Sunday, 22 May 2011

Old IMF, new world; Selection of new IMF head should be open, transparent: IMFC




Behind The Headlines By Bunn Nagara

The world continues to change rapidly in economic terms, but some primordial institutions refuse to do so.

AS soon as Dominique Strauss-Kahn resigned as managing director of the International Monetary Fund (IMF) on Thursday, European leaders insisted that his successor had to be another European.

The IMF is a global institution with 188 members worldwide. Yet in its 67 years, it has been headed by a European with an American deputy managing director.

With American presidents at sister organisation the World Bank, the IMF’s European front appears to camouflage a dominant US influence. The US wields more influence in the IMF than any other member.

Thus the European clamour for Strauss-Kahn’s successor to be another European translates into sustaining the status quo. The arrangement has seen France taking the lead, with four Frenchmen so far heading the IMF.

Brazil, China, India, Japan and South Africa have challenged that lopsided “tradition” in urging that the choice be based on merit. The tradition of having a European overlord is a colonial-style arrangement that represents neither the IMF’s modern international membership nor the realities of global economic power.

The leading European candidate is French Finance Minister Christine Lagarde, who is not without problems of her own. A French court will decide next month whether to order a full-scale inquiry into her questionable actions involving big money and high politics.

For Lagarde to be a Western frontrunner despite her personal liabilities shows the weakness of Western candidacies in general. Britain, France, Germany and Italy have expressed support for her candidacy, although Britain had also voiced a possible need for a non-Westerner.

The collective European push for a speedy succession, and for “unity” among European members around a single candidate, reveals something of the politicking for continued Western dominance of the IMF.

A G8 meeting in Deauville, France, in the next few days would “decide” on Strauss-Kahn’s successor. That Russia is a member of that elite club may explain its relatively low profile in pushing for changes in the system among major emerging market economies.

Two months ago, IMF reforms finally moved towards better international representation by including Brazil, China, India and Russia among its top 10 shareholders. Two years ago, they had pushed for more IMF bond purchases to increase their voting share.

The world’s “emerging market and developing countries” together hold the biggest share of votes at 44.7%. However, their lack of unity around a single candidate to succeed Strauss-Kahn has given European members the upper hand in deciding on the successor and IMF policies in general.

This means no “bloc” represents major emerging market economies or their interests. So there is the anomaly of G8 countries, which collectively have a smaller share of votes, coming to decide on the IMF’s future.
That may be tradition, but it is not demo­cracy. The remarks of European leaders themselves have been particularly revealing.

They say the IMF’s next managing director should be a European not because of tradition, which they know is indefensible, but because a European would better “understand” Europe. A European head would have “more intimate knowledge” of Europe’s debt crisis.

Indeed the IMF’s biggest clients are currently European, the major ones being Romania, Ukraine, Hungary and Greece. Other European countries in financial trouble include Iceland, Ireland and Portugal, with Spain and Britain also on or near the ropes.

This in fact means that for an IMF chief to be more professional and neutral, and seen to be so, he or she should be a non-European. For the post to go to a European would risk a conflict of interest.

If Asians had insisted on an Asian head of a global financial institution soon after the 1990s Asian financial crisis, Western leaders would have rejected it as inappropriate. After more than a decade, Asians have learned from that experience and moved on, while the US and Europe have produced crises of their own.

It must therefore be equally inappropriate for a European to head a global financial institution today. If Europe’s best financial minds cannot deal with their several crises at home, what hope is there of solving the world’s larger financial problems?

Even under Strauss-Kahn, who was supposed to better “understand” Europe’s financial mess, the IMF’s pro-cyclical policies made economic matters worse. These policies affected several European countries as well as others elsewhere.

Where special inputs are needed, a non-European managing director can always have access to appropriate advisers. Strauss-Kahn himself had China’s Zhu Min as special adviser at the IMF when China became the world’s second largest economy.

French Transport Minister Thierry Mariani said in support of Lagarde’s candidacy that he was “able to verify her popularity among ministers of large emerging countries”. That underlines the importance of large emerging countries, even for France, so they are now asking why any of their candidates is less suitable.

It is not possible to reconcile meritocracy with an insistence on a French candidate for the IMF post. When the European Com­missioner for Monetary and Economic Affairs tried to do so, he tripped over himself.

Olli Rehn said “it is essential that the appointment will be merit-based ... it is a merit if the person has quite solid knowledge of the European economy.”

For European leaders to insist on a European because of his or her assumed superiority would amount to racism anywhere else. But then the IMF is an old-fashioned institution.

There is a more nuanced argument that the personal origin of the IMF’s managing director does not matter so long as he or she can introduce meaningful change. None of the IMF’s European heads has done that before.

Many voices around the world now say that for the needed changes to happen, it would be “a merit” if that person came from the non-Western world.


Selection of new IMF head should be open, transparent: IMFC

 The International Monetary and Financial Committee (IMFC), the policy advisory body of the International Monetary Fund (IMF), on Saturday called for an "open, transparent and merit-based" process in selecting a new IMF head.

"The selection process for a new Managing Director has begun. The challenges we face are pressing, and an early conclusion to the selection process will be advantageous," IMFC Chairman Tharman Shanmugaratnam said in a statement.

"It is also imperative that the process be open, transparent and merit-based, so as to ensure the selection of a highly capable candidate, with the qualities needed to engage with a broad group of stake-holders internationally and sustain the Fund's active and effective role in global economic management," the statement added.

The IMFC, comprising finance ministers and central bank governors, is the primary advisory body of the IMF Board of Governors and deliberates on the principal policy issues facing the IMF.

Former IMF Managing Director Dominique Strauss-Kahn resigned earlier this week after he was accused of sexually assaulting a hotel maid in New York. John Lipsky now serves as acting Managing Director of the Washington-based financial agency.

Source: Xinhua,
 

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