US-EU clash on new chief upsets IMF

 

Trouble at the co-op. The managing director resigned five months ago and we have an unprecedented contest for succession. In addition, for the first time, someone has dared to question the largest shareholder's right to nominate their man to the top job.

But this is no ordinary co-op. The 182-member International Monetary Fund has a capital of some $90 billion and has become the critical global financial firefighter. It played a key role dolling out billions in aid in the Russian, Asian, and South American crises of 1997-98.

The leading economist and New York Times columnist Paul Krugman describes the job as "right up there with the chairman of the Federal Reserve and the US Treasury Secretary".

Traditionally the Europeans - i.e. the French - have taken it, by a gentleman's agreement, leaving the less significant post at the top of the World Bank to the US. The World Bank specialises in long-term lending, focusing on economic development.

Operations at its sister institution, the IMF, are meant to be much shorter term, aimed at helping countries that risk running out of foreign exchange during economic crises.

But the cosy post-Second World War cartel has been disturbed by a combination of rumblings of discontent from the developing countries and a determination in Washington that the new man should be a heavyhitter. Germany's competent, but technocratic nominee, Mr Caio Koch-Weser, would not do.

The US Treasury Secretary, Mr Larry Summers, told the Senate Foreign Relations Committee on Tuesday that the US felt it was critical for the IMF's next leader to be "somebody who can do what needs to be done" to institute reforms.

Much argument has raged over the need to create a system which ensures there is a price paid by governments for financial irresponsibility, and one that is not paid by the man in the street. The German Finance Minister, Mr Hans Eichel, has retorted that the candidacy of Mr Koch-Weser is "certain" and said: "It is impossible that the United States is trying to tell us who the European candidate should be." The German Chancellor, Mr Gerhard Schroder, has thrown his weight strongly behind the nomination which was backed unanimously, if half-heartedly, by EU ministers on Monday.

Mr Koch-Weser (55), who holds both Brazilian and German citizenship, is Germany's state secretary for finance. He began his 26-year career with the World Bank in 1973 and is a specialist in developing countries.

The collective EU shareholding in the IMF gives it some 33 per cent of the vote and, with China's support, Mr Koch-Weser has some 39 per cent guaranteed. The US, with 18 per cent, has yet to declare for one of the rival candidates.

Chief among them is the Zambian-born, but US-naturalised, Mr Stanley Fischer, currently acting managing director of the fund, who has been nominated by the Angolans and backed by several developing countries. He has been running the IMF since Mr Michel Camdessus's departure, and has been in the number two position at the IMF for five years. He would undoubtedly be the US favourite but for its tacit acknowledgement that the divided EU must first be given a chance to come up with a more acceptable name.

The Japanese have nominated Mr Eisuke Sakakibara, a former high-level finance ministry official, known by the nickname "Mr Yen" for his role in signaling Japan's position on managing its currency.

Having made a name criticising fund policies during the Asian financial crisis, he would face opposition from big shareholders. But by nominating him, Japan positions itself to be a real player the next time around.

The IMF board normally operates by consensus rather than by votes. But in the current stalemate consensus means two candidates have to step down. "We have no precedents for this," said one board member.