Global Policy Forum

Charlotte Denny and Jane Martinson

A diplomatic row erupted yesterday over attempts to find a new chief for the International Monetary Fund, after the United States vetoed the European Union's candidate for the job, German deputy finance minister Caio Koch-Weser.

In what will be seen as calculated snub to Berlin, a White House spokesman revealed yesterday that President Clinton had telephoned the German chancellor, Gerhard Schrí¶der, over the weekend and told him that Mr Koch-Weser did not meet the US requirement for a "strong candidate of maximum stature who would be able to command broad support around the world". The post of IMF managing director traditionally goes to a European. Earlier yesterday all 15 European Union finance ministers rallied behind Mr Koch-Weser's candidacy.

He faces competition from the IMF's chief economist, Stanley Fischer, who has been acting head since Michel Camdessus left last week, and former Japanese finance ministry official Eisuke Sakakibara. Despite Mr Fischer's presence in the race, the White House said it believed the IMF post should, in keeping with tradition, go to a European. "Our objective remains to work with Europe to find a strong European candidate who is able to command broad support, including that of the emerging market countries," Joe Lockhart, the White House spokesman, said.

As Washington and Berlin clashed over the directorship, a leaked US Congress report described the IMF as "high cost and low effectiveness". The report is likely to fuel US calls for a slimmed-down IMF and World Bank, which it also criticised. The congressional report, written by a commission headed by Professor Allan Meltzer of Carnegie Mellon University, is set to be released within the next month.

A draft copy leaked to Reuters yesterday concludes: "The IMF has given too little attention to improving financial structures in developing countries and too much to expensive rescue operations. Its system of short-term crisis management is too costly, its responses too slow, its advice often incorrect and its efforts to influence policy and practice too intrusive."

Conservative politicians in the US have long held the IMF and World Bank in contempt as too costly and overly bureaucratic. The Meltzer report echoes US treasury secretary Larry Summer's call last year for a far smaller IMF which would only provide short-term loans.

Keith Vaz, the Europe minister, will today oppose suggestions that Britain could abandon its membership of the European Union in favour of joining a free trade pact with the United States. Speaking in Washington, Mr Vaz will describe suggestions being promoted by the Conservative MP Michael Fabricant that Britain should join the North American Free Trade Area as "far-fetched".

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