German set to take over as IMF chief

German set to take over as IMF chief
Douglas Busvine

BERLIN, MAR 14: Germany's double-or-quits bid to take control of the International Monetary Fund paid off on Tuesday as Japan added its support to that of the United States for Berlin's second-string candidate Horst Koehler.

Chancellor Gerhard Schroeder said he was pleased that US President Bill Clinton had backed the head of the European Bank for Reconstruction and Development to become the first German to head the Fund in its 50-year-old history.

Japan withdrew its own long-shot candidate, former financial diplomat Eisuke Sakakibara, and threw its weight behind the 57-year-old EBRD chief. Koehler's appointment now appears to be a formality after emerging economies, including Russia, also expressed support. "I am delighted at the decision taken by the US President," Schroeder said after he was assured by Clinton of Washington's backing in a telephone call on Monday night.

But the sense of relief was palpable here after the candidacy of Schroeder's first choice, Deputy Finance Minister Caio Koch-Weser, collapsed just over a week ago in the face of implacable US opposition.

A second rejection would have badly damaged transatlantic ties. And it would have wrecked Schroeder's strategy of introducing a new assertiveness into German foreign policy to match the economic pre-eminence of Europe's largest economy.

Koehler, a conservative former deputy finance minister and summit "sherpa", was due to meet Schroeder in Berlin later before flying on to Washington to present himself to the IMF Executive Board, a government source said.

He will also meet his likely future deputy Stanley Fischer, who has been temporarily in charge of the IMF since Michel Camdessus stepped down last month after 13 years as chief. Koehler, thanks to the speedy endorsement from major IMF shareholders, will start on a stronger footing than Koch-Weser would have done after months of damaging criticism in the media and from Germany's partners finally destroyed his candidacy.

But the endorsement he received from the White House was still less than ringing, with spokesman Joe Lockhart saying only that Clinton was "prepared to support" Koehler for the job as long as the Fund's existing management team was kept in place.

IMF sources expect the European Union, which agreed on Monday to put forward Koehler, to nominate him formally on Tuesday. The board could hold an informal straw poll on his candidacy later this week. If a consensus emerges in that straw poll, a final, formal vote could be held and Koehler would win the job.

FUNDAMENTAL DIFFERENCES REMAIN: Even though Europe and the United States now agree on personalities, they remain fundamentally at odds over how the IMF should interpret its future policy role as the guardian of global Financial stability.

Washington, under pressure from a hostile Congress, wants to scale back the Fund's role to make it a fire fighter capable of containing economic crises.

Europe, meanwhile, favours a more relationship-based role in which the IMF offers long-term funding and guidance to countries in Financial trouble.

Koehler -- an adviser to former Chancellor Helmut Kohl whotook a tough line on monetary stability in the runup to European monetary Union -- is closer to the American line than Koch-Weser, a former World Bank executive with a background in development economics, analysts say. "It is clear that Koehler is a hardliner who will sympathise with the reform project that the United States have initiated," Norbert Walter, Chief economist at Deutsche Bank, said.