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Will Indian finance minister break IMF tradition?

WASHINGTON (Reuters) - The International Monetary Fund faces a critical test of its willingness to give emerging economic powers more say as it considers who will next chair its policy-setting committee.

Finance Minister P Chidambaram is seen during a news conference in New Delhi in this February 28, 2007 file photo. REUTERS/B Mathur

Finance ministers from India, Canada and Italy are in the running for the influential post.

Europe has traditionally captained the International Monetary and Financial Committee (IMFC) except for briefly in the early 1980’s when Canada filled the seat.

But with former French finance minister Dominique Strauss-Kahn set to continue a custom of a European becoming IMF Managing Director in a vote this week, IMF board officials say there is growing support among members countries to select Indian Finance Minister Palaniappan Chidambaram IMFC chairman.

“The IMFC chair is not just a ceremonial role, it has some influence in how the IMF’s policies are shared in the end,” said Domenico Lombardi, president of the Oxford Institute for Economic Policy, an institution that aims to bridge the gap between academic research and policy making.

“The current selection is likely to be dominated by the need to engage with emerging market countries,” Lombardi said, adding that while all of the candidates were well suited for the job, Chidambaram” had a clear advantage for this reason.

“It could be a softer way for emerging Asian countries to break into the institution, set a precedent and start pushing more aggressively reforms from within the institution,” he added.

The IMFC position came open in July when former British finance minister Gordon Brown became prime minister, obliging him to give up a post he held for a decade.

IMF board officials, speaking on conditions of anonymity because the selection process was ongoing, said picking Chiadambaram could ease current tensions over Europe’s and the United States’ continuing dominance of global institutions.

Brown was widely regarded as a strong IMFC chairman, influencing the funds’ role in poor countries and broader institutional reforms.


But the significance of the current IMFC election process is that it comes at a time when the institution is searching for a new role in a world where fewer countries are turning to it for emergency loans and big countries are all too often ignoring its policy advice.

Formally, the IMFC is considered an advisory body reporting to the IMF board of governors, made up of the fund’s 185 members, but in practice it provides political legitimacy to the activities and policies of the IMF.

While the selection process of the IMF managing director is more transparent, the appointment of the IMFC chair has yet to be thrown open and is decided by its 24 member countries.

“The IMFC needs to become more aware of its own potential and to push for greater transparency within the broader governance framework of the institution,” said Lombardi, who is a former World Bank board member.

Canada has traditionally had a strong profile among developing countries and is regarded as a neutral player in the broader global political economy.

“Still, it is the long-term interest of the large shareholders to make the IMF more inclusive,” Lombardi added.

Meanwhile, the United States has said that Italian Finance Minister, Tommaso Padoa-Schioppa, known in international policymaking circles as a competent economist and multilateralist, would make a good candidate.

But Lombardi said if Padoa-Schioppa was not picked for the IMFC job, it would not be because of his credentials for the job. “It’s just that the pendulum is shifting towards other parts of the world,” he noted.

The vote on the IMFC chairman is expected before the IMF fall meeting in October in Washington D.C.