Global Insight Perspective | |
Significance | Despite murmurings about its relevance, the International Monetary Fund (IMF) remains an important actor in the global economy and the post of managing director is widely coveted. |
Implications | Dominique Strauss-Kahn is an uncontroversial pick for the job—he earned respect as France's finance minister, battling to keep public finances in shape and reform on track in the face of considerable political resistance. He was, however, opposed by Russia, who feel the European Union should cede its unofficial monopoly on the post. |
Outlook | The IMF's future is in some doubt as the global economy continues to evolve and it remains to be seen whether Strauss-Kahn lives up to his pledges to reform the institution and maintain its "relevance". |
EU Gets Its Man
It was confirmed on 28 September that from 1 November the International Monetary Fund (IMF) is to have Dominique Strauss-Kahn as its new managing director. His confirmation by the 24-member IMF board came as no surprise given his backing from the European Union (EU) and the United States, but there was an alternative this time round thanks to a provocative nomination by Russia. The latter put forward former Czech prime minister Josef Tosovsky in a bid to challenge the customary right of the EU to choose the IMF head, while the United States provides the World Bank's president. There is growing pressure from developing countries for a change to this cosy system, but they failed to coalesce behind Tosovsky this time round. Earlier this year the United States successfully steered its former deputy secretary of state, Robert Zoellick, into the World Bank presidency. He was hurriedly brought in following the resignation of the controversial former deputy secretary of defense Paul Wolfowitz.
Strauss-Kahn, who is 58 and a well-known former French Socialist finance minister, replaces former Spanish finance minister Rodrigo Rato. The latter announced his surprise resignation in June for personal reasons. He has been in the role only three years, and his predecessor, Germany's Horst Kohler, also failed to serve out the full five-year term. The latter quit when offered the German presidency. This turnover is in contrast to the 13-year tenure of Frenchman Michel Camdessus, which came to an end in 2000. Strauss-Kahn seems keen to see out a full term and reduce the disruption caused by the leadership changeover. He is widely seen as a strong pick for the job, a tough politician in France who steered through reforms despite considerable resistance. He has been mentioned as a possible presidential contender in the past, someone who is also able to reach out to left and right alike; he was indeed put forward for the IMF role by France's current right-wing president, Nicolas Sarkozy. He will head up the IMF at a time when his compatriots occupy many of the top global economic roles. Pascal Lamy heads the World Trade Organization (WTO), Jean-Claude Trichet the European Central Bank (ECB), and Jean Lemierre the European Bank for Reconstruction and Development (EBRD).
Reform Agenda
Strauss-Kahn has pledged to "make the bold reforms necessary to lead a strong and relevant fund into the future". He has acknowledged the pressure for more developing country representation, and following his nomination he conducted a major tour of many such countries. He said "I don't want to be the candidate of the North against the South or from the wealthy against the poor". At present the institution's shareholding structure is largely based on members' economic weighting in U.S. dollar prices. EU countries currently control some 32% of the shareholding, and they are under strong pressure to loosen their grip. Rato started a reappraisal of this system, but Strauss-Kahn has pledged to accelerate this.
Strauss-Kahn also faces a challenge to keep the IMF's finances in order. Major developing countries have turned to it less frequently in recent years as they can obtain cheaper finance through the international bond markets. The IMF was at the centre of the global economy 10 years ago amid the developing market turmoil, but greater stability has ensued subsequently and the IMF has been called upon less frequently. There is also resistance to the reform strings it attaches to its lending, which have had mixed consequences. The IMF may have to sell some of its gold reserves to allow it to keep lending to the poorer countries who still rely on it. The institution's reserves currently stand at around US$300 billion, arguably insufficient to cope with a major new crisis.
In recent years the IMF has tried to take on a stronger role in monitoring global trade imbalances and currency exchange rates—a major source of instability. This would make it more relevant and engaged in developed countries' economic decision-making. However, this role is controversial as blame for imbalances is usually directed by the United States at China, which the latter feels is undeserved. An IMF report on whether China's currency is indeed misaligned is currently delayed, but it is liable to provoke a storm of controversy for Strauss-Kahn to deal with once it is published. He is expected to continue pressing the surveillance role, but it is difficult for the IMF to have a real impact on policy.
Outlook and Implications
Much of the talk about IMF reform has been heard before, and the jury is out on whether Strauss-Kahn will make a major difference. He does nonetheless seem to have a strong appetite for the job, and his past record suggests he will not be afraid of tackling some difficult political issues. It seems that reform to the shareholding will indeed take place, giving a greater say to developing countries. Credit is due to Rato for initiating this process, and already China, South Korea, Turkey, and Mexico have been granted greater voting shares. The institution will also presumably press to expand its surveillance role, but its authority in this area is in question and the question of Chinese exchange rate policy is highly politicised.