Is IMF Reform Possible?
Is IMF Reform Possible?

The manner in which the managing director of the International Monetary Fund (IMF) is chosen has been under debate for a long time. The ongoing rape scandal surrounding former Managing Director of the IMF, Dominique Strauss-Kahn, created a need to appoint a new leader. This propelled the debate over IMF’s selection process into the media and a wider public. It received daily media attention due to the concurrent situation with Mr. Kahn.

This article will discuss the debate over the IMF selection process and place it within the larger alternative globalization movement.

Neoliberalism and the IMF

The Managing Director of the IMF has always been a European. At the same time, Americans have been placed at the head of the World Bank as well as in the position of second in command at the IMF. This immobility is a large part of the reason that the IMF has stuck to its neoliberal policies for so long.

Neoliberalism’s strongest proponents come from the Western world. Since leaders that support neoliberalism lead these institutions, they are able to put their preferred policies at the forefront. The neoliberal model is characterized by a focus on free markets, low trade barriers, and few regulations. While this may have worked for some of the developed countries, it has proven to be disastrous for many developing countries. This “one-size-fits-all” method of the IMF has come under much criticism.1

Former Chief Economist of the World Bank, Joseph Stiglitz is one of the most vocal critics of the methods of the IMF. Although he represented the neoliberal world for some time, he supports raising awareness of the system’s faults.

Criticism and Joseph Stiglitz

Stiglitz refers to the selection process as a sort of, “gentlemen’s agreement among the majority shareholders – the G8.”2 The G8, or Group of 8, is a group of eight governments of major economies: France, the United Kingdom, the United States of America, Germany, Italy, Japan, Canada, and Russia. This group meets over to discuss policy over various issues such as world finance, foreign policy, and the environment. At the IMF, the U.S. has the largest amount of voting power with 16.7 percent voting rights. Japan is in second place with six percent; Germany has 5.7 percent and the U.K. and France have 4.85 percent each.3

Stiglitz points out an important problem here as well. The G8 does not reflect the true orientation of the current international system, but rather an archaic version of the world. One would think that large developing economies such as those of China and India would have some input in global matters.

Attempted Reform

Facing all this criticism, the IMF agreed, “that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process” and looked for “further reforms to improve the responsiveness and adaptability of the IFIs.”4 This statement was part of the “Leader’s Statement” and the London Summit in 2009.

In the past couple months, the IMF finally selected a person from the developing world as a top contender for the new Managing Director, Agustín Carstens, the Governor of the Bank of Mexico. He was up against Christine Lagarde, the French Finance Minister. Lagarde was a favorite from the beginning.5 On June 30th, 2011, she was voted the new Managing Director.6

While Carstens’ Latin American supporters may have been disappointed, Stiglitz brings up an important point regarding this conflict. The “first priority is to choose a leader with the requisite skills, commitments and understandings in an open and transparent process, someone who will continue along the reform path on which the fund has embarked.”7 Rather it is the presumptions of Americans and Europeans on top that must go.

It is important to note that Lagarde did in fact have wide support from the developing world. She received votes from China, Brazil, and India, along with developed countries.8 Therefore, perhaps the election of yet another European does not necessarily mean that the IMF has not followed through on its promises of reform. Lagarde’s career as Managing Director will be the only way to judge whether the governance of the international system is truly heading in a new and better direction.

1 “Stiglitz: Time to Snuff the IMF?” The Left Business Observer. September 2002.
2 Stiglitz, Joseph. “Choosing the IMF’s Next Leader.” The Economic Times. June 13, 2011.
3 Glendinning, Lee and Wearden, Graeme. “Dominique Strauss-Kahn Resigns as Heaf of IMF.” The Guardian. May 19, 2011.
4 G20. “London Summit – Leader’s Statement.” April 2, 2009, 6.
5 Levitz, David. “Christine Lagarde and Agustin Carstens Shortlisted for IMF Chief Post.” Deutsche Welle. June 14, 2011.
6 “France’s Christine Lagarde Voted as New IMF Chief.” International Business Times. June 28, 2011.
7 Stiglitz, Joseph. “Choosing the IMF’s Next Leader.” The Economic Times. June 13, 2011.
8 “France’s Christine Lagarde Voted as New IMF Chief.” International Business Times. June 28, 2011.

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