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Tuesday, August 06, 2019, 15:29
IMF can nominate Asian to succeed Lagarde and tune in to global economic shift
By Karl Wilson
Tuesday, August 06, 2019, 15:29 By Karl Wilson

International Monetary Fund Managing Director Christine Lagarde at a session of the annual meeting of the World Economic Forum in Davos, Switzerland, Jan 4, 2019. (MARKUS SCHREIBER / FILE PHOTO / AP)

The search has been on for a new managing director for the International Monetary Fund, following the resignation of Christine Lagarde who is to become president of the European Central Bank in November. The European Union has updated its profile by nominating Kristalina Georgieva, World Bank’s chief executive.

Established at the end of World War II to bring stability to the world’s monetary system, the Washington-based IMF has drawn its leader from Europe – while the US appoints the head of the World Bank, also-based in Washington. Both organizations were the product of the Bretton Woods Agreement in 1944.

It could be argued that in the 21st century, the rules governing who runs the IMF – and the World Bank for that matter – need to be overhauled to reflect today’s changing world.The focus is no longer on the old economies of Europe and the United States. The focus is Asia.

The world, however, has changed dramatically since then. So, should the leadership of the IMF be exclusively European?

Why not select to include Asia? After all, Asia has seen dramatic growth in the last 70 years to warrant some consideration. And there is no shortage of qualified candidates here in Asia who could fill the position just as well as a European.

ALSO READ: Asia in transformation

Figuring high on the list would be former Reserve Bank of India governor Raghuram Rajan, and Tharman Shanmugaratnam, who was recently appointed senior minister in the Singapore government and is concurrently the chairman of the Monetary Authority of Singapore. These are just two that come to mind.

It could be argued that in the 21st century, the rules governing who runs the IMF – and the World Bank for that matter – need to be overhauled to reflect today’s changing world.

The focus is no longer on the old economies of Europe and the United States. The focus is Asia.

To put this into perspective, Asia’s share of global GDP has risen from just 8 percent four decades ago to 34 percent today. For its part, the European Union’s share has dropped from 30 percent to 16 percent, and falling.

According to data collected by the United Nations Conference on Trade and Development, Asia’s economies by 2020 will be larger than the rest of the world combined.

Asia is already home to more than half the world’s population, and by next year it will also become home to half of the world’s middle class.

None of this is lost on the region’s leaders. India’s Prime Minister Narendra Modi recently told the annual meeting of the Asian Infrastructure Investment Bank that Asia has now become the “main growth engine of the world”.

A key contributing factor, of course, is the rise of China in the last 40 years to become the world’s biggest economy, accounting for 21.95 percent of global GDP.

So why does the IMF continue as if it were an elite European club? The simple answer appears to be: That’s the way it has always been, so why change it?

Look at how long it took for women to break the glass ceiling before Lagarde was chosen as the IMF’s managing director.

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There have been voices in the past saying the top job should be opened to better reflect the changing global economy. The G20, on occasion, has suggested that the time is ripe for change.

At the end of the day, however, little has changed. The old-world gentlemen’s club will make sure that the “right man” will be selected for the job. The women have had their go.

So, who will be given the role?

The EU nomination of Kristalina Georgieva as its candidate for the next managing director of the IMF was only reached after long hours of votes on Aug 2 and even afterwards other voices were heard. Georgieva, a 66-year-old Bulgarian national, may well be a strong candidate herself but IMF has a chance to change further.

READ MORE: EU govts seek name for IMF head among four, with no UK candidate

The EU shortlist before that had also included Jeroen Dijsselbloem, the former Dutch finance minister; Olli Rehn, the head of Finland’s central bank; Portugal’s Mario Centeno, chair of the Eurogroup of finance ministers; and Spain’s finance minister, Nadia Calvino.

Others who have been suggested in passing include Britain’s former chancellor of the exchequer George Osborne; Jens Weidmann, president of the German Bundesbank; and Dame Minouche Shafik, an Egyptian-born British/American who is the director of the London School of Economics.

Lowy Institute’s Mike Callaghan wrote recently that while the political jockeying is well underway, the IMF continues with the “fiction that there will be an open and merit-based selection process. And the IMF executive board continues with the fiction that it will play a decisive role in making the selection.”

He said against the background of long-standing angst that the governance processes of the IMF needed to be reformed, the executive board announced in 2016 that it had adopted an open process for selection of the managing director.

Individuals may be nominated by fund governors or executive directors, the executive board would draw up a short list, and the candidates would be interviewed by the board to assess their relative merits. The board would then make a selection, either by consensus or majority vote.

Callaghan makes the point that it all sounds good in theory, but it is irrelevant as to how the next managing director will be chosen. The backroom political deals will have been done well before the board gets involved.

It may be Asia’s century, but not yet as far as the IMF is concerned.

The author is China Daily’s bureau chief in Sydney.

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