2008 Woodie Awards
World Bank, IMF leadership must be appointed
Jonathan Gair
Issue date: 8/31/07 Section: OpEd Page
After Paul Wolfowitz's expulsion from the leadership of the World Bank, leaders from around the developed and developing world called for greater "democracy" in the selection process for the bank's new president - what would have been a drastic shift in how the global institution historically has chosen its leader. While these pressures to reform the appointment process were largely ignored, the new opening of the managing director position at the International Monetary Fund (IMF) has provoked Russia to attempt to spur change in the system-by nominating Czech economist Josef Tosovsky. Yet nothing could be a worse choice than opportunistic calls for reform of a financial institution that has to resist the urge to lend money too openly and in a populist manner.
Since the creation of the international financial system at the end of World War II, a tacit agreement has remained between the United States and Western Europe: A citizen of the former would run the World Bank, with the latter having a citizen control the IMF. While this arrangement may be overly rigid, its benefits far exceed the desire to have a democratically elected director. The best, most stable financial institutions are inherently undemocratic-we do not vote for the Chairman of the Federal Reserve, nor do European citizens affect the manager of the European Central Bank. Unlike other organizations with comparable international influence, there is a proven necessity for these institutions so that they may remain as autonomous and insulated as possible from political rivalry, such as the current populist choices that emerging states like Brazil and South Africa would attempt to enable. Even with this undemocratic method of management, the World Bank and the IMF have succeeded in maintaining economic stability for the past six decades.
However, the core problem is not Russia's nomination of Josef Tosovsky. Our main cause for concern includes the hasty calls for reform from individuals like Yegor Gaidar, whose wording provokes misconceptions about the functioning of the World Bank and the IMF. Gaidar, who was responsible for inciting the disastrous and mishandled process of Russian economic shock therapy after the collapse of the Soviet Union in 1991, has now had a letter published in the Financial Times describing international monetary institutions as "feudal" arrangements, concurring with recent statements by Brazil, Russia, South Africa, and Australia that argue against the current command of appointments by Western states. Maybe Gaidar forgets how staunch international lending decisions, rather than flooding the Russian economy with money, eventually forced some of the most effective reforms in Russia and paved the way for the state's current economic expansion.
Since the creation of the international financial system at the end of World War II, a tacit agreement has remained between the United States and Western Europe: A citizen of the former would run the World Bank, with the latter having a citizen control the IMF. While this arrangement may be overly rigid, its benefits far exceed the desire to have a democratically elected director. The best, most stable financial institutions are inherently undemocratic-we do not vote for the Chairman of the Federal Reserve, nor do European citizens affect the manager of the European Central Bank. Unlike other organizations with comparable international influence, there is a proven necessity for these institutions so that they may remain as autonomous and insulated as possible from political rivalry, such as the current populist choices that emerging states like Brazil and South Africa would attempt to enable. Even with this undemocratic method of management, the World Bank and the IMF have succeeded in maintaining economic stability for the past six decades.
However, the core problem is not Russia's nomination of Josef Tosovsky. Our main cause for concern includes the hasty calls for reform from individuals like Yegor Gaidar, whose wording provokes misconceptions about the functioning of the World Bank and the IMF. Gaidar, who was responsible for inciting the disastrous and mishandled process of Russian economic shock therapy after the collapse of the Soviet Union in 1991, has now had a letter published in the Financial Times describing international monetary institutions as "feudal" arrangements, concurring with recent statements by Brazil, Russia, South Africa, and Australia that argue against the current command of appointments by Western states. Maybe Gaidar forgets how staunch international lending decisions, rather than flooding the Russian economy with money, eventually forced some of the most effective reforms in Russia and paved the way for the state's current economic expansion.
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