Will Mexico back Carstens as the next IMF managing director?

In an interview with Bloomberg published on July 29, Andres Manuel Lopez Obrador (ALMO), Mexico’s President, noted that he would support former central bank governor who now heads the Bank for International Settlements, Agustin Carstens, should Carstens be nominated as a candidate.

ALMO noted that despite their “political differences”, he would hypothetically support Carstens, stating that: “I would like to. I would always support a Mexican, if they’re a specialist in the material…” Earlier this month, Carstens declined to comment as to whether he would be eager to run for the position of IMF managing director.

The discussion around Carstens potential candidacy will conjure up memories of the 2011 leadership race for the IMF managing director. Carstens was shortlisted alongside Christine Lagarde for the position, following the resignation of former head of the IMF Dominique Strauss-Kahn, who was arrested in the US on charges of an alleged sexual assault.

Carstens, however, subsequently failed to galvanise support among emerging economies, who are structurally underrepresented in the current IMF governance configurations. Interestingly, as part of his bid, Carstens noted that should the IMF follow through with the ‘gentleman’s agreement’ and select a European candidate for the post, it may produce a conflict of interest, as Europe struggled with a post-crash debt crisis. He noted: “We could have a situation where borrowers dominate the institution,” stressing that the European region needed a fresh perspective in order to solve the problem.

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Here we go again: Surprise IMF leadership change litmus test for its legitimacy

On 16 July, Christine Lagarde announced she had submitted her resignation from the IMF as managing director, effective 12 September, in light of her nomination for the presidency of the European Central Bank. In the interim, IMF first deputy managing director, David Lipton, was appointed acting managing director by the executive board. The board intends to complete the selection process by 4 October.

Handy yardstick for health of neocolonial and neoliberal system

The surprise announcement kicked off the customary speculation of potential candidates to fill the IMF leadership position and the time-honoured tradition by civil society and others of calling for the abolition of the historic ‘gentleman’s agreement’ on World Bank and IMF leadership.

The unofficial agreement, in place since the founding of the institutions 75 years ago, has ensured that the IMF has always been led by a European, and the World Bank by a US citizen (see Inside the Institutions, What is the ‘gentleman’s agreement?‘). Civil society organisations around the world have for decades pointed out that the Fund and Bank continue to undermine their legitimacy by adhering to this arrangement. They have demanded an end to the European stranglehold on the top IMF post and for it to live up to its commitment to “adopt an open, merit-based and transparent process for the selection of IMF management” (see Update 76).

The selection of yet another European managing director immediately after this year’s appointment of US-nominee David Malpass as World Bank president (see Observer Spring 2019) would unambiguously demonstrate that the leadership succession processes at the Bretton Woods Institutions remain undemocratic, opaque and illegitimate. The expected quashing of the 15th IMF quota review – which was an opportunity to more fairly distribute voting powers at the IMF executive board (see Observer Summer 2019) – further exacerbates the Fund’s crisis of legitimacy, at a time when the adequacy of the current multilateral system is increasingly being questioned. In the words of Ambrose Evans-Pritchard of UK newspaper the Daily Telegraph, “If the Europeans persist in treating the International Monetary Fund as a hereditary fiefdom, they will destroy the institution. Global credibility will wither away.”

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What is the ‘Gentleman’s Agreement’?

The so-called gentleman’s agreement is yet another pillar of an undemocratic governance system. Leadership selection at the World Bank and IMF is subject to a historic ‘gentleman’s agreement’, which has ensured that the IMF managing director has always been European and the World Bank president is a US national. This agreement dates back to the creation of the institutions, when membership was limited to 45 states and when European powers still retained large colonies. Once the US nominates a candidate for Bank president, Europe uses its large voting rights on the Board to ensure the US candidate is picked in exchange for the US in turn supporting a European nominee for IMF managing director. In return, Europeans select their preferred candidate – the majority of whom have been French nationals – and await the seal of approval from the US.

The appointment of David Malpass, the US-nominated candidate, in April 2019 to the position of World Bank president demonstrated that the ‘gentleman’s agreement’ is alive and well. Despite over 150 civil society organisations and individuals calling on the Board to live up to its commitment to an open, transparent and merit-based process – which was echoed by the demands by the Bank’s own staff association – Malpass was appointed president. The only other candidate put forward was Ziad Hayek, who was nominated by the Lebanese Government, but who subsequently withdrew, citing that this was due to pressure from “other governments”.

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We are back! As Lagarde announces surprise departure, time’s up for the ‘gentleman’s agreement’

Christine Lagarde announced on 16 July that she had submitted her resignation as IMF managing director, effective 12 September, following her nomination for the Presidency of the European Central Bank. David Lipton, the former deputy managing director, has assumed the position of acting managing director in the interim period.

In her resignation letter, Lagarde noted, “On July 2, 2019, the European Council proposed to nominate me to the position of President of the European Central Bank. I had agonized over this proposal during the previous 48 hours and eventually decided to accept.” Interestingly, the letter further noted that, “On the other hand (!) I realize that there is no perfect time to go. The work left to be done is challenging and I know that the Board, Staff, and Management will have their hands full.”

According to the IMF’s Articles of Agreement, the Managing Director, “shall be chief of the operating staff of the Fund and shall conduct, under the direction of the Executive Board, the ordinary business of the Fund. Subject to the general control of the Executive Board, he shall be responsible for the organization, appointment, and dismissal of the staff of the Fund.” 

An end to the ‘gentleman’s agreement’? Don’t hold your breath

Leadership selection at the World Bank and IMF is subject to a historic (and archaic) ‘gentleman’s agreement’, which has ensured that, over the past 75 years, the IMF managing director has always been European and the World Bank president is a US citizen. This agreement harks back to the creation of the institutions, when membership was limited to 45 states and when European powers still retained colonies.

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After the European stitch up of the IMF top job, the case for major reform is clearer than ever

First published on the World Development Movement blog on 30 June 2011

As Christine Lagarde is briefed on her new job as the managing director of the IMF (the World Bank’s sister organisation, set up post-war to promote economic stability) we are left to reflect on the rigged selection process and sad inevitability of her appointment. The legitimacy of the Fund, already in pieces, was dealt a further blow by this debacle.

Lagarde was crowned long before the formal selection process had even begun. European leaders brazenly ignored their previous commitments to an open, merit-based and transparent process. Using the Eurozone crisis as an excuse both for the speed of the process (cut from ten weeks to six), and the need for a European head, they praised and promoted Lagarde’s candidacy, openly undermining the selection process. This necessity for local knowledge and understanding clearly wasn’t the case when Africa, Asia and Latin America were in crisis.

Full article available here