Saturday, May 28, 2011

Time for Change at the IMF

With the rather dramatic exit of Dominique Strauss-Kahn, the International Monetary Fund is in search of a new director to head the organization that has been tasked by the G20 to shepherd global recovery.

Sadly, the organization itself needs a bit of shepherding. When DSK was appointed, it was acknowledged that he would be the last European to head the IMF. Till date, an unwritten convention ensures than a European heads the IMF and an American heads the World Bank Group. However, as the world has changed substantially since WWII, it is imperative that this convention end.

And it did seem that it would end until the moment of truth came and the Europeans backed out, as they always do. French Finance Minister Christine Lagarde is the front-runner from the European countries, but she will face resistance. Already, the IMF executives representing the BRICS nations publicly called for a merit-based system of selection. Sadly, in all probability, the European candidate will win because America would support her (or risk losing its grip on the World Bank) and together they control a majority of votes.

The truth is that the world is in such a crisis that nobody but the very best should lead the IMF - irrespective of nationality. And Europe needs it the most - the biggest danger of sovereign default today comes from Europe and the entire Eurozone could fall into a crisis if that happens. Only the very best can lead the IMF in such a situation and there are extremely good candidates, better than the French candidate, from developing countries.

The Europeans should see for themselves just how short-sighted they are being. If they do not amend there ways, they will probably have their pie but they won't be able to eat it - a crisis in the Eurozone is coming for sure and it could threaten the system that they have built so far.

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