China and Brazil have demanded that the succession process be handled in a fair and open way, and are calling for an end to the status quo under which a European has led the IMF since its creation in 1945.
The IMF has yet to reveal how Strauss-Kahn’s replacement will be chosen but in a letter to the G20 group of the world’s largest economies Brazil’s finance minister, Guido Mantega, said: “If the Fund wants to maintain its legitimacy, its managing director must be selected after broad consultation with the member countries.”
A global group of anti-poverty campaigners said that the troubled state of the global economy made it imperative to select the best possible candidate from a worldwide pool. “It is time for the European and US governments to finally end the sordid, tacit deal between the two regions that has maintained a de facto northern leadership at both the Fund and the World Bank,” said Bhumika Muchhala of the Third World Network.
Germany’s Angela Merkel has made it clear that she wants the job to go to a European. European Commission president José Manuel Barroso said he also thought the role, which has become crucial since the eurozone sovereign debt crisis exploded, should go to a European.
He told CNN: “Yes, I think it should be a European … they are the biggest stakeholders in the IMF and there are a lot of Europeans that can do that job. So why now choose someone because he’s not European? That makes no sense.”
There are equally trenchant opinions among IMF insiders. One former senior official said: “The big danger here is if the Europeans just try to put their person in. For example, Christine Lagarde [France's finance minister]. That would be a disaster. The Europeans have their heads in the sand again and if they do it, there will be bad fallout.”
“Christine Lagarde stands for protecting big banks. I know people like what she said to Jamie Dimon [chief executive of JP Morgan Chase] at Davos but she’s the most pro-bank bailout of the lot.
“The Americans are going to try and put in [White House adviser] David Lipton as number two. Lipton is Mr Bank Bailout. He worked for Citigroup. If they put in Lagarde and Lipton, what does that say? We are going with the total bank protection plan. That would be a disaster.”
Voting power
Under the voting system used by the IMF, America and Europe have been able to ensure that a European candidate runs the IMF while an American citizen takes charge at the World Bank. The eurozone debt crisis, which has seen the IMF contribute to the bailouts of Greece, Portugal and Ireland, has led many emerging market countries to believe that the next head of the IMF should not come from the EU.The US holds nearly 17% of the voting power at the IMF, giving it enough muscle to block a non-favoured candidate. China, despite being the world’s second largest economy, holds only 3.65% of the votes.
Beijing, like Brasilia, appears keen for someone from an emerging economy to run the IMF this time. Jiang Yu, a spokeswoman for the Chinese foreign minister, said on Thursday that the IMF’s top executives should be appointed on the basis of “impartiality” and “merit”. This came after the state-run China Daily newspaper reported Guo Tianyong, a leading Chinese economist, predicting that “Europe’s history of chairing the IMF may be broken”.
The decision will eventually be made after an election involving each of the 187 member countries. Any country can nominate a candidate, and a winner must secure 85% of the votes. However, this voting power is concentrated among just a few countries, with America holding an effective veto.
Each country has been assigned a “quota” of voting shares, which is related to its GDP, the nature of its economy and the size of its international reserves. These quotas were fixed when the IMF was created in 1945, and reflect the balance of economic and political power at that time, giving America and Europe the power to swing the decision.
Each country has been assigned a “quota” of voting shares, which is related to its GDP, the nature of its economy and the size of its international reserves. These quotas were fixed when the IMF was created in 1945, and reflect the balance of economic and political power at that time, giving America and Europe the power to swing the decision.
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