The Kohler episode: the inside story on the surprise resignation of the IMF's top man. A lesson on the dangers of collateral damage

International Economy, The, Spring, 2004 by Klaus C. Engelen

The sudden resignation of Horst Kohler from the top post of the International Monetary Fund a year before serving out his first term raises some nasty questions that have been almost totally ignored so far in the German media. Do the Germans--in this case the country's opposition parties and their supporters plus large parts of the financial, economic, and academic elite, the media, and a large segment of the broader public--understand what giving up the most important international post means in the age of globalization?

As the result of a political power game among three opposition leaders in Germany--Angela Merkel, Edmund Stoiber, and Guido Westerwelle, the bosses respectively of the Christian Democrats, Bavaria's Christian Social Union, and the Free Democrats--Kohler, age 61, was chosen as opposition candidate to fill the post of German president. For months, conservatives and liberals had been quarreling over who should succeed Federal President Johannes Rau, a member of Chancellor Gerhard Schroder's Social Democrats who is stepping down in May after a single five-year term.

On March 4, Kohler confirmed in Washington that he was quitting his IMF post to accept the nomination as the conservative candidate for president. Since the center-right opposition parties have a twenty-one seat edge in the Federal Convention, Kohler stands a good chance of becoming Germany's ninth post-war president. In a brave gesture, the governing Social Democrats and Greens nominated their candidate, Gesine Schwan, dean of Europa-Universitat Viadrina. But her chance of winning is slim when the Federal Convention votes on the new German president on May 23, 2004.

As expected, since Kohler stepped down, the race to lead the IMF is on. Since European member countries collectively hold the largest shareholding block, they insist on nominating the Fund's managing director while leaving the World Bank presidency to the United States. Spain's outgoing economy minister Rodrigo Rato remains the frontrunner for the job. Frenchman Jean Lemierre was viewed as his main rival, but withdrew to accept a second term as head of the European Bank for Reconstruction and Development. That Rato was able to get the support of most of the Latin American member countries at the recent annual meeting of the Inter-American Development Bank in Lima, Peru, might give him a slight edge.

"What people outside Germany find hard to understand is why anyone in one of the key jobs managing the world economy--arguably the single most important coordinating role--would want to give it all up for an honorary position opening buildings and handing out colored ribbons to brave firefighters. It merely raises the suspicion that Horst Kohler felt himself to be out of his depth." This is how Chris Huhne, the economic spokesman of the Liberal Group in the European Parliament, reacted to the news that Kohler was quitting.

A similar puzzlement and lack of understanding is expressed by others such as Tim Cullen, former press aide to several World Bank presidents: "Given the vigor with which Germany pressed to ensure the installation of its nationals as head of the IMF four years ago, it is indeed surprising that the political leadership in Berlin has allowed this key position to slip from its grasp. However, it must be said that the appointment process of the head of any of these international bodies always seems to show governments in their worst light. The unseemly lobbying and horse-trading that has increasingly characterized these appointments in recent years does no service to the global community the international organizations are meant to serve. Too often in recent years, UN agencies and other international bodies have been headed by compromise candidates or weak leaders whose main qualification is that it was their country's turn or they were the least objectionable of the candidates on offer. It's time governments put national pride aside and simply looked for the best person qualified to do the job."

Alluding to Kohler's farewell statement at the Fund that he accepted the nomination "with a laughing and a cuing eye," Martin Wolf, Financial Times columnist, observed sarcastically that many share such feelings: "The manner of Mr. Kohler's departure was as absurd and outrageous as that of his arrival. That matters because the institution remains of great importance." Wolf is right when he characterizes Kohler's arrival and departure as "absurd and outrageous." And the veteran columnist was right on the mark when he noted: "The chancellor's political opponents have turned that victory into a defeat by nominating Mr. Kohler for the ceremonial position of president. Germany was as insensitive in its government's insistence that a German must head the IMF as it is now parochial in its decision to remove him."

But let's clarify one thing. It was not the German government that allowed its most important international position slip away just like that--a position it waited to fill with one of its nationals for almost half of a century. For Chancellor Schroder, the unexpected quitting of the man whom he had sent to head the 1MF four years ago after a ferocious international fight was a heavy blow. After all, a German heading the most powerful international institution had been the centerpiece of Schroder's strategy to strengthen the presence of German nationals at the higher echelons of major international organizations. There was a bipartisan consensus that Germany, with a population of more than 80 million and representing the largest economy in Europe, should be much better represented at the key levers of the international system.