IMF RESIGNATION HIGHLIGHTS NEED FOR REFORM
Internal memo questions group's legitimacy; criticizes lack of transparency, democracy, and accountability

April 16, 2004 -- New issues are being raised regarding the governance of the International Monetary Fund  since the March 4th surprise resignation of the former Director Horst Koehler. The board of the fund, comprised of directors from more than 100 countries, is calling for new transparency measures in the selection process and an end to the US-Europe domination of leadership. Koehler, who resigned after serving only 4 of his 5 year term, is running for the German presidency.

The controversy was magnified when a leaked memo from one of the IMF's top officials surfaced criticizing the fund's lack of transparency in election measures. Jack Boorman, the IMF's head of policy development and review made strong rebuke of the fund's practices, "This issue is of critical importance. The Fund cannot preach transparency, good governance and other virtues to the membership and to the international community more broadly unless it is willing to apply those virtues in its own decision-making."

The dissent was echoed by about 2/3 of the fund's membership, bringing up questions of the next leader's legitimacy. Some argue the legitimacy of the organization as a whole is at stake in dismantling the anachronistic de jure agreement between Europe and the United States in which Europe is to select the IMF's Managing Director while the United States appoints the President of the World Bank. Many are concerned that the new election will be decided yet again by nationality instead of merit. This most recent squabble within the institution raises many questions on the issue of democracy in the IMF. The breakdown of voting rights in the IMF is one issue of concern; Europe makes up 9 Executive Directors on the IMF Executive Board and accounts for about 30% of the total voting power, while developing nations that account for about 85% of the world's population and have a gross domestic product over twice that of the EU are relegated only 38% of the total votes.

Ariel Buira, Director of the G-24 Secretariat and member of IMF Democracy, a coalition comprised of International Financial NGO's, has been a vocal spokesman for reform of the IMF. Buira charges "it is a cruel irony that the people most affected by the IMF and its policies have no voice in the selection of its CEO." He goes on to note that it is "unjustifiable that Denmark, for example, can have a greater voting power than Korea. The fact that Belgium has 52% more voting power than Brazil and 74% more than Mexico, which are among the world's largest economies, defies fundamental principles of fairness." Although it is logical that the largest contributors should have a larger say in choosing new leadership, the antiquated election formalities created in 1945 are clearly restraining the legitimacy of narrowly appointed leaders and the total efficacy of the group. Limiting the talent pool to only a small number of countries just doesn't make sense, says Karin Lissakers the former US Executive Director to the IMF. "Latin American officials, for example, have dealt not only with economic recovery in theory, but also in practice.

A newly appointed official who is opposed by 2/3 of the total voting population would most definitely have a more difficult tenure directing the institution than would a popularly elected director. It is time for the IMF to lead by example and conduct legitimate, democratic, and transparent elections. The future of the IMF will depend on it.

Financial Policy Forum
Excellent, comprehensive source of information on the election, including official and NGO statements, reports and newspaper articles.

IMF Site Explaining Managing Director Selection Process

New Rules for Global Finance Coalition
New Rules for Global Finance is a coalition organizations and scholars dedicated to the reform of the global financial architecture.