Can the BRICs Take the IMF?

The contest for the top job at the International Monetary Fund will provide part of the answer to an ongoing question that has accompanied the rise of the world's emerging powers: geopolitically speaking, what do they want? The IMF search may reveal that the world's top emerging-market countries are serious about securing a place at the global top table -- or it may show that anonymous seats in the outer circle are all they are after for now. 

The IMF has been run by a European ever since its creation in 1946, part of a deal in which the United States has been free to choose the president of the IMF's sister institution, the World Bank. Over the past decade, if not longer, there have been murmurs of revolt against this anachronistic entitlement. When the top job changed hands in 2000, for example, the IMF's American deputy managing director, Stanley Fischer, made an unsuccessful bid for promotion that was backed by some emerging-market governments. But in each moment of transition at the IMF, the talk of a geography-blind, merit-based appointment has been trampled. European members have swiftly united behind a candidate, and the rest of the world has been too divided to resist.

Given fast changes in the global economy, the current moment of transition ought to be different. Countries in the mature, developed world are performing sluggishly, while growth, ideas, and capital are increasingly coming from the emerging powers of Asia, Latin America, and Africa. Even more relevant, at least when it comes to the IMF leadership, is the astonishing transformation in the geography of crises. In the past, hiccups in the rich world tended to trigger full-blown financial collapses in unstable emerging markets; for example, Mexico's default in 1982 in the wake of the U.S. recession at the start of the 1980s. But the recent credit collapse began in the United States, then spread to Europe; emerging markets have proved resilient. If the IMF used to be run by the rich world on the theory that crisis-prone poor economies can't set the terms of their own bailouts, then it indeed is high time for a handover. After all, most of the IMF's bailout assistance is currently flowing to Ireland, Greece, and Portugal.

Clearly, a new kind of leadership transition at the IMF is overdue. But what will this look like in practice? In the weeks since Dominique Strauss-Kahn, the IMF's managing director since 2007, was engulfed in a sex scandal and forced to resign, the contest to succeed him has evolved through three stages.

In the first stage, the old playbook seemed to reassert itself. With lightning speed, Europe closed ranks behind its preferred successor, Christine Lagarde, the French finance minister. Given the nature of Strauss-Kahn's disgrace, the prospect of a woman at the IMF's helm has some appeal, particularly since the scandal has been accompanied by claims that the IMF is a hotbed of sexism and harassment. Besides, Lagarde is a polished performer, an accomplished lawyer, and a fluent English speaker. Yet she cannot escape the fact that her nationality makes her the very definition of a status-quo choice: French nationals have held the IMF's top position for 35 years of the IMF's 65-year existence.

Then came the second stage of the contest. The global commentariat came out in force, protesting on the world's op-ed pages of a "neocolonial" stitch-up. As this argument went, the prospect of yet another French managing director was completely out of tune with the way the world was moving. Back when the IMF was created, the French economy was among the world's five largest, but today it has slipped to ninth place. Although France now accounts for 2.9 percent of the global economy, China accounts for 13.6 percent when calculated according to purchasing-power parity. India, meanwhile, accounts for 5.4 percent, and Brazil's and Russia's percentages are slightly larger than France's, too.

Besides, said Lagarde's critics, a lawyer (even an accomplished one) is not well suited to run an organization of Ph.D. economists. The role of the IMF's leader is to speak economic truth to power, and it helps to have a firm grip on the research from which that truth derives. Moreover, Europe's leaders have mismanaged their sovereign debt crises over the past year. The next IMF leader should ideally come to the eurozone mess with a fresh perspective. He or she should not be somebody who is invested in the old approach of kicking the can down the road -- in other words, she should not be the incumbent French finance minister.

But these arguments quickly seemed moot. Lagarde emerged as the clear front-runner and set off on a tour of the world's major capitals. Seeing no prospect of victory, several plausible non-European candidates declared that they would not run. Kemal Dervis, a former Turkish finance minister, ruled himself out, as did Mohamed El-Erian, co-head of PIMCO, the global investment firm. Stanley Fischer, now head of Israel's central bank, contemplated a run but remained on the sidelines; Arminio Fraga, Brazil's highly regarded former central bank chief, stayed silent. The many divisions and jealousies within the emerging world -- China versus India, Brazil versus Mexico, to say nothing of divisions between continents -- seemed set to hand Lagarde the job. For its part, the Obama administration sat on its hands, missing an opportunity to demonstrate that it truly welcomes the participation of emerging powers in global institutions.

But now, in the third stage of the contest, Agustin Carstens, Lagarde's underdog Mexican challenger, is mounting a feistier campaign than might have been expected. Besides coming from a large emerging market (Mexico has the world's eleventh largest economy, calculated by purchasing power), Carstens has the right training and experience to run the IMF: an economics Ph.D. from the University of Chicago, a stint as a deputy managing director at the IMF, a spell as Mexico's finance minister between 2006 and 2009, and his current role as the head of Mexico's central bank. Despite its record of financial crises, Mexico now enjoys low inflation, a strong budget position, and robust economic growth. Perhaps Carstens, its leading economic technocrat, has some lessons to teach Europe.

Indeed, he already is. At a time when Europe's leaders are busy replacing their failed bailout for Greece with another package that will fail, Carstens speaks openly about the need for countries with unrepayable debt to reduce that debt by restructuring it. And whereas the European Central Bank, supported by the French government, seems leery of anything but the mildest "voluntary" debt-reduction measures, Carstens rightly says that the test of any package is whether it puts Greece in a strong enough position to return to the capital markets. Nothing that Europe's leaders are contemplating is bold enough to achieve that.

Carstens's message to the emerging-market economies is even more pointed.  "If emerging markets don't act in line with our aspirations, we will never get to where we want to be," he told the Financial Times. "If we give in to the European church and treat it as business as usual, things will never change." That is an admonition that the emerging powers need to hear. At the start of the leadership race, the so-called BRIC countries of Brazil, Russia, India, China, and South Africa issued a joint statement calling for the process of choosing a new IMF head to be merit-based. But they have failed to move from high-minded declarations to tough-minded diplomacy. So far none of the BRIC countries has come out in support of Carstens, let alone tried to arm-twist others into backing him. Unless the emerging powers wake up from their diplomatic slumber, they will be saying something clear about their readiness for global leadership.