Monday, May 4, 2009

Nominate Nine Wise Men and Women to Restore IMF's Credibility

Published on the Editorial Page of Financial Times, May 4, 2009

Letter to the Editor

Dear Sir/Madame,

The London Summit of the G20 went some ways toward strengthening the capacity of the IMF to assist emerging markets currently suffering the spill-over effects of the financial crisis. The Summit seems to have been less successful in updating the governance structure of the IMF, to better reflect the changes which have taken place in the structure of the global economy during the past quarter century. Thus, at least until 2011 (maybe even longer), IMF decisions will continue to be made in an absurd system where the voting power of the EU currently stands at 32.4 percent, whereas the combined voting power of the United States, China, India, Brazil and Russia—accounting for a much larger share of global GDP—is 26.9 percent. The G20 also decided to finally break, at least nominally, with the convention adhered to ever since the IMF’s creation, which establishes that its managing director (MD) must be an EU citizen. Like the current permanent membership in the UN Security Council, this practice is an aberration and should have been abandoned long ago.

Despite the important symbolism of the G20’s decision, we think that the new system is not likely to be much better and there is a significant risk that it might actually be worse. The main risk is that we will now move to the system in place at the UN, where the Secretary General is chosen, de facto, on a rotating basis, from different regions of the world. The problem with that system is that it tends toward the lowest acceptable common denominator, with the top job going to someone who is palatable to all constituencies—a process which on occasion can lead to mediocrity or worse.

We have a humble proposal. Let’s do away with the job of the MD and replace it with a Supreme Management Council, a group of 9 wise men and women appointed for life (or until a suitable retirement age). Think of all the benefits. First, they would not be beholden to the interests of the richer members and would operate with independence of mind and the interests of the international community at heart. Second, as members retired they would be replaced with younger blood and the Council would thus become a repository of decades of relevant experience on the issues that matter for management of the global economy. Contrast this with the present system where each new MD has to spend a couple of years catching up before the pressures of work or other factors tempt them to bail out. Both Messrs Kohler and Rato—the two preceding MDs—left before the expiration of their 5-year terms. Nine members working in a spirit of consultation, not worried about the length of their tenure on the job would surely bring more mental firepower to the job than a sole individual, verily coping with the pressures of the moment. Unanimous decisions would be favoured but, as needed, majority voting would do. Instead of having central bank governors and finance ministers nominate their own favourite peers, the Council could be filled via international recruitment. Let able and experienced individuals apply for the jobs and let the Fund’s governors vote on the best candidates. An open, transparent, meritocratic, democratic form of governance, seeing to the interests of the entire membership would greatly improve on the status quo, since all these qualities are lacking in the current system, even in the aftermath of the G20 London Summit. Such a system would go a long way toward strengthening the much diminished credibility of the IMF, at a time when that scarce asset is most in need.

Jorge Castañeda
Foreign Minister of Mexico (2000-2003)
Global Distinguished Professor
New York University

Augusto López-Claros
Director, EFD–Global Consulting Network