Time to open up the IMF job to Non-Europeans

OPINION – It was not even possible to imagine, at the start of last week, that events in a luxury suite of a New York hotel would have profound ramifications on the politics of global finance and regulation.

Yet the arrest of the IMF chief, Dominique Strauss-Kahn (DSK) has brought into sharp focus a convention that has stood since the organisation’s inception in 1946 and with it the question of selecting the leadership of one of the pillars of global finance.

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Europe has had the hold the monopoly of selecting the head of the IMF. Only 10 men have held the job of Managing Director (MD) at the IMF since its inception in 1946. All 10 have been European. 4 out of those ten were French (including the beleaguered DSK). It’s one job of global significance that has been the monopoly of white European males – so there is a gender dimension, too. Critics argue that in this set-up merit is sacrificed for political deal-broking between top European powers.  The people who are chosen have not always been the best that the world can offer.

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But how did Europe get this odd monopoly on the IMF job? Here, a brief historical background is appropriate. This convention on Europe’s monopoly at the IMF has to be read alongside the USA’s monopoly in regards to the World Bank top job. It has always been held by an American. So, in effect, Europe and the US hold a duopoly on the IMF and WB top jobs. Europe defers to the US on the WB job and reciprocally, the US defers to Europe on the IMF job. That’s the way it has been. But that does not make it right – certainly not in the new global economic landscape which is vastly different from what it was in 1946 when the two institutions were created. And this is why this convention is being challenged and rightly so.

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Those conventions may have worked in the immediate post-war period, when many countries in the world were still colonies; when the US was the key dominant political and economic power and needed Europe to get back on its feet in the aftermath of the war; when the global economic order tilted hugely in favour of the US and Europe compared to the rest of the world. It’s probably understandable that they had the power to make those choices – they led the creation of those institutions at Bretton-Woods and it was important to exercise control and build them according to their own taste. When you build something, you want to maintain control so that you mould it the way you want it to be. But not when it has profound impact elsewhere and on others, as the IMF has been over the years. Most countries in the developing world have felt or continue to experience the impact of misconceived and poorly-implemented IMF-led Economic Structural Adjustment Programmes.

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The world has changed drastically since 1946. The duopoly of Europe and the US on the IMF/WB leadership is no longer tenable or even morally justifiable. The emerging markets have become a dominant force in the world economy, with the BRIC countries (Brazil, Russia, India, China) leading the way. A look at the figures shows that the extraordinarily rapid growth of Chinese economic growth; that India has overtaken Germany in the last few years whilst Russia and Brazil have advanced past the UK. Economists forecast that Mexico will replace Italy in the exclusive top ten club of world economies by 2015. Yet non of those emerging economies have a say in the leadership of two of the world’s most important financial institutions.

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Why is it that these emerging economic powers are excluded by old conventions from the selection of the IMF/WB leaders? One struggles to find the moral ground for the duopoly, let alone the economic justification. For countries that insist, often with evangelical zeal, on spreading democracy and democratic values and practices across the rest of the world, it seems ridiculous that they would continue to insist on their duopoly in so far as leadership of the IMF/WB is concerned.  This US/European dominance is not confined to the WB/IMF but indeed to various other aspects of the global social, economic and political architecture. It is these kinds of conventions that raise the wall of resistance among large sectors in the developing world and make it difficult for Europe and the US and exercise acceptable leadership in other areas.

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No doubt Europe will want to reclaim the job after DSK’s fall. Media reports indicate that they will probably offer Christine Lagarde, the French Finance Minister as a replacement (which will make it 5 French out of 11 heads since 1946). There will certainly be one thing that would be novel about her candidature: she is a woman and would therefore be the first female head of the IMF. But that is not likely to pacify the critics especially in the emerging economies who question their exclusion from the decision-making process.

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Europe is currently going through a hard time economically, with Ireland, Greece and Portugal all requiring huge bailouts and the IMF has played a critical role in the deal-broking.  Naturally, it would give comfort to Europe to have one of its own in charge. But that is why the emerging markets protest that there is potential for bias and that conditions set for the European countries are kinder compared to the rest of the world.

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In the end, it is likely that if a vacancy arises presently, as is very likely given DSK’s circumstances, the job will go to a European. But it is important that this matter be raised, discussed and debated. That countries like China and Brazil are calling for non-European candidate is itself an indication of the changing face and voices of the global economic and political landscape. The US and Europe can no longer afford to ignore China, India and the rest of the emerging economies. It is difficult to kill old habits, let alone conventions, but this one may be having its last kicks.

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You would think that when the vacancy next arises, the flood of demand for change will be too much and the wall, surely, will have to give in.

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Alex T. Magaisa, Kent Law School

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wamagaisa@yahoo.co.uk