The Hindu Business Line : `Reservation' at the IMF

THE HUNT FOR a new managing director for the International Monetary Fund — Mr Horst Koehler resigned last month to accept a nomination to become president of Germany — has ended with the world body deciding on a former Spanish Finance Minister, Mr Rodrigo Rato. Though true to convention the IMF chief is from Europe, he was not the first choice of the Continental powers; Germany and France had wanted Mr Jean Lemierre, President of the European Bank for Reconstruction and Development. The British media had been betting on Mr Gordon Brown, UK's Chancellor of Exchequer.

This selection differed from previous successions with the developing countries making a serious bid to end the custom of putting a European in charge of the Fund. Critics of the IMF's lack of transparency in selecting its head, like the former World Bank economist, Dr Joseph Stiglitz, think the Fund should have opted for a developing country finance minister. But a lack of cohesion seems to have stymied the developing nations. As many as three names — American Andrew Crockett (Citigroup Vice-Chairman), Egyptian Mohamed El-Erian (Pacific Investment Management Co Director) and Briton Stanley Fischer (J. P. Morgan & Chase President) — were proposed by executive director, Mr A. Shakour Shalaan, representing countries from West Asia. With others withdrawing, Dr Mohamed el-Erian made it to the final round, and he was also backed by G-11, an informal group of developing country executive directors protesting against the reservation of the managing director's post for Europeans. But Mr Rato edged ahead, with tacit Washington backing (believed to be a quid pro quo for Spain's participation in the US-led Iraq war) and the support of Latin American countries.

Though thwarted, the developing countries have no grouse against Mr Rato, for as Mr Conrad Enill, chairman of G-24, said: "... That candidate has all the requirements. He is very competent and we would in fact work with him..." Credentials certainly Mr Rato has. A former businessman, and Spain's Minister for Economy and Finance from 1996 to 2004, he is seen as one of the architects of the country's economic resurgence over the past decade. As an economist and practising finance minister, and also someone sympathetic to the challenges faced by their world, he surely is one the developing countries should be happy with. For one who has dealt with Latin America extensively, Mr Rato's immediate task will be to restructure Argentina's $88-billion debt default with private creditors after the 2001 economic collapse. Mr Rato's political experience should benefit the developing countries especially when dealing with the G-7.

But beyond personalities, the key issue is the principle. The developing countries hope the managing director's post will be thrown open to candidates of all nationalities. Disappointed they may be now, but they can take heart, for, as Dr Fred Bergsten, Director of the Institute for International Economics, Washington, said: "A Spaniard, backed by a large part of the developing world, is at least a step in the right direction".