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Column: IMF leader selection is not democratic and, frankly, a sham

Oxfam Ireland’s Chief Executive Jim Clarken argues that the appointment of an IMF head is pre-ordained – and excludes developing countries and rising powers.

Jim Clarken

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 will be 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 nominations for Managing Director of the IMF are now complete.

Pre-ordained candidate

The only role left for developing countries and rising powers is to rubber stamp a pre-ordained candidate; a stitch-up with the vague air of acceptability. That’s not enough.

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 Ireland now knows.

The Irish government, itself a recipient of an IMF loan and negotiating for a better interest rate, also has a strong interest in who leads the powerful financial institution.

Yet there was no facility in this process to allow emerging powers or recipient and developing countries to play a leadership role in the IMF. These countries have effectively been disenfranchised in this private power play.

One decision for the next Managing Director that may directly affect these countries 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.

Excluded from the decision-making

Oxfam believes this money must be directed to where it is most needed and where it will have the most impact. That means channeling 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 European Board members are moving to bury the funds in the books of the institution where they hold disproportionate power.

The time has come to end the outdated gentleman’s agreement that hands Europe control of this key global institution. The promise of change at the IMF, so quickly cast aside when put to the test, is no longer enough. The influential role of First Deputy Managing Director of the IMF, traditionally filled by a US national, will fall vacant in August. There’s a risk that this too will be a ritualistic rather than contestable appointment process. But there’s an opportunity here to attend to the democratic deficit in the IMF’s governance.

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.

Obsolete economic and political world order

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 a 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 U.S dominate international financial institutions.  It is in everyone’s interests that power is exercised with principles.

Read more: Lagarde pledges to diversify IMF after sex scandal > (06-07-11)

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