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FINANCE: IMF Pick for Top Job Proves ‘Back-Room’ Process – Groups

Emad Mekay

WASHINGTON, May 5 2004 (IPS) - The International Monetary Fund (IMF) has chosen a former finance minister of Spain, Rodrigo Rato, as its new managing director, ending a process marred by accusations of favouritism toward European nations and the exclusion of the developing countries that are most affected by IMF lending policies.

In a statement Tuesday the 24-member executive board of the Washington-based financial powerhouse said Rato will be managing director and chairman of the executive board for a five-year term.

Rato succeeds Horst Koehler, who resigned Mar. 4 after being nominated for the German presidency.

The board selected Rato in a two-stage process. In the first stage, an informal confidential straw poll produced a majority in favour of his appointment. Directors then proceeded to formally select Rato by consensus, the fund said.

Rato was minister of economy and vice-president for economic affairs for the conservative government of Spain between 2000 and 2004. He was the nation’s minister of economy and finance from 1996 to 2000.

His professional record reveals him as an insider to the policies and ideology of the IMF and its sister institutions that oversee the international financial system, including the World Bank and the Geneva-based World Trade Organisation (WTO).

Rato regularly attended the European Union’s economics and finance ministers’ meetings, and represented the EU at the 2002 meeting of finance ministers from the Group of Seven (G-7) most industrialised countries, when Spain held the EU presidency.

He was in charge of foreign trade relations for Spain, and represented the country at the WTO’s ministerial meetings in Doha, Qatar in 2001, and in Cancun, Mexico in 2003.

Critics of the policies of the IMF greeted his appointment with scepticism.

"If he is so much of an insider, why should he bring any change?" asked Ann Kathrin Schneider, an activist with Germany’s World Economy, Ecology and Development (WEED).

Many watchdog groups also complained that the selection continues a 60-year pattern of handing the IMF’s helm to a European, a tradition that also came under fire from some developing nations, who pointed out their lack of representation in the selection process.

The 50 Years Is Enough Network, a coalition of over 200 U.S. organisations that work to transform the IMF and the World Bank, said the fund’s choice shows it is not "serious about becoming transparent, accountable and open".

Rato, the group said in a statement, was chosen through an opaque "series of back-room negotiations among that region’s IMF shareholder governments".

But one analyst says the IMF actually showed some movement on the selection process when an executive director nominated Mohammed El-Erian, from Egypt, for the post. El-Erian was interviewed for the job by the board.

"For the first time ever two candidates officially went to the board, namely Mohammed el-Erian and Rato," said Nancy Birdsall, president of the Washington-based development think tank, The Centre for Global Development. "So the door has been very slightly opened on the issue of more transparency in the process."

But others described El-Erian’s nomination as window dressing that would not change long entrenched policies at the institution, which are decided by its political masters in the G-7.

"Backroom political deals ensured Rato’s election, making a mockery of the vote. Due to the lack of transparency of board proceedings, we can’t even know how much support El-Erian received in the straw vote," said Alex Wilks of the London-based Bretton Woods Project, in a statement.

Rato was nominated by European countries, which hold one-third of the board’s votes, and was later backed by the U.S. government, the IMF’s largest single shareholder.

"It is a multilateral institution in which control is tightly held by a small number of governments, none of which are IMF clients," said the 50 Years Is Enough statement.

Activists – many of whom demonstrated during last month’s joint meetings – also said the appointment confirms the IMF has no intention of becoming more open or accountable.

"That is ironic because, as we know, the IMF conditions loan and support to low-income countries on political conditions like democracy and good governance, but the selection of (Rato) was not democratic and didn’t represent good governance," Schneider said.

Others say the decision shows that the institution needs to face more external pressure.

"As the IMF marks its 60th anniversary, it is clear that real change will not happen through internal processes, but will require political pressure from people around the world," said 50 Years Is Enough.

Others fear the selection process foreshadowed a similar scenario when World Bank President James Wolfensohn finishes his term in 2005.

"It’s also a pre-run to the succession to Wolfensohn," said Peter Bosshard, policy director of International Rivers Network, a group that lobbies to end World Bank support for major infrastructure projects, especially dams.

But Birdsall says the controversy over Rato’s selection merely demonstrates the difficulties of running global institutions. ”All these large global institutions are really difficult to change," she said in an interview.

"That’s the nature of collective action at the global level: that there has to be agreement among (a) large number who have most of the control of the institution. I do not think that the IMF is particularly worse, frankly, than the United Nations or the WTO or any of the other big global institution where countries – sovereign nations – have difficulty getting their act together on a large number of issues."

Birdsall rejected that the IMF’s failure to come up with a more representative process indicates that the institution has become redundant, as some observers have suggested.

"I don’t want take this as a bell-wether of anything except how tough it is to manage the global system and how much we need institutions like, frankly, the IMF, and how much we need them to be open and transparent," she added.