The International Monetary Fund’s (IMF) governance reform is now at another decisive moment. However, it seems that the arrest of former managing director Dominique Strauss-Kahn foreshadows not the dawn of change, but the dark cloud of the old empires striking back. In many people’s eyes, the election of French Finance Minister Christine Lagarde to be the new managing director is just a matter of time and procedure. The thing is, no matter how I appreciate and respect Ms. Largarde’s professional capacity and coordinating ability, the legacy of western dominance still lies behind her highly expected election.
Even while Mr. Kahn was in office, the IMF’s intervention into the Euro Zone sovereign debt crisis manifested the shift of its policy focus toward Europe. Use Greece as an example. Until now, the IMF’s commitment to Greece is 30 billion, with the total loan package reaching 110 billion when aid from the European Union is included. There is an interesting comparison with the aid provided by the IMF to the three Asian countries of South Korea, Thailand, and Indonesia during the 1997 Asian financial crisis. The IMF total loan commitment to them was $350 billion. It’s easy to see the sharp asymmetric contrast if we take into account the GDP gap between Greece and the three Asian countries. What’s more important, the story behind this huge loan commitment to Greece was the IMF’s succumbing to the will of dominant states in the euro zone. As a consequence, there will be no debt restructuring in Greece, which means that the bailout plan should support it to honor all its national debts. There is also an underlying precondition for this bailout plan. It requires Greece to finance from the capital markets in the next one to two years the gap of at least 40 billion between the bailout package and the real amount needed to pay its debts. What a fantasy this has proven to be under current market conditions. Now the EU has to prepare for a new package of increased support to Greece. The IMF, with a huge amount of loans at stake, seems to have little choice but to follow up.
Since the beginning of this year, with the outbreak of a myriad of international incidents, the developed countries have again manifested their advantages in political will and interests as well as enforcement capability in certain critical areas. At the same time, the synergy among the emerging market countries has been questioned. In the recent G8 Deauville Summit, some officials from developed countries maintained that the emerging market countries still lack the capability to address global issues, despite their rapidly growing economic power. Commentators have also expressed doubts over the possibility of a consensus on IMF managing director candidates from emerging market countries. These countries have often been characterized as varied or even conflicting in their views and positions. Behind all these doubts lies the danger of the gradual erosion of already achieved reform outcomes. In March this year, the 2008 IMF Quota and Voice Reforms finally came into effect after fulfilling legal requirements. Now, the 2010 IMF Quota and Governance Reforms also need the approval of at least three-fifths of IMF members representing 85% of total voting power. It’s questionable, with the gradually fading momentum for change, whether this process can be completed before the 2012 IMF Annual Meeting. Considering that the emerging market countries have a common interest in the strengthening of IMF representativeness and legitimacy, they should coordinate their positions and stand united behind a candidate fully equipped with the quality of integrity, professionalism, and international influence.
It’s also important for the emerging market countries to communicate to developed countries the stakes at hand. Considering that the criminal charges faced by former managing director Kahn have damaged the institution’s reputation, there may be a danger of sudden loss by the IMF of its legitimacy and authority (jointly established by the international community after the global financial crisis), if the selection of the next IMF leader is not handled appropriately. It’s worth noting that many critics of the prospect of another European succeeding to the position come from Western mainstream media and scholars. We need also to take into account the feeling of urgency from the euro zone countries. It is just these countries that are in desperate need for the continuing involvement of the IMF in the euro zone sovereign debt crisis. This again strengthens the role in checks and balances of emerging market countries. Considering the scenario of the selection process or outcome turning into a long period of debates, the efficiency and effectiveness of IMF work will definitely be influenced by this could-be situation, with the euro zone countries being the immediate victim.
As for the selection process, two aspects need to be considered. First, the nationality of the candidates should become a factor in the election criteria, with candidates from emerging market countries being given special weight of preference compared to those from developed countries. This could be regarded as a kind of corrective measure adopted to address the unfairness accumulated through at least the past 60 years. The “Statement by IMF Executive Directors Representing Brazil, Russia, India, China and South Africa on the Selection Process for Appointing an IMF Managing Director” has included a similar view. We want an open, transparent, and merit-based selection process. But a fair and equitable outcome is always the top priority. Second, there needs to be a process of coordination and consensus over the suitable candidates representing emerging market countries and a wide range of developing countries. The main criteria required of would-be candidates should include his/her professional capacity, capability, and global vision. There is never a scarcity of fit candidates in the emerging market countries, for instance the Singapore Finance Minister Tharman Shanmugaratnam who is now also the Chairman of the International Monetary and Financial Committee. What is in real scarcity is always a common will.
Xue Lei is a research fellow of Department for International Organization and International Law, Shanghai Institutes for International Studies.