Economic Upheaval

In the discreet world of international finance, important decisions are supposed to be settled behind closed doors, preferably over cigars and brandy. So the unseemly--and very public--squabble that broke out last week in Washington when the directors of the International Monetary Fund deadlocked over who would become the Fund's new managing director was quite out of character. Shouting matches have so far been avoided, but stress levels are rising on the executive floors of the IMF's headquarters. The maneuvering has embroiled not only the White House, just three blocks away, but governments in Paris, London, Tokyo and--especially--Berlin. The Germans are furious that the Americans have openly blackballed their candidate to lead the IMF, State Secretary Caio Koch-Weser. Complained German Finance Minister Hans Eichel, "The U.S. does not have the right to say who Europe's candidate should be."

On the face of it, Eichel seems to have a point. According to an informal convention dating back to the founding of the IMF in 1946, a European is always selected to head the Fund, while an American runs the World Bank. When Frenchman Michel Camdessus decided to step down after 13 hectic and controversial years in the job, the Germans--who believe that they have been shortchanged when it comes to leading major international organizations--quickly floated Koch-Weser's name as Europe's candidate.

Some Europeans--notably the French and British--were cool toward Koch-Weser, but went along rather than start an unnecessary squabble with the Germans. Koch-Weser, after all, seemed a perfectly reasonable choice. Urbane, fluent in five languages, he had more than a quarter-century of experience at the World Bank. But competent and congenial as Koch-Weser might be, his critics say he lacks the experience of heading a central bank or finance ministry. Nor do they consider him tough enough to successfully butt heads with presidents and prime ministers, which is part of the job description.

But there were other problems with Koch-Weser's nomination aside from his shortcomings on the gravitas scale. With 182 members, the IMF is no longer a private bankers' club for the major Western industrial nations. "There is a growing sense in the developing world that this institution is more important to us than it is to the rich G-7 nations," says an IMF executive director representing a group of Third World nations. The governments of many developing countries were annoyed that neither the Germans nor the Europeans bothered to consult them on Koch-Weser's selection.

The Japanese felt equally aggrieved at European presumption. "We don't think it should be automatic that a European gets the job [of IMF director general]," says Takatoshi Ito, a deputy vice minister of finance in Tokyo. The Japanese nominated Eisuke Sakakibara, a former senior Finance Ministry official who is in some ways the antithesis of Koch-Weser. Known as Mr. Yen for his ability to jawbone the currency markets, Sakakibara is brash, bold and bubbling with ideas. Perhaps too many ideas, say his critics. He stands no chance of getting the job, but by putting his name in play the Japanese have gone on record that next time around a non-European clearly should be considered for the top IMF job.

More serious--but just as problematic--is the nomination of Stanley Fischer, the first deputy managing director of the IMF. Fischer is extremely popular with the Fund staff and admired as a brilliant economist. Born in what is now Zambia of Latvian-Jewish parents, Fischer was nominated as an "African" by a group of 20 African countries. That was a clever gambit, but it did not mask Fischer's fatal flaw: he is a naturalized American. President Clinton made it clear that he was unwilling to buck IMF tradition--and his European allies--by backing an American. "I think the Europeans should lead the IMF," said Clinton. "And it would suit me if a German led the IMF."

A straw poll of the 24 members of the Executive Board last week failed to give any of the three candidates a winning majority. The high number of abstentions indicates that many countries are waiting for a new consensus candidate to emerge.

As the world's most important financial institution and the safety net for troubled economies, the IMF can ill afford many months of squabbling over who's going to be the new boss. The fund is also under attack from one set of critics for imposing severe austerity measures on emerging economies it is claiming to help, and from another group for pouring too much money into coffers of corrupt governments. A reform program for the IMF, nearly everyone agrees, is urgently needed. So last week, central bankers and finance ministers around the world were once again getting out the cigars and brandy in hopes that they can find a candidate willing--and able--to take on the job.

With reporting by Gareth Harding/Brussels, Donald Macintyre/Tokyo and Regine Wosnitza/Berlin