Global Policy Forum

By Paul Blustein

The International Monetary Fund began the contentious process of choosing a new leader after a surprise announcement yesterday by its managing director, Horst Koehler, that he was resigning to run for president of Germany.

Koehler was replaced on an acting basis by Anne O. Krueger, the IMF's first deputy managing director, who is an American. But his departure reignited a long-running controversy over the selection process for the heads of powerful international economic institutions such as the IMF. The top job at the fund has traditionally gone to a European, and the presidency of the World Bank to an American, an arrangement that has aroused criticism, especially in developing countries.

Koehler's resignation ended his IMF tenure a little more than a year before his five-year term was to expire. It came after Germany's main opposition parties coalesced behind his candidacy for the presidency, a largely ceremonial post that can carry clout, especially at moments of national crisis. Those parties -- the Christian Democrats, Christian Social Union and Free Democrats -- hold a majority in the assembly that will choose the head of state in May.

"I accepted the nomination with a laughing eye and a crying eye, as we say in German," Koehler, 61, said at a news conference, adding that he was "very honored" but would miss his "fascinating job."

Koehler did not take the IMF in any radical new directions, so his resignation may signify little in terms of the institution's policies. He came to the job vowing to take a harder line against the giant rescue packages, with tens of billions of dollars in loans, that the IMF mobilized for crisis-stricken countries in the late 1990s. But like the Bush administration, which also spouted tough rhetoric against bailouts, Koehler found it difficult to resist the pressure for massive IMF support when important countries got into trouble.

Under his leadership, the fund approved huge loans for Brazil and Turkey, which have proved successful -- at least so far -- as well as for Argentina, which turned into one of the greatest disasters in the fund's history when the government in Buenos Aires defaulted on the bulk of its $140 billion debt in late 2001. The debacle in Argentina continues to plague the IMF, which is facing a highly charged decision in the next few days about whether to continue lending to the country despite its defiant stance on negotiations with bondholders.

Koehler's selection as managing director four years ago came after a power struggle among rich countries that was widely deplored as epitomizing the arbitrary nature of the process. Following the announcement in November 1999 by IMF Managing Director Michel Camdessus that he would retire, the German government made it clear that the time had come for a German to take the helm after two Frenchmen had held the job. Berlin's first nominee, Caio Koch-Weser, emerged as Europe's choice, but when the U.S. government blocked his selection by the IMF board, German officials indignantly insisted on Koehler, then the head of the European Bank for Reconstruction and Development. Rather than risk a breach with the Germans, other nations acquiesced.

Despite vows all around to avoid a repetition, European policymakers have shown no inclination to surrender their prerogative. Romano Prodi, the European Commission's president, told reporters in Berlin yesterday that he was "deeply convinced that this position should be occupied by a European in view of the international significance of Europe," according to Bloomberg News.

Accordingly, speculation over Koehler's likely successor immediately centered on a number of Europeans with high-level experience in financial policymaking. Among those frequently mentioned was Jean Lemierre, a suave financial diplomat who rose to the pinnacle of France's elite civil service, the directorship of the French Treasury, before taking his current job as head of the European Bank for Reconstruction and Development. Also high on many lists is Andrew Crockett, a Briton now working at J.P. Morgan Chase & Co. who earned high marks as general manager of the Bank for International Settlements. The British have never held the IMF managing directorship, and London may assert that its turn has come, as the Germans did in 2000. But France and Germany may object that Britain has become too close to the United States, some insiders said.

Other possible candidates cited yesterday include Mario Draghi, former director general of the Italian Treasury; Christian Noyer, governor of the Bank of France; Rodrigo Rato, the Spanish finance minister; and Tommaso Padoa-Schioppa, an Italian member of the European Central Bank governing council. If another German is named, Koch-Weser would be a likely choice, experts said, and if the Europeans are willing to venture farther afield, into "New Europe," they would be likely to consider Leszek Balcerowicz, the head of Poland's central bank.

Expressing dismay about the presumption that a European will be chosen, Azizali Mohammed, who advises the G-24, a group of developing countries, said, "I think it's a good time to reopen the issue. The legitimacy of the institution could be greatly reinforced if one could go through a procedure that was transparent and not as opaque as it has been all these past years."

At his news conference, Koehler declined comment on the matter, saying it is up to the IMF's executive board, which represents its 184 member nations. The U.S. Treasury also declined comment beyond issuing a statement by Secretary John W. Snow praising Koehler for having "transformed the institution in terms of its transparency," establishing a new international capital markets department and developing "better crisis prevention tools and more effective crisis management."

Across the street from IMF headquarters at the World Bank, Koehler's resignation sparked a great deal of "buzz," one staffer said, about the possibility that the Bush administration might push to appoint an American to run the IMF and relinquish the World Bank presidency to the Europeans. That would derail prospects that James D. Wolfensohn, the bank's president, would get a third five-year term later this year.