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Europe Holds Tight to IMF Monopoly

Thalif Deen

UNITED NATIONS, May 19 2011 (IPS) - Since the election of Camille Gutt of Belgium as the first managing director of the International Monetary Fund (IMF) back in 1946, the Europeans have continued to claim that job as their political and intellectual birthright.

Outgoing IMF chief Dominique Strauss-Kahn is accused of sexually assaulting a maid in a New York hotel. Credit: UN Photo/Rick Bajornas

Outgoing IMF chief Dominique Strauss-Kahn is accused of sexually assaulting a maid in a New York hotel. Credit: UN Photo/Rick Bajornas

And successive IMF heads have come from France (which has held the post four times), Sweden (twice) and one each from Germany, Spain and the Netherlands.

The resignation Thursday of the current IMF chief, Dominique Strauss- Kahn of France, following allegations of rape in a New York hotel room last week, has triggered speculation about another European for one of the most powerful jobs in international finance.

As things stand, one of the front-runners for the job is the current Finance Minister of France Christine Lagarde, who could well be the first woman to run the Washington-based IMF, if she is elected to succeed the departing Strauss-Kahn.

James A. Paul, executive director of the New York-based Global Policy Forum, told IPS the resignation of Strauss-Kahn offers an important moment of opportunity.

“At last there is the possibility that the chief of the IMF might be drawn from somewhere other than Europe and selected in a transparent way,” he said.

The international financial institutions (IFI) have always been long the captives of the United States and Europe, with candidates chosen far from the public eye, said Paul.

“Like the (U.N.) Security Council, the IFIs reflect an outworn geopolitics and an outworn geo-economy,” he said.

In the 1940s, the United States and Europe struck a “gentleman’s agreement” that while the IMF managing director will necessarily be from Europe, the president of the World Bank will be a U.S. national.

In contrast, the post of secretary-general of the United Nations has been rotating among regional groups: Europe (Norway, Sweden and Austria have held the job since 1946), Africa (Egypt and Ghana), Asia (Burma and South Korea) and Latin America and the Caribbean (Peru).

Paul said that several names have been put forward – promising new leadership from Turkey, South Africa, India, etc.

“Yet suddenly we are told that Christine Lagarde, the French finance minister, is the front-runner for the job,” he noted.

True, it would be an important step forward to have a woman leader of the Fund – and all the more so, in light of Strauss-Kahn’s abysmal record on gender equality, said Paul.

“But surely it is time to have a serious process of selection in place, a process that will give due consideration to candidates from all the world’s regions, not just anoint a pre-cooked candidate in the same old way,” he said.

Let the Board take this process seriously and democratically, said Paul, and let women candidates get every consideration, “but let us not fall back on the old formulas of Western domination in a world that has moved on”.

The Europeans who are staking the claim for the job say the IMF needs a European to resolve the spreading economic crisis in Europe.

Strauss-Kahn was involved in overseeing the 141-billion-dollar bailout loans to Greece, Ireland and Portugal.

Chakravarthi Raghavan, a veteran journalist who has covered the United Nations both in New York and Geneva for several decades, refuses to buy that argument.

“As for the EU argument that they need one of their kind because of the spreading economic crisis in Europe?, it is (really) a valid reason for having a non-European to head the IMF, and steer the international monetary and financial system safely through this crisis,” he said.

In the 1980s, he said, when restructuring and democratising international institutions was very much on the agenda, the United States and Europe used to argue that since the developing countries are borrowers, they can’t be allowed to control the bank.

“This logic applies here. No European should be allowed to head the IMF,” said Raghavan, a former chief editor of the Geneva-based South- North Development Monitor and editor of Third World Economics.

In fact, the rescue packages for Europe are turning out to be efforts to protect the interests of the French and German banks, who are the major creditors, as bondholders, of Greece, Spain, and Portugal, he pointed out.

“And probably British banks are the creditors of Ireland (that has guaranteed the private bank debts),” he added.

“I am not sure about the chances of the various candidates for any of them to prevail. But the developing countries have to stand together,” said Raghavan.

Speaking on condition of anonymity, a U.N. diplomat told IPS: “The Europeans have indicated they would like to keep the job. So they have no plans to let go off their hold on the IMF.”

It will be difficult for the emerging world to stake a claim if the Europeans take this approach, he said. This is especially so as Europe, the United States and Japan hold the majority of voting shares.

That is not to say that there are no capable candidates from the strongest emerging economies, he added.

“I am sure that BRICS (Brazil, Russia, India, China and South Africa) or others can put up good candidates, if they want to,” he said.

But if Europe wants to retain its hold on the top job, and they have cited their current financial and economic difficulties as a reason for wanting to make sure they have the job – needing someone sympathetic to their plight – than it is going to be difficult for the Asians, Africans or Latin Americans to get it, he added.

Traditionally, the IMF head is elected by the 187 members of the institution.

The winner must obtain 85 percent of the votes. But the voting power is concentrated among the top contributors to the IMF, including the United States (16.7 percent), Japan (6.0 percent), Germany (5.8 percent), UK (4.8 percent), France (4.8 percent), China (3.6 percent) and Italy (3.2 percent).

So, in effect, the Europeans have command of the majority voting powers.

Meanwhile, a global coalition of non-governmental organisations (NGOs) is calling for an open and transparent process in the election of the IMF head and a break in the European monopoly.

The campaigners, including the Bretton Woods Project, ActionAid, Oxfam, and Eurodad, want “a fair, transparent and merit-based process for the selection of the next head of the IMF”.

Oxfam spokesperson Elizabeth Stuart said, “The only way to give the new IMF head legitimacy and authority is through open voting, with the winner backed by a majority of countries, not just a majority of shares.”

Strauss-Kahn was expected to continue his term of office until 2012.

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