Change font size:   

 
No. 6: If you don’t give it to me you’ll only lend it to someone else and look where that got us

No. 6: If you don’t give it to me you’ll only lend it to someone else and look where that got us

10 reasons to tell your boss you deserve a bonus

Bank deleveraging has barely started

Bank deleveraging has barely started

Banks lending money to governments to help fund bank bailouts looks horribly circular

weeklyFiXLiquid real estate
Skip Navigation LinksHome :: Back Issues :: Unnatural selection

May 2000

Unnatural selection


Professional headhunters might have avoided the farce surrounding the appointment of the IMF’s new managing director. But the politics of who runs the IMF and the World Bank are complex, and there’s no way to please all of the shareholders all of the time.




       
Horst Köhler
"Change happens". That's the message the US Mint has chosen to advertise the new coin it hopes will replace America's venerable dollar bill. The same slogan could be just as well applied across town where the IMF issues its own brand of international money known as special drawing rights. But there the specie in danger is Europe's uniquely special right to tap one of its own and put that person into the top job at the Fund. The coin of the realm is clout.
All IMF managing directors have, by tradition, been European, just as World Bank presidents have always been American. Countries in Europe control about 37% of the voting power, with a US share of about 17%. Together, Europe and the US have picked the leaders of the Fund and the Bank since Bretton Woods.
But all is not well with this hidebound arrangement in the wake of the bare-knuckled political brawl leading up to the appointment of Germany's Horst Köhler as the new IMF managing director. "Is this transparent governance," asks Yukio Yoshimura, Japan's representative on the IMF's executive board. "I don't think so."
"The whole process of finding [IMF managing director Michel] Camdessus' successor verged on the farcical," says Roddy Gow, a headhunter with TMP Worldwide in New York. "I don't think it helped the IMF's cause. There was no need for that to have been such a badly organized selection process." Köhler, however, is generally regarded as a good choice, despite the messy manoeuvering leading to his appointment.
"They couldn't have stepped into it in a more preposterous way," says Harvard's Jeffrey Sachs, "with Germany announcing a candidate that the US didn't like and the US not responding very clearly at the beginning." The US - the Fund's largest single shareholder - let the Germans go more deeply down that road feeling that they owned the job. Finally, the US said "no way" to the first German candidate - Caio Koch-Weser - thereby prodding the EU to endorse him as a way to score political points.
"That is recruitment disaster numero uno," says Brian Sullivan, in charge of the global financial services practice at Heidrick&Struggles. "The situation was politically charged. It had very little to do with qualifications of the individual or requirements of the job." Sullivan believes that would not have happened had a professional recruiter been involved. Instead, the job became a pawn in a larger game.
Back at the IMF in early March, the executive board took a "straw poll" and Koch-Weser received 43% of the votes - a weak showing. Stanley Fischer, the Fund's first deputy managing director and a naturalized American citizen, received 12% and Eisuke Sakakibara of Japan received 9%. President Clinton spoke about it directly with the German chancellor, Gerhard Schröder - an unusual move - and announced to the press that the US wouldn't accept Koch-Weser, but that it very much wanted Germany to nominate the next candidate. So, Koch-Weser withdrew.
A selection travesty
"The idea of the US saying to Germany 'OK you own this one, give us the next name' and then the US and Germany agreeing on the name of the next managing director for their 182-member international organization is a travesty," complains Sachs.
       
Paul Volcker
Travesty or not, the IMF board later voted unanimously in favour of Köhler. But the episode broke new ground because Japan openly vied for the position for the first time by nominating Sakakibara. And most people expect Japan to campaign for a serious shot at the job next time. Angola also set a precedent by nominating Fischer, a citizen of another country.
It's hard to see how Germany did Koch-Weser much of a favour. Even Köhler should have a right to complain. "A process controlled by two heads of state is unfair, in a sense, to the successful candidate," says Henry Higdon, another New York-based headhunter. "These things have become so politicized that these people don't get the respect they might deserve."
Higdon goes on to point out that Köhler, even though most people considered him a stronger candidate than Koch-Weser, was by definition Germany's second choice. "When you're not the first choice," Higdon reflects, "that makes it difficult. He has to overcome that just to start with." For his part, Köhler has promised to reform the selection process. He was due to arrive at the Fund on May 1.
The pattern could have been completely different back in 1946. An American was the apparent choice to serve as the Fund's first managing director in the aftermath of World War II. Harry Dexter White, had laboured side by side with John Maynard Keynes to construct the Bretton Woods system. He also served as America's first representative on the IMF executive board. But White had a problem. Some people thought he was a communist. So, the job went instead to Camille Gutt, who had served as finance minister of Belgium's wartime government-in-exile.
Still, it made sense for America to claim the Bank job - not the top spot at the Fund - in the early years just after Bretton Woods. Robert Solomon, author of Money on the Move, points out that the World Bank - unlike the Fund - needed to issue securities and only the US market could meet the demand.
So, the Bank needed an American with credibility on Wall Street. There's no reason today why a European or an Asian couldn't do well in that department as James Wolfensohn's successor.
"The time has passed when we ought to preserve these positions for a particular region or country," says former US Federal Reserve chairman Paul Volcker. "I suspect that you'd get a pretty good consensus on that."
Ridiculous notions
Volcker thinks that some rotation might be desirable, but his frequent ally in many public debates, Fred Bergsten of the Institute for International Economics in Washington, sees it a little bit differently this time. "The notion of an entitlement should be totally rejected," he argues. "One should not replace the ridiculous notion of entitling a European with the equally ridiculous notion of entitling a Japanese or an American or an Iranian or anything else." Bergsten thinks that the job should be contestable among all qualified candidates worldwide.
  Page 1 of 4  Next | Single Page






Yes, it takes a lot of time to get it approved by those... what do you call them? Rabbis? Well, obviously not rabbis, but you know what I mean

A banker talks about his firm’s achievements in Islamic finance. -Awards for Excellence 2008 Off the record special

  1. Top 10 financial definitions that are funnier since the credit crunch

  2. Top 10 reasons to tell your boss you deserve a bonus this year

  3. SEC Opens Door For ETFs Of ETFs

  4. Private banking and wealth management survey 2008: The benchmark annual survey of the wealth management industry

  5. Gulf states: Less noise from leveraged wealth funds

Latest Issue

November 2008
Ruromoney Jobs Post a job

Home | Mobile site | Contact Us | Debt markets | Equities | Foreign exchange | Banking | Alternative Investments | Regions and Emerging markets | Polls & Awards | Structured credit | Back issues | Euromoney store | Useful links and Related events | Site Map

The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms and Conditions, Privacy Policy before using the site.

All material subject to strictly enforced copyright laws. © 2008 Euromoney Institutional Investor PLC.