Former International Monetary Fund leader Dominique Strauss-Kahn listens to proceedings in his case in New York state Supreme Court, Thursday, May 19, 2011.Richard Drew/AP
The International Monetary Fund's executive board will attempt to select a replacement for former managing director Dominique Strauss-Kahn by the end of June, promising the selection process will be "open, merit-based and transparent."
Shakour Shallan, the Egyptian dean of the 24-member board that runs the IMF, made the announcement late Friday after an all-day meeting of his group that also included approval of a $36.8-billion (US) loans package for Portugal.
"There was broad support in the executive board for this procedure," Mr. Shallan said in a statement released by the IMF in Washington.
The IMF was under pressure from some of its largest members to quickly fill the leadership void created by Mr. Strauss-Kahn's resignation late Wednesday, when he informed the institution he was stepping down to concentrate on his defense against charges by New York police that he attempted to rape a hotel cleaner last weekend in Manhattan.
Treasury Secretary Timothy Geithner repeated for the second day in a row on Friday that he wants an open succession process, but one "that moves quickly." In Europe, leaders coalesced around a candidacy by popular French Finance Minister Christine Lagarde, who has emerged as the front runner for the job even as emerging markets such as Thailand and South Africa say it's time to end the tradition of automatically selecting a European to lead an institution that has grown to represent 187 countries.
If Europe's leaders intend to put forward Ms. Lagarde's name for a job that has been held by a Frenchmen for more than half the fund's 65-year existence, the can do so starting Monday. The deadline for nominations is June 10.
That gives emerging markets three weeks to counter what appears to be a concerted effort by European governments to maintain their hold on the top job at the IMF - a privilege that dates back to a gentleman's agreement struck with the United States after the fund's creation in the aftermath of the Second World War. The U.S. has used European backing to select the No. 2 at the IMF and the president of the World Bank, the fund's sister institution.
European politicians have been able to respond quickly to Mr. Strauss-Kahn's shocking arrest a week ago, taking advantage of their long history at achieving consensus within the European Union. The world's newer economic powers, a group led by China, India, Brazil, lack the institutional and political ties to quickly get behind a single candidate.
Kemal Dervis, the former Turkish finance minister who was among the favourites on odds maker William Hill's list of potential IMF managing directors, said in a statement that he will not be seeking the job. Philippine Finance Secretary Cesar Purisima said in an interview with Bloomberg News that Singapore Finance Minister Tharman Shanmugaratnam, who chairs the IMF's steering committee of ministers and central bankers, should be considered. Russia and some other ex-Soviet states are backing the head of Kazakhstan's central bank, Grigory Marchenko.
"The Europeans have the great advantage that they have institutional mechanisms to agree on a candidate upfront," Ousmène Mandeng,head of public sector investment advisory at Ashmore Investment Management in London and a former IMF official, said in a research note this week. "The emerging markets may find it more difficult to identify a common candidate and then lobby to ensure that he or she obtains sufficient support from the U.S. The U.S. remains for all practical purposes the (managing director) selection dealmaker."
As the largest contributor of the funds the IMF uses to rescue member countries on the verge of default, the U.S. is the sole country with enough votes - 17 per cent of the total - to block major decisions. The next largest shareholder is Japan at about 6 per cent. Combined, European countries hold about 30 per cent of the IMF's voting shares.
The executive board insisted that the next managing director will be chosen on merit, finding it necessary to state in the description of its selection procedure that it will select a short list of three candidates without any consideration given to "geographical preferences."
The selection guidelines state: "The shortlisting process will be implemented through indications of which candidates receive the most support among directors, taking into account the fund's weighted voting system, with the objective of completing the shortlisting process within seven days following the disclosure to the board of the candidates."
The executive board said it will attempt to choose the shortlist by consensus, but can resort to a majority vote if necessary. The shortlist will be published, and the candidates will be interviewed by board in Washington. If only three candidates are nominated, all three will get the opportunity to make their case to run the fund.
"Although the executive board may select a managing director by a majority of votes cast, the objective of the executive board is to select the managing director by consensus with the objective of completing the selection process by June 30, 2011."
Just as the executive board was under pressure to move quickly in finding a replacement for Mr. Strauss-Kahn, the IMF's overseers also were beginning to face calls to resist pressure to bow to European and American pressure.
Mohamed El-Erian, chief executive of Pacific Investment Management Co., the Newport Beach, California-based firm that runs the world's biggest bond fund, wrote Friday that Europe's apparent rush to nominate Ms. Largarde risked undermining their own candidate.
Mr. El-Erian said Ms. Lagarde has "considerable" skills, and added that the appointing a woman to lead the fund for the first time would send an "important message to an IMF demoralized by disturbing allegations of sexual assault by Strauss-Kahn."
Yet, "Lagarde's appointment would be controversial, not because of her qualifications but because of the circumstance," Mr. El-Erian said in an opinion article published by Reuters. "Regrettably, her name has emerged in the context of a vocal desire by European politicians to extend a feudalistic tradition that is both outmoded and harmful - that of having one of their nationals, and only their nationals, at the helm of the IMF."