Global Trends by Martin Khor
Monday, 23 May 2011
Changes needed at troubled IMF
The International Monetary Fund is looking for a new leader after the
downfall last week Dominique Strauss-Kahn. The way its chief is selected
and its policies have to be changed.
Last week’s arrest of Dominique Strauss-Kahn on
charges of sexual assault was followed by his resignation as managing
director of the International Monetary Fund.
This quickly sparked a race for his successor in the most important
position in finance among international organizations.
European leaders were quick off the mark, arguing that the post should
again be taken by a European, as according to the old but discredited
It has been increasingly recognized that the convention that the IMF
chief must be a European while the World Bank President should be an
American can no longer be justified.
The two leaders should be selected from persons from any country according
to merit, and not on the basis of their being European or American,
which is a colonial or neo-colonial principle.
Candidates from developing countries should have an equal chance, especially
since these countries have increased their share of global GNP, and
many of them (especially China and other Asian nations) have
large foreign reserves.
Well-known figures from India,
South Africa, Singapore and Turkey have been mentioned in the
international media as credible successors to Strauss-Kahn.
But the European Commission President and the political leaders of Germany,
France, Italy and other European countries are insisting on another
European, giving various reasons such as Europeans are the biggest creditors,
are having a serious crisis, and have candidates of merit.
Ironically, the apparent “front runner” is another French citizen, the
finance minister Christine Lagard. Why should a French national succeed
another French national who had to resign in disgrace, and when the
top IMF job has previously been held disproportionately by French nationals
(who have had the job for 35 of the 64 years of the IMF).
European leaders are arguing that the IMF chief needs to be European
because much of the present IMF loans in value are going to European
countries Greece, Ireland
and Portugal and
Europe is a serious financial crisis. They argue that a
European IMF chief would be best for dealing with the European crisis
as he or she would understand the region better.
This is a strange argument fraught with double standards. When East
Asian countries suffered a debt crisis in 1997-9, and the IMF’s main
clients became Thailand,
Indonesia and South Korea,
no one argued that the IMF should have been led by an Asian who could
more deeply understand the region’s problems.
Similarly, there was no hope that an African or South American could
occupy the upper posts of the IMF, even though many countries in those
regions were in financial crisis and were the main borrowers in the
1980s and 1990s.
Veteran journalist and respected analyst of international organizations
and affairs Chakravarthi Raghavan argues that the spreading economic
crisis in Europe is indeed a valid reason for a non-European to head
In the 1980s, when democratizing international institutions was on the
agenda, the United States
and Europe argued that since the developing countries are borrowers,
they cannot be allowed to control the IMF or World Bank, said Raghavan
in comments to the IPS press agency.
“This logic applies here. No European should be allowed to head the
IMF,” he said, adding that the IMF’s rescue packages for Europe have
become efforts to protect the interests of French and German banks who
are major creditors and bond holders of Greece, Portugal and Spain.
It is a clear case of double standards in the outrageous demand by Europe that it must continue to monopolise the IMF’s top
post, when Western countries have been championing the principles of
democracy and meritocracy to developing countries.
Despite this, it is likely that Europe
will succeed because of the undemocratic decision-making system in the
IMF, as in the World Bank. European countries hold just over 30% of
the votes, the US
16.7%, Japan 6% and
If developed countries unite under a single candidate, they will most
likely get their way.
Still, it will not be a guaranteed or even an
easy win for Europe. One reason is that public opinion (including that
of Western civil society groups) finds European monopoly indefensible
and outrageous in the modern world. A group of NGOs have called for
a fair, transparent and merit-based process for selecting the next IMF
Many developing countries have recently called for an open and democratic
selection process for the heads of the IMF and World Bank. Developing
and emerging countries have control collectively of 44.7% of the votes.
The IMF chief must get 85% of the votes.
Ministers of the G24 (a group of developing countries that operate in
the IMF and World Bank), meeting in April, repeated their call “for
an open, transparent, merit-based process for the selection of the President
of the World Bank and the Managing Director of the IMF, without regard
to nationality.” They also called for “concrete actions and proposals
to be put forward to guarantee this change.”
While the developed countries have a majority of the voting rights,
the developing countries can theoretically block the candidate put up
by Europe or other developed countries.
The reality is that the developed countries tend to united behind a
candidate from among them, while developing countries have not, till
now, been able to come up with a single candidate of their own which
they then support together.
Though the selection of a new chief is the present preoccupation, more
important is the reform required for the IMF’s policies and operations.
A South Centre paper, authored by Chief Economist Yilmaz Akyuz, points
to its failure in preventing financial crises, which is its main task.
In its emergency lending activity, the IMF has also performed badly.
It has advocated pro-cyclical policies to countries taking its loans,
often deepening the countries’ crises.
It has also failed to distinguish between countries facing liquidity
and solvency problems, and lent to countries to repay their loans, with
unfair terms of burden sharing between the debtor country and its creditors.
The changeover of the leadership of the IMF is a good opportunity to
discuss the weaknesses of the IMF and to reform the policies.
TO MAIN | ONLINE
BOOKSTORE | HOW TO ORDER