Dominique Strauss-Kahn’s fall from grace was spectacular. A day earlier, before the now-infamous photographs appeared on front pages around the world, bookmakers were tipping him to win the French presidency in 2012. Now, he will be lucky to avoid spending his retirement in jail.
That opens the door to a host of would-be successors, and not all of them from the traditional European pool of candidates. Since the establishment of the post-war monetary system at Bretton Woods, leadership of the IMF and the World Bank has been shared between Europe and the US, with an American always in charge at the bank and a European running the fund.
But this is the first time either job has come up since the financial crisis struck. Today, with Europe in the middle of a crippling debt crisis and China and the emerging markets driving global growth, some sensed an opportunity to shake up the old regime.
Our readers thought so too, as the early votes in our poll leaned strongly towards a non-European, non-US candidate. However, the case for another European has grown strongly since Strauss-Kahn resigned, as Rupert Walker discussed on our website last week. The voting on our poll has reflected that shift in sentiment, though the final result still reflects some optimism — our readers are still betting on a leader from somewhere outside the US or Europe, but only by a sliver.
This time, the argument is that the IMF needs a leader who can help the eurozone out of its debt crisis — and the prevailing logic seems to suggest that a European is best-placed to do that. Christine Lagarde, the French finance minister and a former Baker & McKenzie lawyer, is tipped by most as the favourite.
Some see this as odd. The IMF is a multilateral agency with a global role. Europe’s debt crisis is certainly a big problem today (though probably not one that can be solved through more debt), but the fund would be better served by trying to help avoid a repeat of the last crisis, rather than helping to mop up the mess.
Indeed, a former IMF staffer who now works at Ashmore Investment Management, Ousmene Mandeng, last week made the case for a fresh approach to choosing the fund’s new leader.
“Any new MD needs to be apolitical, provide credible leadership to ensure the IMF remains influential, yet be seen as impartial, deal with governance and reputational concerns of the institution, and be visionary and effective in enforcing its mandate, especially in a post-crisis environment,” he wrote in a statement. “The IMF has been designed as and its strength rests on being a technocratic institution and politics should not unnecessarily interfere with its mandate.”
He argues that the IMF faces credibility and reputational issues, not because of Strauss-Kahn’s so-called seductions, but thanks to its governance and, just as important, its track record in Asia during the region’s own crisis more than 10 years ago.
“The IMF’s reputation is dented,” he wrote. “The Asia crisis of 1997-98 and subsequent intensive IMF involvement left a sour taste and distrust in the institution. An MD from an Asian country would therefore be most effective to address reputational concerns.”
China might be the world’s second-biggest economy, but at the IMF it ranks sixth in voting power, behind the UK, whose economy is less than half the size of China’s. But Asia’s problem is its lack of cohesion — would India vote for a Chinese leader, or Korea for a Japanese one? Probably not.
Unsurprisingly, British bookmaker Ladbrokes is not taking money on any Asian names. Indeed, the only non-European names are a couple of Turks, an Israeli and John Lipsky, the American who is acting chief at the moment.