Wednesday 13 Oct 2021 | 22:15 | SYDNEY
Wednesday 13 Oct 2021 | 22:15 | SYDNEY

IMF vacancy: Get ready for a cynical stitch-up

26 May 2011 11:30

Michael Gaskin is a Lowy Institute intern and PhD candidate in international relations at the University of Sydney.

Last week I wrote about the opportunities for the International Monetary Fund to address its anachronistic appointment system, given the likelihood (now reality) that Dominique Strauss-Kahn's tenure would come to a hasty end. This post responds to two main themes arising from reader feedback. 

It's been suggested that a merit-based appointment doesn't count out European candidates. The argument goes along the following lines. Successful navigation of the Eurozone crisis will require intimate knowledge of the Eurozone and solid relationships with the major European stakeholders (German Chancellor Angela Merkel in particular). I agree, but don't buy that in order to fulfill these criteria a candidate requires European citizenship.

Having an outsider may actually be a good thing for the handling of the Eurozone crisis. Given his presidential aspirations, DSK had a very strong interest in ensuring the IMF provided generous support to Europe, not to mention cementing a relationship with Merkel. 

Former Australian Treasurer Peter Costello has noted that the Asian members of the IMF are conscious of the fact that the IMF's treatment of Europe appears to be much more lenient than the treatment they received in the late 1990s. Having an outsider around the table at Eurozone bailout negotiations without any immediate interests removes any perception of conflict. 

On Tuesday, the IMF Executive Directors representing the BRICS countries released a strongly-worded statement, effectively demanding the appointment of a non-European to the position. They argue that governance reform is required to better reflect the 'new realities of the world economy' and that the maintenance of the status quo 'undermines the legitimacy of the Fund'. Most damning of all, the statement reminded everyone that, when appointing DSK as Managing Director in 2007, the Europeans acknowledged that he 'will probably be the last European to become director of the IMF in the foreseeable future'.  

A reader has also suggested that the status quo maintains a nice trans-Atlantic balance. On the face of it, this might be an attractive proposition.  

This argument rests of the fear that, given the IMF and World Bank are already criticised for being outposts of the US Treasury, having Americans lead both institutions would be disastrous. The real problem with this argument is that it maintains the same old post-World War II world-view that the world centres on the North Atlantic. This is old hat. 

In 2006, The Independent reported PwC analysis which forecast that the so-called E7 group of emerging economies would overtake the G7 by 2050. Fast forward to 2011 and PwC are now forecasting this to occur by 2020. While the trans-Atlantic region is by no means irrelevant, the centre of the economic world is shifting eastward.

It's important that the IMF's role not get reduced to simply managing the Eurozone crisis. There's no doubt that this is a major crisis and requires significant input from the IMF. However, there are other items on the agenda. Reform of the international monetary system is one of six priorities on the G20's agenda for 2011 and global imbalances, particularly between the US and China, remain. These are just two major issues that will call upon a strong leader, not to mention the other day-to-day work undertaken by the IMF. 

As nominations for Managing Director opened on Monday, Australian Treasurer Wayne Swan and South African Finance Minister Pravin Gordhan, co-chairs of the G20's committee on reform of the international financial institutions, threw their support behind the removal of the European monopoly. While Lagarde remains the favourite, she will face a stiff contest, as demonstrated by the BRICS statement. Mexico has nominated Agustin Carstens, Governor of its central bank, the Banco de Mexico. Early emerging country favourite Kemal Dervis of Turkey has removed himself from consideration, but other candidates are being touted

Appointing a European will be seen as a cynical stitch-up, particularly by the rising Asian powers whose memories of the IMF's performance during the Asian Financial Crisis are still sharp. 

It's important to drill down to what this argument is all about. True, the Eurozone crisis is an important issue and I am in no way trying to diminish its seriousness. But I haven't yet heard an argument that leads me to believe that a European leader of the IMF is necessary to get through the crisis. Now is the IMF Executive Board's opportunity to make good on its previous commitments to reform. This appointment round allows the international community to demonstrate its capacity for actual reform, rather than just talking about it.  

Photo by Flickr user loreshdw.