While the May 15 arrest of IMF chief Dominique Strauss-Kahn has made international headlines and caused a leadership crisis at the Fund, the debate over who would succeed him was underway well before the scandal broke. CIGI Senior Fellow and IMF expert Bessma Momani says the crisis could ultimately benefit the Fund’s marginalized shareholders from the world’s emerging market economies, if Europeans can finally be convinced to loosen their grip over the organization they’ve led since its inception in 1945.
CIGI: Given that debate over Dominique Strauss-Kahn’s replacement, and EU leadership of the IMF, was already underway before his arrest, does this crisis create an even greater opportunity for a watershed moment in IMF reform?
Momani: Absolutely, I think that’s exactly what we should be expecting. Developing countries have been asking for an executive board that better reflects their new power, and to have a managing director come from that part of the world has been high on their agenda for almost five years now.
When we saw the European countries backpedalling during the Fund’s spring meetings in April – precisely because they’re in the midst of a financial crisis themselves – it was quite disturbing to the emerging economies, who thought they finally had a commitment to these reforms from the IMF executive board, and from the G20, who had put this forth as a key policy action item. Prior to this April, it looked like the Europeans were finally going to concede.
With the current crisis, I think we’ll see the emerging market economies take this as an opportunity to show that the Fund is changing, and put forward a new face that can bring back legitimacy from all corners of the world.
CIGI: With the Fund’s current leadership vacuum and deep involvement in the European debt crisis, what challenges would an incoming managing director face in moving the organization forward?
Momani: The Europeans want someone who really understands their political culture, social democratic tradition and the overall difficulty of the Euro project – both as a political and monetary union. Many had hoped that Strauss-Kahn would bring regional knowledge and political sensitivity to European debt restructuring, and to his credit he has been able to bring conflicted parties together within the EU.
But there are many within the emerging economies who want someone with strong diplomatic skills, economics knowledge and European experience, and could rightly argue for a number of leading candidates that don’t necessarily have an EU passport.
CIGI: Regardless of who becomes the next managing director, if emerging economies’ stake in the IMF continues to increase, is it inevitable that the Fund’s leadership and board of governors will come to reflect the makeup of its shareholders?
Momani: One of the many complaints about the Fund from within is how slow it is to change. To get anywhere, one has to go through an electoral process where many of the creditor countries – bluntly, those in Europe – are over-represented based on their relative power in the global economy. And that’s because the IMF system requires existing members to vote themselves out, which is not likely to ever happen. So countries like Belgium and the Netherlands still occupy two places at the executive board, when any reasonable analysis would show they should have none at all, and that emerging economies would be better placed at the important organs of the Fund.
CIGI: Some have suggested that as long as the United States retains the right to choose the head of the World Bank, Europe will continue to dominate decision making at the IMF. Will it take a policy change at the Bank to finally change European attitudes at the Fund?
Momani: That’s important because we know Robert Zoellick, who was appointed World Bank president by the Bush administration, has not been replaced by the Democrats in an attempt to force the Europeans to make the first leadership move at the IMF. Everybody knew that Strauss-Kahn had his eye on French politics and would likely leave the Fund, so the Americans had been waiting for that before making their move at the Bank. The US is not wanting to move first, and that’s why this crisis is not just a test for the IMF, but World Bank as well.