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Claude Smadja: An emerging-market coalition

Old rivalries must be buried to nominate a non-American head for the World Bank

Claude Smadja 

Here we go again! The will have to appoint a new president in June, and we hear the same broken record again about why the European monopoly on the International Monetary Fund’s (IMF’s) leadership and the US’ on the World Bank’s should be indefinitely perpetuated. And each time things boil down to something like: “Yes, times have changed and, yes, candidates from other parts of the world should of course be considered… But not this time please!”

Remember the charade about Europe imposing at the IMF under the pretext that, in view of the European crisis, nominating a European candidate well-versed in the intricacies of European politics and of the depth of the European economic debacle was a necessity? We are getting the US version of the same story, in which Washington must impose its candidate because, given the times, it would be very difficult to secure the World Bank’s funding from the if its head is not an American. As The New York Times reported on March 13, Washington has already informed the other member countries that it intends to retain control of leadership.

A group of developing countries is challenging the US’ hold on the president’s position by nominating two very credible candidates — Ngozi Okonjo-Iweala, Nigeria’s finance minister, and Jose Antonio Ocampo, the Colombian finance minister. But with its vote share and the expected support from Europe – returning the favour of Ms Lagarde’s election at the IMF – Washington will ensure that another American succeeds at the end of June. The jockeying from US candidates for the job has been quite intense in the last few weeks, with Jeffrey Sachs and Larry Summers busying themselves in unabashed self-promotion. The may want to create some pretence of being more sensitive to the wishes of some emerging countries – which have announced their support for the nomination of Jeffrey Sachs – by nominating the development economist despite the antipathy of the Treasury department towards him.

This, however, will not address the real issue: that the US and Europe have the last word when it comes to the top nominations at the IMF and the World Bank. That the Americans and the Europeans want to keep the privileges and power of a bygone era should not surprise anyone. What is, however, quite astounding is the supine acquiescence, if not docility, of other countries – India and China included – in accepting tacitly the continuation of this anomaly, even as these countries don’t miss an opportunity to remind the rest of the world that their voice should now be taken into account more seriously. Of course, one can easily guess China’s calculations in keeping quiet about Christine Lagarde’s automatic appointment at the IMF, despite the European pledges when Lagarde’s predecessor – – was nominated for that job that the selection process at the IMF would change.

Whatever the short-term calculations, and without underestimating the difficulty to break the long-held US-European monopolies, it is about time some of the big emerging market economies – China, India, Brazil, Mexico, Korea, South Africa – showed that they are serious about adjusting the Bretton Woods institutions to the new realities of the global economy. Otherwise, they had better stop talking about it. In that respect, one has to give Mexico credit. It did not hesitate to make a bid for the IMF leadership last year. Also, as this year’s chair of the G20, Mexico is reiterating the demand for a clear and transparent process of nomination based on merit instead of the existing one, which eliminates any possible candidacy originating from the 6.2 billion people – out of a world population of seven billion – who don’t have the “privilege” of being American or European.

Of course, there is no ignoring the rivalries, frictions and contentious issues that exist between, say, India and China or Mexico and Brazil. However, the stakes in ensuring that existing international economic and financial institutions reflect the perspectives and interests of the emerging market economies better should be high enough strategically to help transcend – at least momentarily – specific bilateral rivalries and contentious issues. Contrary to what people thought a few years ago, the roles of the IMF and the World Bank are not going to diminish in the years ahead. The institutions are going to become even more important as, respectively, a major stabiliser of the international monetary and financial system and as a source of funding for emerging market economies facing huge financial needs for the do-or-die development of their human resources and physical infrastructure.

Let’s face it: whatever their increasing weight on the international scene, neither China nor India or Brazil or Mexico alone is currently in a position to challenge the US or European monopolies. It is only by creating a coalition that these countries would show enough determination. That would create enough pressure for Washington or the European capitals to understand that it is time to adjust.

Once again, making the necessary joint effort to break this US-EU monopoly is not any kind of ego massage or status-seeking exercise on the part of emerging market economies. It is a matter of protecting strategic economic and geopolitical interests in a global environment marked by rapid changes in economic, monetary and financial situations. That requires the existing international institutions and available tools to function in a way corresponding to the priorities and perspectives of the greatest possible number of countries.

This is directly linked to the question of whether the – much publicised at the time of its creation as a new global governance structure that would reflect the emerging economic and geopolitical realities – will remain mostly a discussion club or will become an effective platform for tackling global challenges. Will governments in Delhi, Beijing, Brasilia, Seoul or Mexico City understand that the stakes are high enough to go beyond their differences or divergence on one issue or another, and achieve the kind of “coalition of the willing” that will ensure that their interests are really taken into account?


 

The author is president, Smadja & Smadja, a strategic advisory firm

First Published: Fri, March 23 2012. 00:45 IST
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