Who Should Run The IMF? A Chinese Point Of View

Europe has been clamoring for one of their own to succeed Dominique Strauss-Kahn, and keep the continent’s lock on the key post. For the sake of democracy and development, that’s a bad idea, says Xu Guoping of South Centre agency.

Zhu Min, the former Chinese central bank deputy governor, was a top Strauss-Kahn deputy and potential successor.

By Xu Guoping
经济观察报/Worldcrunch

Last week, Dominique Strauss-Kahn resigned as head of the International Monetary Fund after being arrested on allegations of sexual assault on a hotel maid.

Among all international organization chiefs, the IMF managing director is the most important, and Strauss-Kahn’s resignation immediately set off a battle of succession.

The leaders of European countries were very prompt in assuming that, according to custom, this position should again be taken by a European.

This so-called tradition that the managing director of the IMF ought to be a European while the World Bank chief is always an American has sparked off more and more questions that are getting harder and harder to answer.

The leaders of these two organizations should be chosen according to the capability of any nation’s citizen. It is colonialist or neo-colonialist dogma to guarantee that an international candidate is a European or American. People from developing countries should be given an equal chance, particularly because the GDPs of these countries are growing ever bigger as a share of the global economy.

Among these countries, China, in particular, but other Asian countries too, have huge foreign exchange deposits. In the past few days, numerous media have mentioned candidates from India, South Africa, Singapore and Turkey as worthy successors. Yet the European Commission’s President and the leaders of countries like Germany, France or Italy continue to insist that it ought to be a European. The reasons given vary: European countries are the main creditors, Europe is facing a serious financial crisis, it has the most competent candidates, and others.

The irony is that one of the most popular European candidates, Christine Lagarde, hails (again!) from France. Why should a French IMF head who steps down because of a sex scandal be replaced by another French candidate? Since the IMF was founded, the position of the managing director has been held by a disproportionately high number of Frenchmen (35 persons over 64 years).

Europeans leaders argue that a European would do a better job at handling the debt crisis currently facing such countries as Portugal, Greece and Ireland because of his or her deeper understanding of Europe.

This is an odd theory that exposes the double standard of Europeans. Between 1997 and1999, when countries from Southeastern Asia encountered a tremendous debt crisis, and the main debtors then were countries like Thailand, Indonesia and South Korea, nobody proclaimed that the IMF should be run by an Asian because of their better understanding of the region. Similarly, in the 1980’s and 1990’s a lot of Latin American and African countries had the same trouble, and were major borrowers from the IMF. None of these nations’ citizens had a chance to head the organization.

Chakravarthi Raghavan, a specialist on international organizations, thinks that the spreading economic crisis is indeed an excellent reason for having a non-European leader of the IMF.

Raghavan points out that when the international organization was in the process of democratization in the 1980’s, the US and Europe didn’t allow the developing countries to take control of the IMF or the World Bank because they were the debtors. “So the same logic should apply now,” he says: a European should not to lead the IMF. Raghavan says that: “the money lent by the IMF to European countries has become a tool for protecting the French and German banks. They are the main creditors of Greece, Portugal and Spain and their state bond holders.”

In the end, because of the IMF’s extremely undemocratic voting mechanism, Europe is still likely to be the winner of the succession battle. They control 30% of the votes, the United States 16.7%, Japan controls 6%, and Canada 3%. If all developed countries support the same candidate, they are very likely to win. 

On the one hand, Europe clamors for the principles of democracy in developing countries. On the other hand, they dominate positions like that of the IMF in a blatantly undemocratic way. It is clearly a double standard.

(Xu Guoping is the Executive Director of South Centre, a Geneva based intergovernmental organization and think tank for developing countries. He is a Chinese Malaysian known also as Martin Khor)