Now that Dominique Strauss-Kahn has resigned as managing director of the International Monetary Fund, the search for his successor is on.
Only a few years ago, the IMF was in serious trouble. Developing countries, its traditional customers, had concluded they were better off without the sort of recipes imposed by the fund, which did so much damage in the wake of the “Asian crisis” of 1997-1998. Things were so bad that when Strauss-Kahn arrived in 2007 he fired 400 staff. Ironically, the Great Recession of 2008-2009 turned out to be a blessing. Allocated $1 trillion to help out, the fund, under Strauss-Kahn’s deft leadership, came back with a vengeance.
Along with such a visible role came increased scrutiny of the voting arrangements within the fund that gave small European countries like Belgium more power than developing nations like Brazil or India. This oddity springs from the inertia that affects most international organizations, as arrangements made at a particular moment are frozen in time. With the role of developing countries getting greater recognition, the next step is to change the IMF’s leadership selection rules.
In one of the most visible manifestations of the notion that the world was ruled from the North Atlantic, a cozy deal was struck at Bretton Woods, a “gentleman’s agreement.” Discarding the principle of open competition that ostensibly informed the economic policies both institutions preached, a monopoly or, rather, a duopoly was established. The presidency of the World Bank would go, as a matter of right, to the United States, and that of the IMF managing director, to a European. This anachronistic deal should be ditched. The world has left behind the North Atlantic era, and the G20 — a Canadian initiative — is Exhibit A to prove it.
Already in 2004, when Horst Koehler quit his job as IMF head to run for the German presidency, there were rumblings of discontent in the global South, as the Europeans imposed another mediocre candidate, the Spaniard Rodrigo Rato, largely on the strength of his passport. Much as Koehler did, Rato also quit in the middle of his five-year term, for other pursuits. Before his Waterloo in a Manhattan hotel, Strauss-Kahn was widely expected to announce his resignation to run for the French presidency. This would have made him the third European IMF chief in a row to quit early to move on to greener pastures.
The pattern is clear. Europeans not only believe they have a droit de seigneur over the IMF job — those who are appointed regard it as a mere stepping stone toward other goals. In fact, the French, without missing a beat, have put forward their own candidate for the job, Finance Minister Christine Lagarde, repeating what Strauss-Kahn said in 2007: We want the job just one more time and after that it will — really, truly, finally — be the turn of the South.
We have heard this before and, somehow, it does not ring true.
The argument is also made that because some European countries are on the verge of default, another European should be appointed to clean up the mess. This reverses the argument made in the past. When the financial difficulties were mostly in the global South, Europeans were appointed to run the IMF presumably because they knew how to manage economic affairs. Now that they have run their own economies into the ground, Europeans are once again supposed to get priority because they know Europe. Shouldn’t then an Asian have been appointed in 2000 to deal with the aftermath of the Asian crisis, rather than a German?
All of these European ex-post rationalizations do little to mask a harsh reality. Europe is in economic decline. There is no reason for it to continue to claim first rights on key global financial management positions. The only way forward is to select the best man or woman for the job, whatever his or her passport. Sacrilegious as it may sound, the time has come to bring open competition even into the hallowed grounds of the IMF managing director office suite.