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The IMF Leadership Vacuum: Europe vs the Rest of the World

In Uncategorized on May 20, 2011 at 3:15 pm

John Inkeberry claims in this month Foreign Affairs that “There is no longer any question: wealth and power are moving from the North and the West to the East and the South, and the old order dominated by the United States and Europe is giving way to one increasingly shared with non-Western rising states. “ [1]

 

[2]

Now that Dominique Strauss-Kahn has resigned — while declaring his innocence — that debate is public: Who will take over IMF Chief Post? While Europe tries to keep the post, emerging countries claim that it is time for a change.

The IMF is composed of major creditor countries and requires all members to commit to a “per value” system.  Hence, voting positions remain with the wealthiest countries, the ones that supply most of the funds.  “The G-7 countries alone account for nearly 45 percent of voting power, nearly as much as the combined voting authority of the remaining 162 member countries.”[3] The IMF represents a focused set of interests, and the major industrial western nations are not ready to cede voting control over lending decisions because voting share and power at the Executive Board of the Fund do translate into the lending policy of the IMF.

The fund’s six-decade tradition calls for appointing a European to lead it, but because of the shift in global economic power, it would be appropriate to give the post to an emerging-market nation. Indeed, their new strength should be reflected in senior management of the IMF. We cannot deny that this position is crucial in the world economy: the IMF’s influence in the global economy steadily increased as its membership increased from 44 at its inception to 187 today.  The IMF is a pivotal source of short and long term fund to assist developing countries with Balance of payment difficulties. Each year, it lends tens of billions of dollars to countries with huge deficit. By longstanding tradition, an American has taken the top post at the World Bank and the No. 2 job at the IMF, while Europeans have taken the lead at the IMF

“There’s no logic to the tradition that the IMF is run by a European,” Thailand’s Finance Minister Korn Chatikavanij said Thursday. “The world has come a long way in the past three or four years.” Chinese central bank chief Zhou Xiaochuan agrees and said earlier that the top management “should better reflect changes in the global economic structure and better represent emerging markets”. Brazil’s Finance Minister, Mantega said that “Brazil has always supported the position that the selection should be based on merit independent of nationality. The time has passed when it could be remotely appropriate to reserve this important position for a European candidate” and suggested that representatives from developing nations should also be considered.

 

However, According to international press reports, French Finance Minister Christine Lagarde is widely being given consideration for the job. She said the European Union should present a single candidate, hinting at the need to avoid infighting to have strong position. The German chancellor Angela Merkel supports Lagarde and claims that “Naturally the developing countries have a claim on the highest position at the IMF or World Bank, but the current situation, given the considerable problems of the euro, speaks for a European candidate.”

Mr. Virmani , India’s representative in the IMF , asks “That means whenever there’s an Asian crisis, there should be an Asian managing director? Whenever there’s an African crisis, there should be an African managing director? Is that the principle they’re propounding?”[4] U.S officials ( US is the largest shareholder with 16,8% of the votes ) have not taken a public position. Treasury Secretary Timothy Geithner said that “we want to see an open process that leads to a prompt succession.”

As far as I am concerned, although I am no one (yet). I mean … As a student in International Economic Law, I do have the strong conviction that the world is changing faster than we think. These institutions are absolutely necessary for the well functioning of the international financial market. Therefore, fundamental and important economic policy decision should reflect the interests of the growing majority of the emerging-market economies rather than sticking to our old European traditions.

Herman Van Rompuy, president of the European Council, wrote in the Economist 2011: “Now the economic strength of the emerging countries is crystallising into political power. This should be no surprise: the nexus between money and power is as old as money itself and the credit crisis has accelerated the process. The founding of the G20 (a European initiative), at the height of the crisis, was a clear sign that emerging economies could no longer be kept outside deal-making forums. This brings Europe and other global players into a different game. Industrialised democracies no longer have the monopoly on exerting decisive influence on global affairs. Countries which used to be described as “developing” now assert their views and interests on the global stage. In my view, this shift in power must be accompanied by a shift in global responsibilities. That will be a key issue for 2011.”[5]

Could someone ask Herman why Belgium, a country of 11 millions inhabitants, does have 46,302 votes in IMF while Brazil (200 millions) only 30,611?[6]

 It is time to ask: Does IMF image of the World reflect reality?

Let’s the diplomatic battle start!


[3] Tarullo, K. Daniel. 2005-2066. The Role of the IMF in Sovereign Debt Restructuring. 6 Chi. J. Int’l L. 287 , page 292
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  1. True and interesting, but it should be remembered that even Derwis, Ahluwalia and all these other potential IMF MD candidates from “Third World” are Oxbridge/Ivy League trained economists in the neoclassical tradition. So even if someone from the “Third World” gets the position, we are yet to see who really benefits from that and how much change that really will bring. My opionion.

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