to global trade has fallen from close to 60 per cent in 1945 to a little over three per cent currently. That importance comes from the use of the IMF as an instrument to force developing countries facing balance of payments difficulties to adopt policies that help them little, but serves the developed countries and international finance well. If to ensure the persistence of such practices, an unacceptable procedure is being sought to be adopted once again by the US and the EU, it is time for developing country citizens to organise and force their domestic governments to come out united and strong against the scheme. They should demand that their governments should refuse to go along and put out an alternative list of credible developing country nominees drafted by a group of eminent persons from the South created for the purpose. At the least, that would help highlight the duplicity involved in these institutions preaching good governance through the cut-and-pasted policy documents they routinely serve up for the developing world.