Help wanted at the IMF, but reform needed more

By Caroline Baum

NEW YORK (Bloomberg): The International Monetary Fund (IMF) is currently seeking a qualified candidate for the position of managing director.

"Candidate will report to no one. He should be of European extraction, with 10+ years of hands-on experience in crisis management and a facility for dealing with major shareholders and authoritarian types. Candidate must be good with numbers. Language skills a plus. Some travel required. Generous benefits."

While there has been much discussion over who will replace Michel Camdessus as the next managing director of the IMF, the issue is hardly a personnel matter.

"The real question is, what kind of institution should the IMF be," says Ian Vasquez, director of the project on global economic liberty at the Cato Institute in Washington. "Reform is the issue, not who runs the Fund."

The Clinton administration has made it clear it will not support the European choice, Germany's Deputy Finance Minister Caio Koch-Weser, for the post. Koch-Weser spent 26 years at the Fund's sister agency, the World Bank, which is considered to be an inferior training ground for the post of global fire warden.

By convention, the top job at the IMF goes to a European; an American runs the World Bank.

Still, if exotic travel is your thing, if you like the idea of having unlimited funds at your disposal, a tax-free salary, an educational allowance for your kids, and if you happen to possess a good rolodex of heads of state, you might want to consider a career at the IMF.

Japan has nominated its currency watchdog, former vice finance minister Eisuke Sakakibara, for the managing director's post. Twenty African nations are backing the Fund's former deputy managing director and current acting director, Stanley Fischer.

The IMF's executive board is scheduled to hold an informal meeting tomorrow to poll sentiment among its 24 members. The United States has the largest voting share -- 18 percent -- with Germany, France and the UK accounting for a combined 16 percent.

Ironically, the International Financial Institutions Advisory Commission, a committee authorized by Congress to propose reforms for the international lending agencies, is meeting tomorrow in Washington, too, to put the finishing touches on its recommendations.

While the synchronization of the two meetings may be coincidental, the significance should not be overlooked. The committee's recommendations on how the Fund should operate -- providing funds to emerging market countries experiencing a liquidity crisis -- have a direct bearing on the selection process of a managing director, according to Charlie Calomiris, a professor of economics and finance at Columbia Business School and a commission member.

"The whole rhetoric of the Fund isn't real," Calomiris says. "The IMF describes itself as a cooperative providing global public good at zero cost. In practice the IMF is a slush fund run for, and financed by, G-7 finance ministers. They are not about to let anyone else run their slush fund."

If the IMF were really a democratic institution -- one country, one vote -- the managing director's post could go to someone from a developing country who has successfully implemented the kind of reforms the IMF advocates. The way it is, the U.S. and the Europeans divvied up the top jobs at the two sister agencies as if it were "a post-war implicit right," according to Harvard University's Jeffrey Sachs, who is also a commission member.

Sachs argued late last year that the resignation of Camdessus after 13 years at the IMF should be used "to help instill the values of transparency and fairness" that are necessary to all democratic institutions. The selection process should be "open and democratic," Sachs believes, with "identified candidates telling us what their vision of the role of the institution and managing direct is."

Whether a democratic selection process can precede the democratization of the Fund is unclear.

"If we could get the IMF to be a bona fide liquidity provider, not a provider of subsidies, then the democratic selection process becomes feasible," Calomiris says.

In various testimonies and articles in the past few years, Calomiris has emphasized the idea that the IMF's huge discretionary authority in selectively distributing subsidies subverts the democratic process.

Debtors are protected from the consequences of bad economic policies while creditor nations see their parliamentary authority over foreign aid undermined. That was the case with the Mexico bailout in 1995, when the Clinton administration circumvented Congress and tapped the Treasury's Exchange Stabilization Fund.

How the selection of a new managing director will play itself out is anybody's guess.

"We're completely in uncharted water," says Mohamed El-Erian, a portfolio manager at the Pacific Investment Management Company and a former deputy director at the IMF. "This has never happened in the history of the Fund."

With the U.S. unwilling to support Koch-Weser, unlikely to support Sakakibara, and unable (politically) to support Fisher, one of its own, there's a good chance the informal poll tomorrow will fail to produce a consensus candidate.

In that case, "either the Europeans can put forth someone else or they can do away with the convention of the job going to a European and select someone on the basis of merit," El-Erian says.

Merit: what a splendid idea! Candidates for the post would have to possess a broad range of characteristics, according to El-Erian. They must have influence among global finance ministers. They must be respected economists. And they must have the confidence of the market.

The last characteristic can't be fully assessed until there's a financial crisis, at which point if you picked the wrong Joe, it's too bad.

Just think: By that time you've got enough frequent-flyer miles to travel for the next five years for free. Still interested?