Before his selection as Managing Director of the International Monetary Fund, Rodrigo de Rato once said it was a job that was impossible to do well. Asked by a U.S. television network if he still believed that now that he had the job, he replied with a grin: “Well, I’ll tell you if I was wrong or right five years from now!”
The first Spanish national to serve as Managing Director of the IMF, de Rato takes over the IMF at an important juncture. After a decade of financial crises that have hit Asia, Latin America, Russia, and Turkey, the institution is faced with the job of helping to bolster the international financial system and encourage countries to pursue healthy growth patterns that will enable them to reduce poverty and boost standards of living—a daunting task made all the more difficult by heightened security concerns in many parts of the world.
De Rato enters this arena as an experienced politician and policymaker, who helped transform Spain’s economy into one of the most successful in Europe. The IMF’s ninth chief in its 60-year history, he took over on June 7, 2004, from Horst Köhler, who had resigned earlier in the year in anticipation of his nomination for the position of President of Germany, to which he was elected in May.
During de Rato’s first months as IMF Managing Director, he traveled extensively in Africa, Asia, Europe, and Latin America to take the pulse of the global economy and to sound out governments and civil society about their priorities and concerns—in essence, to listen and learn rather than to preach. This effort was appreciated by country leaders. As Malawi’s President Bingu Wa Mutharika told reporters after a visit, “We’ve found the new Managing Director very receptive, very responsive, but also sympathetic to the problems we have.”
De Rato stressed during his visits to Africa that he was ready to stand up for the less developed countries, particularly on trade liberalization and removal of farm subsidies in the industrialized world. “This is a critical opportunity to make a significant advance in multilateral trade liberalization that will truly benefit the poorest countries. Rest assured that in this area, the IMF will continue to be your advocate,” he told an African regional summit in Entebbe, Uganda. He also promised that “the IMF will ensure that its programs and policy advice are supportive of higher levels of aid, including for the fight against HIV/AIDS and for strengthening much-needed public infrastructure”—a response to critics who argue that the IMF is imposing fiscal austerity on poor countries instead of helping them find additional resources to meet the Millennium Development Goals by 2015.
At the same time, however, de Rato emphasized that development had to be earned through good policies. “Those countries that have pursued sound macroeconomic and governance policies are growing much faster than those unwilling to undertake reform or those affected by conflict,” he said.
As for criticisms of large IMF loans to such emerging market countries as Brazil, Korea, and Turkey, de Rato told a Madrid conference in June on the 60th anniversary of the Bretton Woods Institutions that “some large IMF-supported programs raise concerns because they appear to suggest that a country’s geopolitical importance or other factors play a role in IMF decisions.” But while such loans draw a lot of attention, he said, “the IMF has also given major support to countries whose situation does not pose systemic risks or which may not rank high on the geopolitical agenda of our large shareholders.”
He stressed that the IMF’s lending decisions must embody the principle of uniformity of treatment. In most cases, the normal access limits that apply to IMF loans are sufficient, but in some rare cases, “exceptionally large access to IMF resources can be necessary to guard against risks to the global financial system.” Does that mean always agreeing to loans when countries are in dire straits? De Rato believes that the Fund should be more selective and predictable. The prospect of the Fund declining to provide financial support would help strengthen the incentives for implementing sound policies, thus avoiding the need for IMF support in the first place.
“The IMF will ensure that its programs and policy advice are supportive of higher levels of aid, including for the fight against HIV/AIDS and for strengthening much-needed public infrastructure.”
Widely credited as the architect of Spain’s economic transformation in recent years, de Rato, who holds a law degree, a master’s in business administration, and a doctorate in economics, comes to the IMF after an accomplished political career in which he served more than two decades in the Spanish parliament. From April 2000 to March 2004, he was Spain’s Minister of Economy and Vice President of the Government for Economic Affairs, and from May 1996 to April 2000, he served as Minister of Economy and Finance.
De Rato is not the first finance minister to serve as the IMF’s Managing Director. Its first head, Camille Gutt (1946-51), and its fifth, H. Johannes Witteveen (1973-81), had been finance ministers in their respective home countries (Belgium and the Netherlands). But de Rato’s political savvy was clearly regarded as an asset in his selection.
“As a former finance minister, he directed substantial economic progress in Spain and has an excellent understanding of the realities of economic policymaking,” said U.S. Treasury Secretary John Snow after the IMF announced his appointment.
De Rato, who was born on March 18, 1949, worked in family businesses ranging from construction to broadcasting before going into politics in 1979. He has an intimate knowledge of Latin America, where Spain has close business ties rooted in a common language and culture.
He has been an outspoken advocate of a growth and stability pact in the European Union (EU), which calls on governments to limit their budget deficits. Under his guidance, Spain implemented an economic program providing for fiscal consolidation, privatization, tax reform, and some liberalization of labor markets and traditionally monopolistic sectors, accompanied by a cautious monetary policy, which was instrumental in underpinning macroeconomic stability. This policy stance succeeded in erasing the deficits that had been a fixture of Spanish governments and enabled Spain to meet tough conditions for qualifying as a founding member of Europe’s single currency, the euro.
During de Rato’s tenure as economy minister, Spain posted eight consecutive years of growth—consistently above the EU average. When growth by larger economies sputtered, Spain’s economy continued to expand. “He has been the best Finance Minister in contemporary Spanish history,” Gregorio Izquierdo, head of research at the Institute for Economic Studies, a Madrid think tank, was quoted by the Associated Press as saying.
De Rato’s connection to the international financial community isn’t new. As Minister of Economy, de Rato served as a member of the Boards of Governors of the IMF, the World Bank, the Inter-American Development Bank, the European Investment Bank, and the European Bank for Reconstruction and Development. He also regularly attended the EU’s Economic and Finance Ministers’ meetings and represented the EU at the Group of Seven Finance Ministers’ meeting in Ottawa, Canada, in 2002, when Spain held the EU presidency. He also represented Spain at the World Trade Organization’s ministerial meetings in Doha, Qatar, in 2001, and in Cancún, Mexico, in 2003.