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Home > Blogs > Ian Fraser > It's time the IMF had a non-European at the helm

It's time the IMF had a non-European at the helm

Future of the IMF | It's time the IMF had a non-European at the helm Ian Fraser

European nations still haven't quite got over their loss of empire and status after World War II. Prior to 1939, countries like Belgium, France, Italy, the Netherlands and the UK still had power and influence over much of the “Third World” (as emerging markets were then known) - and indeed Britain still retained an empire over which the sun never set.

However, by the time the allied powers assembled at Bretton Woods, New Hampshire in July 1944, the picture had changed considerably. Europe was in a parlous state, drained and exhausted emotionally, financially, and infra-structurally. America, however, was rapidly emerging as the global superpower.

As the allied victors assembled at the Mount Washington Hotel to reshape the global economic and financial order, the Yanks were firmly in the driving seat. European power and influence was rapidly melting away. Within a few years, the days of empire would be a fond memory and most of the colonies would have been handed back to occupied peoples. However, the US did offer a "sop" to European nations to assuage their wounded pride.

This was the “cozy stitch up” by which it was agreed that the newly-minted International Monetary Fund would always be run by a European, while the equally fresh-out-of-the-box World Bank (initially known as the International Bank for Reconstruction & Development) would always be run by an American.

This unwritten but iniquitous arrangement persisted for the next 68 years. Latterly the deal has had many powerful critics, including Nobel prize-winning economist Joseph Stiglitz (who told me why it was wrong in an interview I did with him back in 2002).

Now, in the wake of the resignation of "le seducteur extraordinaire" Dominique Strass-Kahn, we are in desperate need for some fresh thinking on Europe's sovereign debt crisis. The time has come that the rise and recent successes of fiscally prudent BRICs countries and other emerging economies was recognized.

The EU however is determined to impose the French finance minister and former corporate lawyer Christine Lagarde as the IMF’s next boss (and she has been touring BRICs countries in a bid to woo support). In the eyes of Europe, Lagarde is well-equipped for the job since she understands the niceties of Europe’s debt crisis (given her part in recent talks) as well as the complex political sensitivities involved in trying to sort out the euromess.

But in a powerful tirade, The Economist has rubbished such claims. The magazine labeled the arrangement whereby the IMF top job always goes to a European a “disgrace” - and said it is essential that whoever takes over from the disgraced philanderer DSK has proper "distance" from the EU and eurozone.

Otherwise the person is likely to to fall prey to petty European vested interests, just as DSK did, will be scared of knocking heads together, and will probably be doomed to pursue the same Band-Aid style solutions advocated by DSK and myopic European political leaders such as Lagarde.

In a leader, The Economist said:

“The case against appointing a euro-zone finance minister as head of the IMF now is overwhelming. The main issue facing the fund is the euro zone. The fund is supposed to be an impartial arbiter of good economic policy. It is the only organisation likely to force a rethink of the euro zone’s failed strategy towards Greece, Ireland and Portugal. There were already fears that Mr Strauss-Kahn’s presidential ambitions led the fund to be too soft on Europe. Ms Lagarde has played a central role in forming the euro zone’s response to its debt crisis, and whatever her private views, she has a public record of defending the indefensible. Staggeringly, some Europeans have tried to argue that only one of their own can understand their continent’s complex politics; imagine the laughter if somebody had made the same argument for Argentina’s finance minister in the 1980s or Thailand’s in 1997.

I'm not holding out too much hope that the IMF will see sense  on this issue and appoint a non-European to the role. Just in case the fund is (anthropomorphically-speaking) thinking along these lines (and I accept the current unfair voting system, another legacy of Bretton Woods, is a significant barrier), the leading non-European candidates for the IMF top job are as follows:

  • Montek Singh Ahluwalia - Indian civil servant
  • Agustin Carstens – Mexican central banker
  • Mark Carney – Canadian central banker
  • Kemal Dervis - Turkish economist
  • Stanley Fisher – Israeli central banker
  • Arminio Fraga - Brazilian economist
  • Tharman Shanmugaratnam – Singaporean finance minister

Further reading on the future of the IMF:

Tags: banking , Dominique Strauss-Kahn , EU , financial crisis , global imbalances , IMF , international differences
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