IMF decision irks developing countries

2011-06-29 09:30
Washington - Despite pledges of new transparency, the International Monetary Fund (IMF) again gave its top job to a French candidate on Tuesday, assuring continued ire from developing countries at Europe's hold on the job.

To the surprise of few, the global crisis lender's executive board named French Finance Minister Christine Lagarde as managing director, replacing her countryman Dominique Strauss-Kahn, who resigned on May 18 to fight charges of sexual assault in New York.

That made her the 11th European to hold the job since 1946, and the fifth from France - a record that comes thanks to a gentleman's agreement dating to their creation at the end of World War II that a US citizen would be president of the World Bank and a European would lead the IMF.

Despite a challenge by Mexico's central bank chief Agustin Carstens, few had doubted Lagarde's chances: Europe aggressively declared itself united behind her days after Strauss-Kahn departed and before any other candidates had a chance to surface.

A top European official at the time called it a "done deal".

Carstens persevered, while others - including the respected South African Trevor Manuel - stayed out, saying Lagarde already had the job sewn up.

Prediction falls flat

"I think a lot more could be done, a lot more should have been done to persuade Europeans that this birthright is not a birthright that should find a resonance in an institution as important as the International Monetary Fund," Carstens said at the time.

When Strauss-Kahn was chosen in 2007, Jean-Claude Juncker, who chaired the Eurogroup of countries, predicted that would be the last time a European got the job.

"The next director will certainly not be a European" he said.

That came after more than a decade of anger at the IMF's hectoring approach to developing country members, especially in the 1997 Asian crisis when it dictated reforms based on a developed country ideology that has since been partially jettisoned - especially its then-rejection of capital controls.

But the "consensus" choice of Lagarde proved Juncker wrong, even though the same developed countries that dominate the fund plunged into their own financial crises beginning in 2007.

"The process is rigged," said Arvind Subramanian, a former IMF economist.

Decided in the salons of Paris

"Fundamentally, the system must be made fairer by ensuring that no one group of countries gets an unfair advantage in the race to become the managing director of the IMF."

Sarah Wynn-Williams, head of IMF relations at global poverty fighting group Oxfam, said ahead of the decision that the managing director nominee is "not even decided by the board, it's not even decided in Washington".

Rather, she said, "it's been decided in the salons of Paris".

Bessma Momani, a professor of international economy at Canada's University of Waterloo, blames developing countries for not organising themselves into a real force to challenge Europe - evident in the inability of Carstens to gain endorsements from key countries like China and Brazil.

"The emerging market economies did not put up a fight for IMF leadership despite years of complaining," he said.

"They are the only ones to bear the blame for failing to unite behind a candidate of their own."

Calls for openess

Still, it would have been hard to break the Europe-US-Japan block that controls over half of the votes on the IMF board, if it came to a vote.

Carstens had proposed reforms that would end Europe's over-representation on the board, controlling seven of the 24 executive director slots.

Subramanian proposes slashing Europe's 32 percent quota to the 18% level of Washington's.

Tuesday's secretive "consensus" decision unsurprisingly sparked new calls for openness at the Fund.

"We regret the process was not the open and inclusive process we called for," said the Washington activist group New Rules for Global Finance.

"Above all the new managing director must accelerate the pathetically slow baby-steps of governance reform at the IMF."

Read more on:    trevor manuel  |  christine lagarde  |  imf

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