The change of guard at the International Monetary Fund (IMF) has been fast-forwarded because of the rather silly mistake by someone who should have known better. The case reaffirms two truths that are, however, often ignored. One, that moral hazard is a reality.
Mr Dominique Strauss-Kahn (also called DSK) became increasingly reckless as he got away lightly on past occasions. And then when the ‘black swan' event occurred at the Sofitel, the stakes were enormous. If only he had been adequately chastised earlier, France would not be faced with the rather unsavoury prospect of a second round stand-off between President Sarkozy and Marie le Pen, with the outcome quite unclear.
The second truth, as existentialists like Sartre, Camus and Kafka would say, is that life is all about choices and each choice has the potential to change life's trajectory. A moment's folly and the Palais-Elysee becomes a distant dream for DSK.
His sudden departure has again brought to the fore the issue of the nationality of IMF's managing director (MD). As an unwritten convention, since IMF's inception the MD has always been a European, just as an American has always been President of the World Bank.
POSSIBLE G-20 CANDIDATES
In the aftermath of the Lehman crisis, when the G-20's stock was high, this covenant was roundly criticised and jettisoned. The IMF was in dire straits prior to the crisis and forced to lay off staff and sell part of its gold reserves.
After critical scrutiny, it became clear that one of its major afflictions was the selection of the MD through a non-transparent process, restricted to European candidates, and the very limited catchment area for recruiting IMF professional staff.
It was, therefore, agreed at one of the G-20 summits, and included in one of the communiqués, that henceforth the MD would be selected through an open, merit-based process and the search would not be confined to Europe. It is imperative to stick to this decision if the legitimacy and effectiveness of the G-20 is to be maintained.
The effectiveness of the G-20 as also its legitimacy is already under considerable strain, with the trans-Atlantic alliance again on the ascendency in handling the situation in the Maghreb and the G-8 achieving once again achieving some significance with France hosting it skilfully.
A blow in the form of completely ignoring the G-20 decision on the selection process for IMF's MD would be least welcome at this stage, if the formation has to grow in stature and effectiveness.
Therefore, the selection should be undertaken in a manner that does not once again make it a closed shop between the US and Europe.
The G-20 must be brought into the process and its members asked by the IMF's Executive Board to suggest nominations.
Let us hope that India and other emerging country members of the G-20 will find some suitable candidates and demand a serious and transparent merit-based consideration of these nominees.
I can think of some myself like Mr. Andrew Sheng, a Malaysian top notch monetary economist and formerly deputy head of the Hong Kong Monetary Authority (if he is not beyond the acceptable age limit as, apparently, Mr Montek Ahluwalia unfortunately is); Dr . Raghuram Rajan, formerly the Chief Economist at the IMF and currently a renowned professor at Chicago University's management school; Mr Rajat Nag, the Managing Director General at the ADB who happens to be a Canadian citizen. I am sure there are many others from the BRICS countries who deserve to be seriously considered.
To identify them may, however, require a shift away from the rather restrictive practice of looking for a possible candidate only from within the ranks of serving politicians and bureaucrats. The choice set could be a lot bigger in BRICS nations, if the net is cast wider to include candidates from the private and non-government sector.
The key is to throw up as many candidates from non-European, and indeed from European countries, as well and for them to be actively considered in a transparent and merit-based process.
Indeed, some concession on the age limit could also be considered for emerging economy candidates, if only to make a break from a practice that has gone on for far too long, and more effectively co-opt emerging economies in the global economic and financial architecture.
This is not to say that the front-runner Ms Christine Lagarde is not a deserving candidate. Far from it. From all that is known, she is probably as qualified and suited as any to replace DSK.
However, one must also point out that the French, powered by the ENA and Science Po system, have successfully cornered a disproportionately large share of top international positions. In Ms Lagarde's case, the prospect of a woman heading the IMF adds to her credentials.
It is, however, quite spurious to argue, as some observers have done, that we need a European to head the IMF because Europe is in some trouble.
An IMF headed by a European, it is argued, will be more suited to manage a crisis-ridden Europe. If that was indeed the case, Europe would not be in such a crisis in the first place!
How is it that the European MD of the IMF and head of the European Central Bank could not see that some countries were fudging fiscal accounts and piling up public debt? Perhaps, an outsider will be more objective and demanding of corrective steps. That is a good prospect.
(The author is Secretary-General, FICCI. The views are personal. firstname.lastname@example.org )
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