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A Truly International Monetary Fund or a Continuing North-Atlantic Monetary Fund?

by and Nicolas Véron | May 19th, 2011 | 02:53 pm
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This post follows up on, updates, and responds to a number of comments we received on, our previous post on the succession to Dominique Strauss-Kahn as Managing Director of the IMF.

Why not a meritorious European this time?

Some have argued that the key principle to introduce is merit not nationality. And if that results in a European candidate—for example Christine Lagarde—that should be fine. We agree. But this time is special. The process must be, and must be believed to be, merit-based. If the process throws up a European candidate, doubts will linger: was the candidate truly meritorious or will the presumption be that the result was a stitch-up—once again—between the Europeans and Americans. Signaling a decisive change from the past requires an outcome that is different.

This principle would apply also to the next change at the World Bank to which the United States must commit, difficult as it might be for the US administration to convince Congress that a non-American should head this institution. Once the process acquires legitimacy, one can move to a truly nationality-blind process that can then throw up Europeans to lead the IMF and Americans to head the World Bank.

We think it highly desirable to have women as heads of international institutions. But at this stage, discrimination on the basis of nationality is an even bigger threat to the legitimacy of the Bretton Woods institutions than that based on gender, which of course must also be addressed.

What are the most important selection criteria?

Imagination and leadership, then experience and political heft. The world economy faces unprecedented challenges: the euro crisis of course, but also global imbalances and the US fiscal situation. Also, the risk of instability in emerging markets has not disappeared. These challenges call for a spirit of policy innovation, absence of doctrinal or cultural prejudices, and an ability to create consensus on new solutions. It is difficult to find this combination of talents, so it is crucial to enlarge the potential pool of candidates.

Shouldn’t Europeans get the job just because the IMF has so much exposure in Europe?

As our colleague Ted Truman has noted, the Fund has only about half its exposure in Europe at this point, and who knows what will happen in the emerging world over the next five years. In any case, why should the debtors be in charge of the bank? This is certainly not an argument we heard from Europe during the Asian Crisis in the late 1990s.

From a European viewpoint, isn’t it in the European interest to have a European MD even if it is not in the global interest?

Things are less clear-cut in practice. A year ago, the key challenge for the IMF was to convince the Europeans that the Fund’s involvement in the euro crisis was in their own interest. This is now done and accepted, not least thanks to Dominique Strauss-Kahn’s past leadership. The next challenges will be different: especially, if the Fund decides that further assistance is needed for Greece, the most difficult part will be to convince reluctant stakeholders in the rest of the world, especially Asians and the US Congress, to keep going along the Europeans on this path. All things equal, a European MD would find this task more difficult than a non-European. If this is the right way to look at it, then one could even argue that the special interest of Europe calls for a non-European MD.

How can Europe be expected to voluntarily renounce a top position?

Europeans head the World Trade Organization (Pascal Lamy), the Financial Stability Board (Mario Draghi), the Bank for International Settlements (Jaime Caruana), the Basel Committee on Banking Supervision (Nout Wellinck), the International Accounting Standards Board (Hans Hoogervorst), and many other international organizations with economic policy relevance. In a changing world, they simply cannot keep all these.

Can a non-European understand and manage the intricacies of European politics?

Certainly as much as a European could understand the intricacies of Asia in the late 1990s. There is a long track record of non-Europeans who have been very adept at managing the complexities of Europe. The European Department of the IMF itself is an example, with a string of officials, from Michael Deppler to today’s Ajai Chopra, who have commanded widespread respect in the Europe.

Can the emerging countries defend a common candidate?

This is probably the biggest reason why it remains likely that the next MD will be a European. For all their customary squabbling, the Europeans have a powerful coordination mechanism with the machinery of EU institutions and meetings. This does not exist in the emerging world, where the rhetoric can be common but common positions on substantial matters are not frequently achieved. If the BRICS were able to field a joint candidate, it would be a game-changer. But this remains less than likely.

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