The battle for the new head of the International Monetary Fund, the world's leading financial instit...
The battle for the new head of the International Monetary Fund, the world's leading financial institution, is finally over, and the name of Germany's second-choice candidate, Horst Kohler, is in the bag, The selection process was an inglorious, murky affair which has damaged Germany, the EU and the IMF itself.
Chancellor Gerhard Schroder, undaunted by domestic upheaval, has shown the new, assertive face of 21st century Germany, pushing a respectable but weak candidate, Caia Koch-Weser, until no longer viable and then switching baldly to Kohler, head of the EBRD in London, whose international credentials are even thinner.
Like top jobs in many arenas, the prize often does not go to the fittest but to the best compromise candidate or to the candidate whose backer is owed most favours. The result owes much to the fact that others wielding IMF influence were too embarrassed or too weary to stand further pressure from Berlin.
However, they must accept responsibility for some of the inevitable fallout. The process left the IMF in limbo for crucial months while disapproval at the selection itself, and with IMF performance generally, has grown. Kohler takes office with a disappointed but powerful deputy in Stanley Fischer and a formidable critic in US Treasury Secretary Larry Summers.
The IMF is still under the gun for its role in, and response to, the Asian financial crisis. Some of the institution's biggest contributors, such as the US, believe its work must be re-defined. Other members are demanding more transparent budgeting and policy decisions. No-one is comfortable with the machinations that produced the new incumbent. Smart money says a review of that process will see Kohler pushed out sooner rather than later.
Unfortunately, the European punch-up over the post has reinforced the US impression that it can run things better, faster and cheaper. Summers is already setting the IMF agenda, outlining a new role and core reforms to whoever will listen.
While European candidates, who might have coveted the job but found the timing wrong, applaud from a prudent distance, Summers is ready with a Spring offensive at the upcoming IMF and World Bank meetings. He wants far more private sector involvement in rescue packages, shifting the IMF focus (and risk) from collecting information for IMF members to providing information to prospective 'partners' through a new Market Conditions Advisory Group.
For international investors, especially in emerging markets, the new agenda will mark a sea change in their environment. The IMF aims to avoid being the fall guy next time a Russia defaults or a Mexico miscalculates the size of its foreign reserves. Huge burdens of risk previously carried by governments and multilateral institutions are about to be unloaded onto investors.
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