By Gustavo Capdevila
GENEVA, Mar 10 2004 (IPS)

Developing nations are not happy with the process used to select the heads of the multilateral financial institutions, which are controlled by the industrialised powers.

The governance structures of the International Monetary Fund (IMF) and World Bank ”lack representativeness” and ”do not reflect the reality of the world economy”, complained Ariel Buira, a spokesman for the countries of the developing South.

The selection of the next IMF managing director should be carried out through a more participatory, open, transparent and democratic procedure ”which leads to an objective assessment of the merits of potential candidates and attracts the best candidates regardless of nationality,” said Buira, the director of the secretariat of the Group of 24 (G24).

The G24, a coalition of developing and emerging market countries in the Washington-based IMF and World Bank, does not subscribe to the thinking that another European should automatically replace Horst Koehler, who unexpectedly resigned on Mar. 4 to run for president of Germany.

Koehler, who resigned a little over a year before his five-year term was to end, was nominated as the presidential candidate of a coalition of centre-right parties that hold a majority in the assembly that will select the head of state – a largely ceremonial but influential post – in May.

Koehler’s successor should be chosen on the basis of experience and capability, regardless of nationality, skin colour, or race, Buira told journalists in Geneva Tuesday.

”We all know of experienced and highly qualified people who have been governors and ministers or even heads of state in a number of developing countries, who are very serious and impressive figures,” he said, after taking part in a G24 technical group-level meeting held to discuss the position the bloc will take in the multilateral lenders’ upcoming sessions.

The G24 is the only formally constituted bloc of developing nations in the IMF and World Bank, said Detlef Kotte, an official with the United Nations Conference on Trade and Development (UNCTAD), the international agency that traditionally supports the group of nations from the South.

The emergence of the G24 dates back to a 1972 decision by the Group of 77 (G77), the bloc representing the developing world in the United Nations.

Developing nations are the only members that use the resources of the multilateral lenders, because no industrialised country has contracted debt with the IMF or World Bank in the past 25 years.

The G24 thus closely follows the evolution of the multilateral financial system, evaluating aspects that could be modified in order to respond more effectively to the needs of the bloc’s members, said Buira.

Developing countries have a stronger interest than anyone in ensuring that the multilateral financial institutions are solid, well-financed, and governed by appropriate and effective rules, said Buira, who added that ”there is something to be said about having people who have experience, the programmes and conditionality, know what the cost is and perhaps are better able to understand the needs of the countries that borrow.”

However, the fact that the countries of the South account for around 160 of the 184 members of the multilateral lenders is neither reflected in the voting system nor in the distribution of upper-level posts.

Between 80 and 85 percent of the top posts in the IMF and World Bank are held by people from industrialised nations, said Buira, a Mexican economist.

We want better representation in these institutions of which we are the main users, he underlined.

Another G24 concern is resources, said Buira, who added that major imbalances can only be tackled with strong financing. One emblematic case is that of the United States, which is running huge current account and budget deficits.

But the United States can do that because it obtains abundant financing, while countries that lack access to significant levels of financing must undertake structural adjustments, said Buira.

The IMF and World Bank are the main sources of financing for the developing world, but the available resources, ”which used to be equivalent to 58 percent of world trade in 1945” when the Bretton Woods institutions emerged, have been ”dramatically reduced…to the equivalent of a little over three percent of world trade,” the G24 official pointed out.

As a result, ”the adjustments tend to be much more severe, much sharper, and politically more difficult and more likely to cause social and civil unrest and economic distress,” he added.

The amount of funds that the IMF ”can give to any particular country tends to be much smaller” today, which leads to ”severe recessionary adjustments” that have dangerous effects, said Buira.

The bloc of developing countries is also concerned about the governance structures in both institutions, although it is now focusing its attention on the IMF, due to Koehler’s recent resignation.

The IMF executive board agreed that a search committee was to come up with a list of candidates, whose qualifications and programmes for the future would be assessed, regardless of nationality, and who would go through an interview process.

But the G24 fears the position will once again automatically go to a European candidate, following ”the custom, if you wish, of having an American head of the World Bank and a European head of the IMF,” said Buira.

He recalled that the U.S. government blocked the IMF board’s selection of Caio Koch-Weser, who Germany had proposed as successor to former managing director Michel Camdessus of France, and that Germany ended up winning approval of its second candidate, Koehler.

After that controversial selection process, in which Germany basically staked its claim to the post, the ”entire world” said ”no more back room deals” because they ”undermine legitimacy,” said Buira.

The G24 believes the new head of the IMF could emerge from one of the bloc’s member countries. Buira mentioned possible candidates ”off the top of his head”, but clarified that any decision must be the result of deliberations by the group’s ministers.

The names that he mentioned included former Indian finance minister Manmohan Singh, Pedro Malan and Arminio Fraga of Brazil, and former Mexican president Ernesto Zedillo.

In Europe, the name being discussed is that of Spanish Economy Minister Rodrigo Rato.

The governance structures of the IMF and World Bank reflect the economic reality of 1945, when industrialised nations accounted for the lion’s share of global production, said Buira, who pointed out that ”A few things have changed since then.”

Today, the output of developing and transition economies, which are home to 84 percent of the world population, is equivalent to that of the G7 (Group of Seven) most industrialised nations, which account for 14 percent of the global population.

When the IMF and World Bank were created, the United States was the only capital-surplus country, and the world’s leading source of capital.

But today it is the biggest debtor nation, while many countries in the developing world, especially in Asia, have become large creditors, and have higher levels of foreign reserves than the industrialised countries.

South Korea, for example, has a bigger population and larger exports and reserves than Denmark, but a smaller quota in the IMF.

And Belgium’s quota in the IMF is 52 percent larger than that of Brazil and 74 percent larger than that of Mexico, while Belgian economic and financial indicators are smaller than those of Latin America’s two giants.

Buira said these and ”hundreds of anomalies” in the governance structures of the multilateral institutions ”make them unrepresentative.”

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