When power trumps principle inevitably there are casualties. The process to replace Dominique Strauss Kahn as Managing Director of the International Monetary Fund (IMF) has been a sham – and has left the US and Europe defending the indefensible. The rest of the world has been disenfranchised.
With a number of European economies now on the edge of collapse, and many around the world struggling with rising food and fuel prices, the IMF’s role in shoring up international monetary stability is more critical than ever – as is strong leadership at the institution.
This increasingly unsettled world needs an IMF with global legitimacy and authority; yet its new leader was appointed through a process which automatically puts a European in charge. The quid pro quo is an American World Bank president, the remnant of a “gentlemen’s agreement” set up when the institutions were founded after World War II. This is not an open, democratic process, and it diminishes the Fund’s credibility.
Despite noises made about the need for an open process, the decision of who leads the world’s most important international financial institution was made in the salons of Paris and corridors of Washington before the candidates were announced. The new Managing Director of the IMF has been selected. The only role left for developing countries and rising powers was to rubber stamp a pre-ordained candidate; a stitch-up with the vague air of acceptability. That’s not enough.
The Obama Administration could have stepped up and welcomed emerging powers taking a leadership role in the IMF, as it has done in encouraging the G20 process, signalling a willingness to enter into partnerships in global governance. But it chose instead to be quiet about the disenfranchisement of emerging markets and developing countries in this process and jump on the European bandwagon at the very last minute.
The influential role of the First Deputy Managing Director of the IMF, traditionally filled by an American, will also be up for grabs in August. There’s a risk that this too will be a ritualistic rather than contestable appointment process unless the US seizes the opportunity to step up and address the democratic deficit in the IMF’s governance.
Oxfam is on the ground in many countries dependent on IMF assistance, working to find solutions to poverty and social inequality which often have been aggravated by conditions that the Fund attaches to its loans. Recipient countries should have a say in IMF policies and decisions that so greatly affect them, as Europe now knows.
One such decision for the new Managing Director is what to do with the nearly three billion dollars that the IMF unexpectedly received from the sale of its gold reserves last year. The IMF has done very well out of the global economic crisis, and has no need for further funds. Oxfam is firmly of the view that this money must be directed to where it is most needed and where it will have the most impact. That means channelling the excess profits to poor and vulnerable citizens of developing nations — the same people who are excluded from the decision making by the IMF. We are deeply concerned that the European Board members are moving to bury the funds in the books of the institution where they hold disproportionate power.
The new head of the IMF must be pushed to accelerate reform that loosens Europe’s stranglehold on the Executive Board, and gives other member countries more of a voice.
Allowing emerging markets a say that accords with their rising global influence will only benefit the institution. If the incumbents persist in holding on to power through structures that reflect an obsolete economic and political world order, the rising powers will inevitably turn away from the organisation and towards institutions where they have a voice.
It is no longer tenable to have Europe and the US dominate international financial institutions. It is in everyone’s interests that power is exercised with principles.
Sarah Wynn-Williams is Oxfam’s Head of Relations with the IMF and World Bank.