Emerging markets on new IMF chief's agenda

By Abid Aslam

WASHINGTON - Former French Socialist finance minister Dominique Strauss-Kahn is to head the International Monetary Fund (IMF) from November. He takes the helm amid deep division over how the agency is governed and its role in the global economy.

Strauss-Kahn will succeed Rodrigo de Rato, a former Spanish finance minister who said in July that he would leave in October, two years before the end of his five-year term, for personal reasons.

The IMF's 24-member executive board, made up of representatives of shareholder governments, last Friday chose Strauss-Kahn, who had been nominated by the 27-nation European Union, over Josef Tosovsky, a former Czech central bank chief and prime minister.

Russia had nominated Tosovsky to challenge the tradition whereby IMF chiefs have come from western Europe and World Bank heads from the United States, since the Bretton Woods siblings rose from the ashes of World War II. The fund's borrowers have called for a selection process more open to candidates from emerging markets and developing countries.

Even so, Strauss-Kahn was considered the likely winner, and his fate was sealed last week when the US gave him its 17% share of votes on the IMF executive board. Europe holds about one-third of votes on the board, and developing countries slightly less. Some of these countries backed the Frenchman over the Czech.

Strauss-Kahn, 58, lobbied hard for the job and cited borrowers' support in pledging to restore the institution's legitimacy and relevance.

"Given the strong legitimacy derived from the very broad support I received, notably from emerging-market and low-income countries, I am determined to pursue without delay the reforms needed for the IMF to make financial stability serve the international community, while fostering growth and employment," he said in a statement.

Chiefly, this would involve pressing on with governance changes aimed at giving emerging economies more voting power within the IMF. Strauss-Kahn also said he will seek to strengthen the fund's monitoring of the global financial system and of shareholders' economies.

Most of the reforms are already in motion, and so far China, South Korea, Mexico and Turkey have increased their stakes in the IMF. Plans to give other emerging economies a greater say in the fund's running remain under discussion.

The aid group Oxfam International urged further action.

"The question of whether to give a bigger voice to poorer members has been dragging on for too long and must be answered now," said Elizabeth Stuart, Oxfam's Washington-based policy adviser. "Measures currently on the table would deliver woefully short of a meaningful reform.

"He'll need to set the tone from Day 1 in the position to make it happen," Stuart said of Strauss-Kahn.

Even as the IMF strives to reflect a distribution of economic power very different from the Western-dominated world in which it was born, it also is seeking to forge new relationships with emerging and poorer economies that shun its loans because of the austere macroeconomic policy prescriptions that come with the money.

Asian and Latin American countries that borrowed from the IMF during the financial firestorms that started a decade ago have repaid all or most of their loans and have amassed foreign-exchange reserves in hopes of avoiding future bailouts by the fund.

African and other poor countries weary of taking direction from the IMF have begun to borrow from China instead. As a result, the IMF has lost operating income it used to earn from debt servicing and is considering staff layoffs and a sale of some of its gold reserves to plug a budget deficit.

Strauss-Kahn highlighted the potential seriousness of the situation during a recent interview with the fund's directors.

"What might be at stake today is the very existence of the IMF as the major institution providing financial stability to the world," he said.

Where policy prescriptions no longer are acceptable, the fund should offer its members the benefit of "ruthless truth-telling", he said. "As countries are reluctant to cede any control over their economic policies, the IMF must have as instruments the power of analysis and persuasion," he told the board during his September 20 interview.

While unhappy borrowers remain a pressing concern for the IMF, the fund also must contend with pressure from its biggest shareholders. The US administration, for example, likely will continue to press the fund to go after China, which Washington accuses of manipulating currencies to drive down the prices of its exports to the United States.

(Inter Press Service)