The IMF Dilemma

The considerable shoes of Dominique Strauss-Kahn will be hard to fill. At the IMF, he was a commanding Managing Director who revived the faltering institution from irrelevance in 2009 with a tripling of its resources, reformed programmes and a tilt away from neoliberal policies in the wake of the financial crisis.

Dubbed "Metternich with a Blackberry," by journalist Simon Johnson, he has indeed demonstrated the diplomatic sagacity and economic prudence to redeem the IMF and, more recently, the floundering eurozone by securing a trillion-dollar IMF-EU deal to prop up the weaker links.

Against this backdrop, candidates for DSK’s replacement are being weighed, and a power grab has emerged in an institution habitually headed by a European. Despite loud calls and promises to end Europe’s reign and relinquish it to an emerging power – part of the package deal in 2009 when industrialized and developing countries alike agreed to throw more money into the IMF’s coffers – there has been no movement in this direction.

Particularly now, when a real decision must be made by June 30, excuses are flying about why the reins should remain in European hands, ranging from the reasonably hesitant (developing countries will inevitably get their turn, so why give it away prematurely?) to the outright immature (the US has not given up its seat at the World Bank so why should we?).

Anything convincing is hard to come by, and Eurozone leaders – spearheaded by Germany’s Angela Merkel, who put her full weight behind the power transfer two years – have demonstrated a remarkable unwillingness to uphold a pledge and embrace a changing world economy.

The most convincing excuse, and coincidentally also the most infuriating, is that only a European is fit to save the Eurozone from imminent decay. How nice it would have been for South East Asia or Argentina to have argued the same during the late 1990s, when IMF policies were running those regions’ economies into the ground?

Perhaps more worrisome is that the strongest candidate, current French finance minister Christine Lagarde, seems to have some misguided principles when it comes to international monetary policy: At a recent summit, she claimed that China’s manipulation of its currency – arguably the single biggest threat to global stability – was a "sovereign issue," saying in the nearly the same breath that the US should encourage a rise in the dollar.

While it is perfectly reasonable, and even expected, that a finance minister would have different objectives, and thus different polices, than the head of an international organization, the ambiguous tone is disconcerting. And it is hard to understand why any finance minister, aside from China’s, would support a policy as economically distorting and potentially dangerous as the weak yuan.

The situation reeks of old world manipulation – precisely the attitude from which the IMF, under DSK, had to wean itself to stay alive. As emerging economies play increasingly larger roles in the global economy, they must be invited to lead negotiations rather than be excluded from the table by Western countries clinging to ceremonial power.

The Fund will play a significant role in helping the world through the economic turmoil that may result from stage-managed currencies, climate change, energy crises, or disruptions from regional chaos. With a highly imbalanced world economy and a number of global-scale catastrophes looming on the horizon, Europe must lead by example.

If it can’t, then who will?