Turkish economist is I.M.F. contender

International Herald Tribune, Friday, May 20, 2011, p. 6

By Landon Thomas Jr., London

Architect of turnaround in his country has a track record and solid support From the beginning of Greece’s never ending sovereign debt crisis, George Papandreou, the embattled prime minister, has sought outside advice from any number of Ivy League economists and slick policy entrepreneurs.

But Kemal Dervis, the architect of the Turkish economic miracle, is the only one in Mr. Papandreou’s circle of outside advisers who offers the experience – and the scars that come with it – of actually accomplishing what Greece is trying to do. Brought in as economics minister from 2001 to 2002 to deal with a severe financial crisis that required a major I.M.F. bailout similar to what Greece received last year, Mr. Dervis led the effort by Turkey to privatize state assets and slash budget deficits amid fierce political and public opposition.

With that track record as an economic modernizer who has a foot in both old Europe and the newly emerging powers like Turkey, Brazil, China and India, Mr. Dervis, 62, is now being promoted by his many supporters as uniquely qualified to be the next managing director of the International Monetary Fund.

As the I.M.F. board begins deliberations on whether the successor to Dominique Strauss-Kahn should be another European heavyweight, like the French finance minister Christine Lagarde, or a representative of a faster growing emerging economic power, Mr. Dervis’s candidacy ticks a number of crucial boxes.

Born in Istanbul, he is actually European. At the same time, Mr. Dervis can boast that he laid the groundwork for the economic dynamism of one of the fastest-growing countries in the world. The Turkish economy expanded by 9 percent last year, nearly matching the Chinese rate of growth.

A fluent speaker of French, German and English, Mr. Dervis is a Princeton-trained economist who is as much at home in the rarefied air of international policymaking as he is in the political trenches in Ankara, the Turkish capital. Indeed, prior to 2001, he had a long career at the World Bank and he has also been a senior development executive at the United Nations.

After the Strauss-Kahn drama, any new male figure – especially one with a history at the World Bank, which experienced an earlier if less dramatic sex scandal when its head, Paul Wolfowitz, was found to have promoted a woman with whom he had had an affair – can be sure to expect a rigorous scrubbing of his private life and conduct.

Mr. Dervis has been married twice, and is currently wed to the former Catherine Stachniak, an American. He has two sons from his first marriage.

It is his longstanding friendship with Mr. Papandreou that may well be the most intriguing aspect of Mr. Dervis’s résumé, particularly given that Greece and Turkey have a long history of enmity.

Mr. Dervis has provided counsel to his old friend – the two men first got to know each other in 2001 when Mr. Dervis was in charge of the Turkish economy and Mr. Papandreou was the Greek foreign minister – in a variety of ways. He has been an active participant in Mr. Papandreou’s summer ideas conference held on the Greek island of Poros; he has huddled with Mr. Papandreou at the Brookings Institution where Mr. Dervis now works; and he has, insiders say, shared many late night phone calls with the Greek prime minister.

« They both see themselves as modernizers in their respective countries, » said Richard Parker, a Harvard economist who is another one of Mr. Papandreou’s inner circle of advisers from outside the government.

When Mr. Dervis was persuaded to leave the comforts of his World Bank post to help a desperate Turkish government with its severe economic crisis in 2001, most people held out little hope for success. Inflation was close to 70 percent, government spending was out of control, banks were failing, debt was 100 percent of gross domestic product and rising, and the country was failing to meet the terms of its funding agreement with the I.M.F.

Mr. Dervis, not a member of any Turkish party at the time, was able to push through the Turkish political snarl a radical privatization program, bring fiscal spending under control and mend Turkey’s relationship with the outside world – from the I.M.F. to overseas investors – all in about 14 months.

« It was a miracle, » said Sureyya Serdengecti, then governor of the Turkish central bank. « The achievement was all the bigger because he did this alone – the three parties in the government coalition were all trying to stop his reforms. »

To Mr. Serdengecti, Mr. Dervis deserves even more credit than the current Turkish prime minister, Recep Tayyip Erdogan – who came to office after the turnaround was under way and kept it going – for transforming Turkey from an economic basket case into the fast-growing regional power it is today.

Mr. Dervis gained a seat in Parliament in the 2002 election that brought Mr. Erdogan to power, representing his home town of Istanbul for the center-left Republican People’s Party which was seen as the standard bearer for the country’s secularist tradition.

But with Mr. Erdogan ensconced in power, Mr. Dervis’s own political career fizzled. In 2005 he left Turkey to become head of the U.N. Development Program.

On the face of it, Mr. Dervis’s close relationship with Mr. Papandreou and his up-to-date understanding of Greece’s struggle would seem to be a big plus. How much more money Greece should get, what the terms should be and whether the debt mountain should be restructured is the most pressing challenge for the I.M.F. at the moment.

But northern European countries like Germany are facing severe political pressure to not let up on Greece, even as evidence grows that the program of intense austerity is backfiring. Already pushing for one of their own, Germany and other European powers may well look askance at Mr. Dervis’ Mediterranean bond with Mr. Papandreou.

In an interview that Mr. Dervis gave on the sidelines of Mr. Papandreou’s symposium in July 2010, he alluded to this north-south European divide . « The northerners tend to look at the Mediterranean as an area of good life, » said Mr. Dervis. « But this is exaggerated. O.E.C.D. numbers show that Greeks and Turks work many more hours per year than Germans. Germans take a lot of holidays also. »

That said, Greece cannot hesitate in pushing through unpopular but crucial measures, as Mr. Dervis knows from his own experience. « There has to be this big jump, » he said. « And the crisis gives Greece the opportunity to do it just like the Turkish crisis nine years ago gave Turkey an opportunity to do it. »

In a 2009 letter to Mr. Strauss-Kahn, Trevor A. Manuel, the finance minister of South Africa, said that the top I.M.F. job should be filled the next time in an « open, transparent and merit-based manner, » a veiled rebuke to the long-standing understanding that the fund is to be run by a European and the World Bank by an American.

Whether Mr. Dervis can break that tradition remains to be seen. But maybe he does not have to.

« He is the guy the emerging markets could support, » said Dani Rodrik, an expert on globalization and development at the John F. Kennedy School of Government at Harvard. « He would be a truly meritocratic appointment. And he is of course a European. »