With a Frenchman set to head the International Monetary Fund again after a seven-year interregnum, it might seem like business as usual at the agency. But Dominique Strauss-Kahn won the post by declaring himself the candidate of reform.
The former French Finance minister will have his work cut out for him when he takes over as managing director next month from Rodrigo de Rato, who is stepping down early to return to Spain. The Fund must undergo major reforms to maintain its relevance and legitimacy at a time when few developing countries need its Þnancial assistance and when the institution’s continued control by the U.S. and Europe is frustrating the ambitions of emerging powers like Brazil, China and India.
As Strauss-Kahn put it in a blunt address to the organization’s executive board last month, “What might be at stake today is the very existence of the IMF.”
The Fund had begun to address those questions under de Rato. At the IMF’s annual meeting in Singapore in September 2006, the Spaniard won agreement on an ad hoc quota increase that modestly boosted the voting power of China, Mexico, South Korea and Turkey. He also sought to reinvent the Fund as a global economic watchdog by launching multilateral talks involving the U.S., Europe, Japan, China and Saudi Arabia aimed at reducing global payments imbalances.
Progress in modernizing the Fund has been meager, though, as ofÞcials acknowledge. “The pace at which we are making institutional and operational changes is too slow,” says one senior Fund ofÞcial. “We’ve got to think about this as a more urgent challenge.”
Strauss-Kahn -- known in France simply as DSK -- brings a higher political proÞle to the post than did Jacques de Larosière or Michel Camdessus, the senior French bureaucrats who steered the Fund from 1978 to 2000. Strauss-Kahn, who failed to win the Socialist nomination for the French presidency last year, helped facilitate France’s adoption of the euro during his tenure as Finance minister from 1997 to 1999.
Strauss-Kahn’s selection follows the recent appointment of former U.S. deputy secretary of State Robert Zoellick as president of the World Bank and suggests that the U.S.-European condominium of the two institutions remains very much intact. But Strauss-Kahn had to campaign actively for the post to defeat Josef Tos�ovsky´, a former Czech prime minister and central bank governor who was nominated by Russia. The French politician traveled 60,000 miles and visited with leaders, including Brazil’s President Luiz Inácio Lula da Silva, South Africa’s President Thabo Mbeki and China’s Prime Minister Wen Jiabao.
Finance ministers will discuss IMF quotas at the Fund’s annual meeting in Washington later this month, but they are a long way from a consensus. Last year’s ad hoc increase gave the four countries an extra 1.8 percent of the Fund’s voting rights, but the institution needs to shift at least 10 percent of voting power from industrial countries to emerging-markets countries to reflect changes in the global economy, contends Edwin Truman, a researcher at the Petersen Institute for International Economics in Washington.
In accepting the post, Strauss-Kahn acknowledged that small European countries would have to give up the biggest share of votes to accommodate developing countries.
Strauss-Kahn also aims to bolster the staff’s policymaking and Þnancial-markets expertise to strengthen the Fund’s influence over the global economy. There too he faces an uphill battle. De Rato launched the multilateral talks on imbalances with high expectations a year ago, but they ended quietly this spring, with virtually no impact on policy.
“The fund should be saying more about Chinese currency manipulation,” says Desmond Lachman, an economist at the American Enterprise Institute in Washington who previously spent more than 20 years at the Fund. “They should be beating up on the Europeans for holding their monetary policy too tight.”
