DEVELOPMENT: EU Keeps IMF Within the Club

By IPS Correspondents Reprint | | Print |

David Cronin

BRUSSELS, Jul 10 2007 (IPS) - The European Union&#39s finance ministers have decided that Frenchman Dominique Strauss-Kahn should head the International Monetary Fund (IMF), despite calls for the post to be opened up to candidates from poor countries.

Ever since its inception in 1945, the IMF has been headed by a European, and its sister institution, the World Bank, by someone from the United States.

With poor countries now outnumbering rich ones in the 185-nation IMF, its critics have argued that the selection process for its managing director is anachronistic.

Calls for the process to be reformed were, however, rebuffed by the EU Jul. 10.

A majority of the Union&#39s 27 finance ministers agreed to support Strauss-Kahn for the position, which has become vacant due to the surprise resignation of Rodrigo de Rato. The Spaniard stepped down as IMF chief last month, citing family reasons. He will formally leave the Washington-based institution in October.

Alastair Darling, Britain&#39s newly appointed chancellor of the exchequer (finance minister), had said a day earlier that the post should be open to non-Europeans. He nonetheless agreed to support Strauss-Kahn for the post, describing him as a "credible" candidate.

Strauss-Kahn has not yet stated publicly if he is interested in the job but if he secures it, this would mean that four of the world&#39s key economic bodies are led by Frenchmen. Pascal Lamy currently heads the World Trade Organisation, Jean-Claude Trichet the European Central Bank and Jean Lemierre the European Bank for Reconstruction and Development.

French pundits believe that Nicholas Sarkozy, the country&#39s centre-right President, was eager to promote Strauss-Kahn, so that he would be removed from French domestic politics.

Strauss-Kahn, the country&#39s finance minister in 1997-99, had been preparing to run for leadership of the Socialist party, from which he could have mounted a challenge to Sarkozy in presidential elections slated for 2012.

But Sarkozy has insisted that he was promoting Strauss-Kahn simply because he viewed him as the "most qualified" man for the job.

"He and I have the same vision for the workings of the IMF," the President said. "Why should I deprive France of his candidacy just because he is a socialist?"

Anti-poverty campaigners reacted with disappointment to the finance ministers&#39 decision.

Alex Wilks from the European Network on Debt and Development (Eurodad) said that failure to ensure an open competition for the IMF post would lead to the institution&#39s "credibility spiralling downwards".

"Opening up the process would not be a totally symbolic move," he told IPS. "It is not about the colour of the skin of the managing director or the flag on his passport. It is about having competition. Who is to say that the Europeans have the best person and that there isn&#39t someone better from elsewhere?"

Wilks criticised Britain for not taking a more vigorous stance. He noted that the UK government committed itself to seek reform to the selection process in a 2006 White Paper on &#39making governance work for the poor&#39. That paper said that the top jobs at the IMF and World Bank should be awarded on the basis of merit, rather than nationality.

Peter Chowla from the Bretton Woods Project, which monitors the IMF&#39s activities, described the EU move as "a missed opportunity" to reform the selection process.

He acknowledged, though, that a more open selection process may not necessarily mean that the IMF would have a more benign influence in poor countries, where it has been criticised for advocating fiscal policies that limit expenditure on health and education.

"It would entirely depend who got the post," he told IPS. "If it was someone trained in the Chicago School of Economics, who believes in keeping the same way that the Fund works, then it would not make a huge difference. But it&#39s equally possible, that you could get someone with a critical insight into emerging markets and developing countries, who could really think about developing a better system of global economic governance.

"One of the complaints the IMF has faced is that it has not been even-handed. It imposes its will on poor countries but not on rich countries. A leader from a developing country heading the fund could help to make its work more even-handed."

Chowla also contended that Europeans have for the past two years been blocking proposals to reform the IMF&#39s workings. The proposals have been designed to give poor countries a greater say in its operations.

"The failure of the Fund with the Russian, Argentinian and Asian crises meant it was seen to lose credibility in the eyes of its members," he argued. "If it is going to recover, the Fund needs a visionary leader. I doubt that a European who has been involved in domestic politics for so long is the person to offer that kind of leadership."

IMF directors from Latin America and the Middle East have been actively pushing for a reform of the selection process. Paulo Bautista, the Brazilian director, had said that the European governments were "trying to move quickly to try to reach agreement among themselves" so they could "avoid having to explain" why they refused to cast the recruitment net wider.

Both Ecuador and Venezuela announced their intention earlier this year to leave the IMF.

The institution has faced severe criticism over the Argentinian economic crisis of 2001. The Fund&#39s detractors attribute this crisis to IMF-induced restrictions on spending that hampered the Buenos Aires government from maintaining essential services such as health, education and security.

ActionAid has also berated the IMF for attaching stringent macroeconomic conditions to the assistance it offers to African countries.

Recent case studies by ActionAid on Mozambique, Sierra Leone and Malawi concluded that the IMF was "partly responsible" for the chronic shortage in teachers facing those deeply impoverished states. By advocating a ceiling on the public sector wage bill, ActionAid said, the IMF was preventing Africa from hiring sufficient numbers of qualified teachers.