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Governance of the International Financial Institutions: The case for merit-based selection of agency heads

Working Paper 2007-03

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The Managing Director of the International Monetary Fund and the President of the World Bank are appointed under a 60 year old unwritten convention that the Managing Director is nominated by the countries of Western Europe while the President is nominated by the United States. All ten Bank Presidents since 1946 have been US citizens and all nine IMF Managing Directors have been citizens of one of six Western European countries.

This paper argues that these arrangements are anachronistic, are contrary to modern corporate governance best practice, are inconsistent with the multilateral character of the IMF and World Bank, and undermine their legitimacy and effectiveness. Removing nationality restrictions on candidates for senior leadership positions would be an important complement to other initiatives to modernise the governance arrangements, strategies and operations of the IMF and World Bank. In particular, it would be consistent with measures being taken to enhance the voice and participation of developing member countries, particularly emerging market economies whose voice has not kept pace with their growing economic weight. Australia has been a strong advocate for these governance reforms.

The paper briefly examines the origins of the convention and the evolution of selection processes for the positions of Managing Director and President over recent years. It also identifies concerns expressed by many member countries about the processes. These concerns relate to transparency and consultation as well as the nationality restrictions inherent in the convention.

Alternative selection models are also discussed to illustrate how the issue might be taken forward in a practical way.