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Majority Rule at the IMF

Lagarde

 

By Martin S. Edwards

With the recent resignation of IMF managing director Dominique Strauss-Kahn, the issue of IMF governance is on the front burner of international policy. At a time in which there are crucial issues at stake in the global economy, one of the most important international organizations has a very large “HELP WANTED” sign in the window.  There’s already been a great deal of talk about the selection process, and one can even place wagers on who is going to be named as the next Managing Director. The concern, however, should be less with who gets the job than with how they get it.

At the time that these organizations were founded, the unwritten rule was simple – the IMF was to be run by a European, and the World Bank was to be run by an American. Today, it seems that Europe is speaking with one voice in favor of Christine Lagarde, the French finance minister. With a decisive level of support and a large bloc of votes, Lagarde’s candidacy for the next Managing Director looks hard to stop.

The problem for Lagarde is that the world of 2010 is very different than the world of 2000. The IMF’s most important borrowers are now in the Eurozone, rather than in the developing world. The IMF’s message of fiscal consolidation and cutting government spending is not being heard across Europe and the U.S. as these countries struggle to produce vigorous growth. Meanwhile, many developing countries have gone from borrowing from the IMF to lending to it. Brazil, Russia, India, and China have invested a total of $80 billion into the Fund in recent years. This expansion of the IMF’s coffers—which has only come about because of rapid growth in the BRIC countries—has given it more flexibility in dealing with the economic crisis in Europe.

The European prerogative no longer fits a world in which economic power is diffusing to the South and East. U.S. Treasury Secretary Geithner stated that he is seeking a candidate that can “command broad support” among the membership. Because decisions at the Fund are made on the basis of weighted voting, this statement is a bit elusive. A Europe-U.S. agreement on Lagarde would have a majority of votes, since these are allocated in proportion to the size of country economies. However, the U.S. should allow the process to unfold and only commit to a candidate that has the full support of an outright majority of countries in the IMF. The stakes in the world economy are simply too high for the U.S. to simply defer to the Europeans and let weighted voting carry the day.

Allowing majority rule to determine the IMF’s next leader would have two important consequences. First, it would invigorate an organization that has been generally viewed with skepticism across the world by more fully integrating the Fund’s new financial contributors and granting them a greater stake in its day-to-day operations. A new selection procedure would address the concerns of civil society organizations, which have long lobbied for a more inclusive IMF. For international organizations, influence comes from the support of great powers. It also comes from legitimacy, and this can only be enhanced by broader and deeper participation.

Second, reforming how the next Managing Director is selected will benefit the G-20. Countries will be more willing to agree on costly choices to the benefit of the global economy if they have a greater voice in the IMF. We cannot expect meaningful cooperation from the Chinese on exchange rate policies when we fail to take into account their views on who should run the IMF. Similarly, we cannot expect Europe and the U.S. to begin to address fiscal policy if other countries are also neglecting their commitments to reform. Absent a change in how the IMF head is chosen, we can only expect the role of the G-20 to decline precisely when it is needed the most.

Managing the global economy requires cooperation and hard work. As economic power continues to diffuse, ensuring that the IMF remains nimble enough to manage the challenges of integration is essential. Insisting on a selection process that takes all of the member’s interests into account helps the IMF do its job better in the years to come. 

 

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Martin S. Edwards is an assistant professor at the John C. Whitehead School of Diplomacy and International Relations at Seton Hall University.

(Photo courtesy of flickr user Adam Tinworth)

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