May 18, 2011 / 12:00 AM / 8 years ago

Emerging nations push for say on next IMF chief

WASHINGTON (Reuters) - Emerging market countries challenged Europe’s grip on the leadership of the International Monetary Fund on Tuesday as pressure mounted for the fund’s jailed managing director Dominique Strauss-Kahn to quit.

IMF chief Dominique Strauss-Kahn sits behind court officer as he waits for his arraignment to begin in Manhattan Criminal Court in New York May 16, 2011. REUTERS/Emmanuel Dunand/Pool

In a significant move China, which last year become the IMF’s third most powerful member country, called for “fairness, transparency and merit” in the selection of the next IMF boss.

Brazil and South Africa echoed China’s message and insisted the selection of the next head of the IMF be based on a candidate’s qualifications and not their nationality.

As emerging nations began staking out their positions in the expected leadership battle, two European finance ministers cast doubt on Strauss-Kahn’s ability to run the global lender.

The next IMF chief faces three looming issues: dealing with the debt crisis in Europe, whether the United States can reach a political agreement on how to reduce its national debt, and problems in emerging countries that face a risk of inflation bubbles and need to permit currency appreciation.

The world’s fast-growing developing economies have lobbied aggressively for an overhaul at the IMF and have expressed growing frustration at being shut out of the process on who runs the global institution.

A long-standing agreement between the United States and Europe has ensured that a European has always headed the IMF and an American its sister organization, the World Bank.

The arrest of Strauss-Kahn for sexual assault and attempted rape of a hotel maid in New York has set off a round of jostling for position on who could replace him and invigorated emerging market countries’ push for change.

Strauss-Kahn, who was refused bail on Monday and is being held in a New York jail, has denied the charges.

IMF board officials said there was a push by some countries for a speedy resolution to Strauss-Kahn’s future, while others cautioned against judging him too quickly before he had been formally indicted. He appears in court again on Friday.

China’s Foreign Ministry declined to comment on the charges against Strauss-Kahn, but a spokeswoman, asked about how IMF leaders are chosen, said: “We believe that this should be based on the principles of fairness, transparency and merit.”

It was the first time China has weighed in early and so publicly in the IMF selection debate.

IMF experts and analysts have said that if Strauss-Kahn resigns soon, it may force countries to maintain the status quo and choose a European. Throwing open the process may take longer at a time when the job needs to be quickly filled.

Brazil has been one of the most aggressive emerging economies to call for an end to the status quo. Brazilian Finance Minister Guido Mantega told the IMF’s steering committee last month it was “high time that we make a political breakthrough in departing from the outdated practice.”

BRAZIL WANTS TO END STATUS QUO

A senior Brazilian government official said Brazil wants the IMF’s next chief to come from a large emerging market nation, but acknowledged Europe was likely to keep the job.

“We believe India and Brazil would be good options,” the official said, speaking on condition of anonymity. “But we also believe that Europe is likely to keep its deep stranglehold on the position, and so we’re not planning to push very hard on this issue for now.”

South African Finance Minister Pravin Gordhan said institutions like the IMF had to reform and fully reflect all of its members and not just industrialized nations.

German Chancellor Angela Merkel said on Monday that it was not yet time to discuss succession but there was a good case for a European to occupy the job.

The United States, the IMF’s largest and most influential shareholder, has yet to comment on the selection process since Strauss-Kahn’s arrest. But it has made a strong case in recent years for emerging markets to have a greater say in the IMF.

Washington’s predicament is that if it forces a change at the helm of the IMF, it may have to give up the World Bank’s captaincy. That would be politically thorny among lawmakers who could force the U.S. to cut funding for the bank.

In April 2009 at a meeting of the Group of 20 in London, the United States signed onto a communique by the world’s major economies that agreed “the heads and senior leadership of the international financial institutions should be appointed through an open, transparent and merit-based” process.

Strauss-Kahn has been deeply involved in talks over European Union and IMF bailouts for debt-strapped countries. Another of his signature achievements has been reforming the IMF’s voting structure to give emerging economies more power.

The IMF has named the fund’s deputy, John Lipsky, as acting managing director although he has announced he is stepping down when his term expires in August.

French Finance Minister Christine Lagarde has emerged as a front-runner for the IMF job among Europeans, but her nationality may count against her. Former Turkish Finance Minister Kemal Dervis, who now runs an economic program at the Brookings Institution, is a leading name in some Washington policymaking circles and among some emerging economies. Turkey’s status as a large emerging market close to Europe could ease concerns by developing nations.

Other possibilities are Agustin Carstens, governor of Mexico’s central bank, and Montek Singh Ahluwlia, an economic adviser to Indian Prime Minister Manmohan Singh, as well as South Africa’s former Economy Minister Trevor Manuel.

Additional reporting by Chris Buckley in Beijing, Brian Winter in Sao Paulo and Stella Mapenzauswa in Johannesburg; Editing by Christopher Wilson

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