The IMF election: time for a change by Oscar Ugarteche

By Oscar Ugarteche [1]

Since IFIs were created in 1944, it has been common knowledge that the IBRD was always led by an American and the IMF by a European. This unsigned agreement was a clubby arrangement by the then world leaders. Nevertheless, since the 1990s a new era has been in the making.  Highly indebted rich countries are today’s new problem economies. Emerging countries have become fast growing and stagnation seems to be the sign of the times for the richest ones. Suddenly the debt problems of developing countries yesteryear have come home to roost. From Japan to France, from the US and Great Britain to Belgium and the likes, the debt problem is a feature of the wealthiest countries and the international financial architecture to deal with these problems does not exist. Regional monetary stabilization funds have not been as swift and amiable as might have been suspected either in Asia or Europe. The IMF has been called on occasion to present conditions for emergency loans granted mostly by either the ECB or the European Commission with the Fund in the back seat in terms of resources.

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Editorialising against Lagarde: across the spectrum

It seems like there is almost no newspaper or comment writer out there that actually wants Lagarde to be the head of the IMF. The influential weekly news magazine, The Economist, editorialised against Lagarde last Friday.

“… the stitch-up, whereby the head of the IMF is a European and the head of the World Bank is an American, is a disgrace. International posts should be filled according to merit. And the growth of emerging economies makes it even less defensible.

David Woodward on the need for democratic principles at the IMF

IMF watchers have been following the drama of the selection process, Ministers are getting ready to decide which way to cast their vote, the pundits are ready to comment, but what about the other 6 billion + people who will be at the sharp end of decisions made by the new MD?  In a response to the Guardian’s poll, long-time IMF campaigner David Woodward makes a compelling case for real democratic principles to be placed at the heart of the selection process.  It’s worth quoting at length:

“…the only alternative [the Guardian poll] presents to the status quo is reform to “reflect the shift in global economic power towards emerging markets”.

As the Commission on Social Determinants of Health said,

“It is only through such a system of global governance, placing fairness in health at the heart of the development agenda and genuine equality of influence at the heart of its decision-making, that coherent attention to global health equity is possible.”

Nowhere is this more true than the IMF: it has virtually run the economies of much of the developing world (with serious adverse effects on health) for much of the last 30-35 years, while itself being run by the developed country governments, who have some 60% of the votes – four times their share either of population or of membership. The US, and the US alone, has a veto on all major policy decisions – including voting reform. The voting system was created in 1944, when only a handful of developing countries were members (most still being under colonial rule), they rarely borrowed from the Fund, and IMF lending did not carry any policy conditionality.

Poland in the dog-house, Korea and US wavering; Waiting for India…

A lot of developments have been taking place in the race to head the IMF. First lets admonish Poland for deciding to sleep in the dog-house along with the rest of Europe. Polish Finance Minister Jacek Rostowski said about Lagarde on Wednesday: “This is a very good candidacy, it’s hard to imagine a better candidacy and it has the backing of the Polish government.” Never mind that we don’t yet know what the other candidacies will be.

Korea was at least a little better than that. South Korea’s finance minister Yoon Jeung-hyun gave an interview to the Financial Times, and they wrote: “Seoul could not announce its final preference until after June 10, the candidates’ deadline. He said he remained keen to see whether an equally strong candidate to replace Dominique Strauss-Kahn would emerge from a developing nation.” That is more principled than the UK, but Yoon did call Lagarde “a very strong candidate and has the qualities needed to be a good managing director”.

What the global economic crisis could have done for the IMF

For a while it seemed that the global economic crisis could leave a good legacy to the IMF by democratising the way its leadership is selected.  A pledged made by global leaders in the G20 Summit in Pittsburgh to select senior leaders of international institutions “through an open, transparent and merit-based process”, and later confirmed by the Fund, raised expectations that the tradition of appointing a European to head the institution would end with Dominique Strauss-Kahn.  Unfortunately, it looks like leaders from Europe are breaking their pledge.  They are instead working to ensure that the next IMF chief will once again come from their ranks.  The moment French finance minister Christine Lagarde announced her candidacy a number of European countries, including the UK, stated their support for her, without even waiting for the close of nominations. They are arguing that a chief from Europe is needed in light of the Fund’s current involvement in the region.  This is of course a flawed argument.  What is at stake here is not just who gets to lead the IMF next, but more importantly, a step towards a more just and democratic global economic system which could be something good that came out of the crisis.

To read the full post, go to http://www.savethechildren.org.uk/blogs/2011/05/next-imf-chief-needs-to-be-selected-on-merit/