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Disaster at the IMF

Buried in the avalanche of meaningless press releases from Istanbul is a highly significant item. Dominique Strauss-Kahn, Managing Director of the IMF, “has proposed the appointment of Naoyuki Shinohara, to the position of Deputy Managing Director. Mr. Shinohara, a former Vice Minister of Finance for International Affairs of Japan, will succeed Takatoshi Kato.”

This is a disaster.

I have nothing against Mr. Shinohara, who is most likely a distinguished and accomplished public servant.

But the G20 said, at its April 2009 London summit, that (paragraph 20, bullet #4), “we agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process.”

And the background briefings, from all sides, stressed that ”senior leadership” included Deputy Managing Director positions at the IMF.

To replace one Japanese national with another in this fashion is to break a critical symbolic and substantive G20 pledge--the signal it sends is that the next Managing Director of the IMF will be European, the next President of the World Bank will be American, etc., as they have always been. This further undermines attempts to rebuild the legitimacy of these institutions.

No doubt, Japan and its G7 allies put great pressure on the IMF to make this appointment. But the signal this sends to emerging market leaders is evident and, quite frankly, insulting.

It would have been a brilliant gesture, for example, to appoint a distinguished Chinese bureaucrat to this position--in fact, this was the hope of pro-IMF people among emerging markets (and there are still a few).

We are not back to zero in terms of meaningful IMF governance reform. We are deep in negative territory: All the G7 and G20 rhetoric has been exposed as empty.

[Cross-posted at The Baseline Scenario.]