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TWN Info Service on Finance and Development (Oct07/02)

11 October 2007


NEW IMF CHIEF, BUT WILL HE CARRY OUT PROMISED REFORMS ?

Former French finance minister Dominique Strauss-Kahn has been selected as the new Managing Director of the International Monetary Fund (IMF) by its Executive Board after a long campaign designed to show he has wide-based support. His five-year term starts on 1 November.

Strauss-Kahn, popularly known as DSK, a European Union nominee, beat the only other contender for the post, former Czech prime minister, Josef Tosovsky, nominated by Russia. He succeeds Rodrigo de Rato who resigned on 28 June this year. In return, the incoming chief promises a platform of reform but doubts remain as to whether he can achieve them.

Below is a report on Strauss-Kahn’s appointment. It was published in the SUNS #6335, Tuesday, 2 October 2007. Any reproduction or re-circulation of this article requires the permission of the SUNS (sunstwn@bluewin.ch).

With best wishes
Martin Khor
TWN


New IMF Chief, But Will He Carry Out Promised Reforms?
By Celine Tan

Former French finance minister Dominique Strauss-Kahn has been selected as the new Managing Director of the International Monetary Fund (IMF) by its Executive Board after a long campaign designed to show he has wide-based support. His five-year term starts on 1 November.

Strauss-Kahn, popularly known as DSK, a European Union nominee, beat the only other contender for the post, former Czech prime minister, Josef Tosovsky, nominated by Russia. He succeeds Rodrigo de Rato who resigned on 28 June this year.

The voting was conducted on a secret poll of double majority of weighted votes and votes cast by each chair and Strauss-Kahn had emerged as a clear winner on the basis of both, according to sources.

Reacting to his appointment, Strauss-Kahn said: “Backed by the powerful credibility reflected in the very broad support for my candidacy, particularly from emerging market and low-income countries, I am determined to launch promptly the process of reforms that the IMF needs to ensure that financial stability serves the world’s people focusing on growth and jobs.”

Strauss-Kahn waged an unprecedented high-profile campaign to woo supporters, particularly from among the developing country members, since the announcement of his candidacy in July, including what he himself has described as a “60,000-mile long journey” on a campaign trail around the world.

In a statement to the Executive Board before the selection, Strauss-Kahn said that these visits - “to collect information, complaints and wishes about the future of the IMF” especially from developing country members - were aimed at fostering broad support.

“I don’t want to be the candidate from the North against the South or from the wealthy against the poor,” he said, adding that if selected, he would seek to be a “consensus builder” and to rebuild the “relevance and legitimacy” of the organisation.

Strauss-Kahn’s campaigning, amidst the Executive Board’s decision in July to allow for a long nomination and candidacy period and the publication of a candidate profile and selection procedure for the new MD, reflects the high prominence of criticisms currently facing the Fund on its governance structure.

The emphasis by the Executive Board that assessment of each nominee will be made on the basis of the published candidate profile “without geographical preferences” is seen as a response to criticisms that de Rato’s successor will be chosen, like him and his predecessors, on the basis of an old gentlemen’s agreement’ which enables the US to select the World Bank president while the Europeans appoint the IMF chief.

In light of former US Trade Representative Robert Zoellick’s unopposed appointment as World Bank president shortly before de Rato’s resignation, the European Union’s quick nomination of Strauss-Kahn as a candidate in July was seen as a means of pre-empting reform of the leadership selection process.

Detractors, ranging from developing countries, civil society groups, and even the Financial Times, decried the EU decision and called for the anachronistic tradition to be scrapped and the leadership selection processes of the Bretton Woods institutions reformed.

Throughout his candidacy, Strauss-Kahn maintained a high media profile, including periodic updates on his personal website, detailing his plans for the IMF if selected, his campaign activities and postings of official support from various member states, including Argentina, Brazil, Chile, Guatemala, Guinea, Madagascar, Nicaragua, the UK, USA and Ukraine. Strauss-Kahn’s appointment was a foregone conclusion after US Treasury Secretary Henry Paulson threw his country’s support behind the candidate two weeks ago.

The nomination of a second candidate, Tosovsky, while not perceived as a serious challenge, provided greater impetus for Strauss-Kahn to justify his credentials to developing countries. Referring to the gentlemen’s agreement’ in his statement to the Executive Board, Strauss-Kahn had argued that the “agreement is probably less and less defensible and the MD has to be chosen on merits without any reference to his or her nationality”.

Strauss-Kahn had further highlighted the legitimacy deficit of the Fund’s governance structure among developing countries and promised to push forward on the reforms to increase the voice and representation of these countries in the institution. “Voice and representation of most countries in a changing world have to be better taken into account by the Board but also by the Staff - the diversity of which has to improve, as well as by Management,” he says.

The new chief also lent his support to the proposal for a double majority system (combining voting by quotas and single country votes or chairs on the Executive Board) “as a better way to ensure that key decisions command the appropriate level of consensus” among members. He also made a commitment “to consider that any decision not likely to obtain the support of a qualified majority of chairs should be delayed by the MD”.

Aside from the governance reforms currently under debate at the Fund, Strauss-Kahn also inherits an institution that is struggling for relevance in its role as a multilateral financial institution, an issue that he also highlighted in his statement to the Executive Board and in an article for the Wall Street Journal early last month.

In particular, the pre-payment of loans, the accumulation of surpluses and the proposals for regional monetary arrangements by major developing countries have not only led to a significant shortfall in the Fund’s income stream but also to its marginalisation as an institution charged with maintaining international financial stability.

Acknowledging that the question of legitimacy “is at the core of the different proposals for regional institutions”, Strauss-Kahn had argued that there remains a need for a renewed multilateral approach to global financial problems with the IMF at the helm, arguing that “these initiatives will be even stringer if they maintain a strong link with the IMF itself, which remains a central institution regarding crisis prevention and resolution”.

Strauss-Kahn vowed to press ahead with work initiated under the Fund’s Medium-Term Strategy unveiled by De Rato in April 2006, including bilateral and multilateral surveillance reforms (such as implementing the recent revision to the 1977 Decision on Surveillance over Exchange Rate Policies) and modernising the institution’s lending instruments and policies on conditionality. He also expressed commitment to low-income countries and “a better connection of the IMF with countries of systemic importance”.

The incoming MD also pledged to rethink the staffing of the IMF, including diversifying its personnel base to address under-represented regions, and to review the income model of the Fund.

Referring to the Crockett Report this year which was critical of the Fund’s current revenue model, Strauss-Kahn suggested more examination into the proposal to invest part of the quotas and proceeds of gold sales to diversify income sources as well as the implementation of “a more efficient budgetary system ensuring that we have a better control of expenditures”.

While the incoming MD seems to have made the right moves to impress on developing countries that he will reform the institution, and in their interests, it remains to be seen whether he can live up to his promises after he takes office.

Or whether the old rules and practices will continue, in which case the IMF will continue to be dominated by the old wealthy countries for their benefit, and which will prevent the developing countries from having more meaningful “voice and representation.”

Many civil society organisations that follow the IMF’s developments remain sceptical that DSK can lead genuine reform, even if he really wants to, as the power structures of the developed countries are too strong and entrenched. Time will tell, and soon enough, as the governance reform process is supposed to accelerate in the next months. +

 


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