The resignation of International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn after his indictment on sexual assault charges and the subsequent scramble to find his successor have ignited a controversy over Europe’s “right” to place a European at the helm of the IMF. Such a right is nowhere codified in the IMF’s founding document, but a longstanding “gentlemen’s agreement” between the U.S. and Europe–dating back to the creation of the IMF in 1944–says an American always gets the World Bank presidency and a European always heads the IMF. The details of this arrangement are discussed in this explainer from Foreign Policy. It is no secret that the world’s wealthiest countries control the lending decisions of the IMF and the World Bank due to these institutions’ weighted voting procedures, which give more votes to those who have contributed the most money (a measure that corresponds closely to the size of countries’ economies). So on the one hand, a gentlemen’s agreement among the rich is not surprising. But in a globalized world increasingly characterized by the rise of non-European powers (China, India, Brazil, and South Africa, among others) Europe’s prerogatives at the IMF appear outdated, counterproductive, and downright unfair to many.
Some proponents of a European IMF chief have cited the IMF’s central role in rescuing countries such as Greece, Portugal, and Ireland during the eurozone’s current financial crisis. In a scathing attack on Europe’s sense of entitlement, Paul Blustein quotes the Swedish finance minister as saying “We are in a very difficult European situation, and it’s quite natural that we would have a strong European influence in the IMF.” Blustein then goes on to call this thinking unjust, unwise, and unethical:
“As the region most desperately in need of IMF loans — and IMF-guided discipline — Europe shouldn’t get to choose the person with the greatest influence over the terms. The blatancy of that conflict of interest ought to prick the conscience of even the most hard-boiled believer in realpolitik. And the handling of the eurozone crisis to date has already aroused widespread misgivings that Europe’s most powerful governments are using their sway over IMF policy to obtain deals that suit their political interests.”
Similarly, in response to the German government’s claim that the eurozone troubles require the new IMF chief to be familiar with the details of that crisis, Joshua Keating observes sarcastically: “Strangely, when the IMF was primarily giving loans to countries in Africa and Latin America, local knowledge didn’t seem to be quite as much of a factor.”
In contrast, David Bosco makes an interesting argument that it doesn’t really matter who heads the IMF given its decision-making rules, and that even if it did matter, officials appointed to positions in International Governmental Organizations are capable of acting responsibly and independently of national loyalties.
Although a number of candidates from developing countries have been floated as potential successors to Strauss-Kahn, Europe seems to be coalescing around French finance minister Christine Lagarde. So at this point it appears unlikely that the streak of European IMF heads will be interrupted.
What do you think? Is it fair that the Europeans have a perpetual lock on the IMF’s top post, to the exclusion of developing economies which are frequently affected most seriously by IMF conditionality, the practice of requiring strict adjustment policies (often involving tax increases and cuts to social programs) in exchange for loans? Does this simply exacerbate the North-South gap and undermine the independence of the IMF? Or is this controversy much ado about nothing, given the limited power of the IMF head and the possibility that international civil servants just might be able to separate their national interests from the best interests of the international community?