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DSK's loss is opportunity gained for IMF

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COMMENTS

17 May 2011 15:35

Michael Gaskin is a Lowy Institute intern and PhD candidate in international relations at the University of Sydney.

The arrest of Dominique Strauss-Kahn (or DSK, as he's known), Managing Director of the International Monetary Fund (IMF) and leading contender for the Socialist Party's nomination for the 2012 French presidential elections ('Yes we Kahn') in New York over the weekend has come as a genuine shock. DSK has been well known for his extra-marital liaisons, but not even the leading French journalist who published a discussion of DSK's affairs in The Guardian on Friday saw this coming. 

The IMF leader's descent from Sofitel to holding cell provides a timely opportunity to put pressure on the IMF (and the World Bank, for that matter) to finally make reforms to the anachronistic limitations on leadership appointments. 

When the IMF and World Bank were established at the Bretton Woods conference in 1944, the US and Europe struck a cosy agreement: Europe would appoint the Managing Director of the IMF while the US would choose the President of the World Bank. This arrangement probably quite fairly reflected the economic and political reality facing the world towards the end of World War II.  But the maintenance of this arrangement in 2011 is indefensible. 

After long and regular lobbying from civil society (see here, here and here for a selection of more recent examples), the G20 leaders statement from the Pittsburgh Summit in 2009 finally agreed that leadership positions at all international financial institutions 'should be appointed through an open, transparent and merit-based process'. 

The following month at the International Monetary and Financial Committee of the Board of Governors of the International Monetary Fund, the IMF stated that 'We intend to adopt an open, merit-based and transparent process for the selection of IMF management at our next meeting'. By the following year, the same committee of the IMF’s Board of Governors reported that 'We have made progress toward finding common ground on the core reform areas'. As of yet, the IMF has not taken the final step (nor has the World Bank, to be fair). 

Should DSK resign (or, more likely, should he be dumped) from his post at the IMF in the aftermath of the weekend's events, a prime opportunity will arise to break the Europeans' hold on the IMF leadership. 

While speculation over DSK's presidential aspirations has had potential candidates for the IMF job making their availability well known (see Gordon Brown's less than veiled, albeit unsuccessful, campaigning), the powers-that-be do not have a firm succession plan in place. The second-in-charge, John Lipsky, who is now acting Managing Director, has already announced his departure from the IMF in August. Besides, he's American. 

If another European is to be appointed to the role (and current French Finance Minister Christine LaGarde seems the leading candidate), this will dent the credibility of the IMF's reform efforts, just as it was beginning to rebuild some. According to Robert Peston, Business Editor for the BBC, Europe is insistent on its right to the appointment. There's also speculation that this could be backed by the US, which will want to retain its right to appoint the World Bank head. 

But the world has changed a lot since the Articles of Agreement were signed in 1944 and, though opportunistic, the demise of DSK's leadership provides an opportunity for the BRICSAM countries to flex their collective muscle. If, as Peston suggests, the appointment is already sewn up, this is a great opportunity lost.      

Photo courtesy of the IMF.

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