Money News

Europe stays out of IMF policy job contest

WASHINGTON (Reuters) - Europe, in an unprecedented break with tradition, has decided to stay out of the running to chair the International Monetary Fund’s main policy-setting committee, IMF board and European sources said on Tuesday.

IMF board sources said finance ministers for Egypt, India and Canada were named as candidates for the IMF’s 24-member International Monetary and Financial Committee during a recent meeting of the IMF executive board of member countries.

A decision by the board is expected to be announced shortly before the next meeting of IMF member countries in October.

The committee meets twice a year to discuss the direction the IMF will follow and is the public face of the global financial institution, best known for bailing out countries in times of financial crisis.

A European finance minister has customarily been chairman of the committee except for briefly in the early 1980s when Canada filled the seat.

The tradition of a developed country at the helm of the IMFC was challenged last year for the first time by India, which proposed its finance minister, Palaniappan Chidambaram, as a candidate in a move to throw open the job to all members, including developing countries.

Italian Economy Minister Tommaso Padoa-Schioppa won the vote after an unusual and politically intense vote between him, Canadian Finance Minister Jim Flaherty and India’s Chidambaram.

However, Padoa-Schioppa’s term was cut short in April when he resigned because of a change of government in Italy following a snap election. Previously, the post was held by Britain’s Gordon Brown, who is now British prime minister.

Padoa-Schioppa said last year Europe would rotate the chair every few years, instead of an open ended term, in a move to end Europe’s dominance of top posts in the IMF.

IMF board sources said the Group of Seven industrialized nations were divided over whether to back G7 member Canada or change the status quo by supporting either Egypt or India.

Insiders said political deals are already being cut that makes it a likely contest between Canada’s Flaherty and Egyptian Finance Minister Youssef Boutros-Ghali, who is a former IMF economist and is fluent in Arabic, English, French, Italian and Spanish.

IMF board sources said emerging and developing countries would likely favor Egypt because of India’s role in pushing through controversial changes in voting shares of mainly large emerging economies, including its own.

While the move was one of the most comprehensive overhauls of the IMF’s voting system in 60 years, some emerging and developing countries felt it was not enough to properly realign members’ voting power, which has long favored the United States and Europe.

It is believed that IMF Managing Director Dominique Strauss-Kahn favors a decision by consensus among member countries.

Domenico Lombardi, president of the Oxford Institute for Economic Policy and a former IMF board member, said it was in Europe’s interest to seek change by backing more diversity.

“The Europeans understand that it goes against their own interests in trying to dominate all of the key posts,” said Lombardi, who is a senior scholar at the Brookings Institute in Washington.

He added that it was the first time that two candidates from emerging countries have vied for the IMFC top post.

“This is in itself a welcome development,” Lombardi said.

“What is important now is that the selection process of the IMFC, which has always been considered opaque and less than fully transparent, moves forward in an open and transparent way,” he said.

“If the IMF aims to be a global institution, emerging market countries ought to have the right to put forward their own candidates and be considered on merit,” he added.