Published Monday, April 26, 2004
Dodd: World finances need democracy, too
The mistake would be to allow Europe to choose the next man or woman to head the International Monetary Fund (IMF). If all goes according to tradition, the next IMF managing director will be the ninth consecutive European to hold that post since the global financial institution was established 60 years ago.
Europe's monopoly stems from an informal arrangement, rather than any written rule. Without the United States' approval, a new leader cannot take over, so America has an opportunity to demonstrate our democratic principles by including developing countries in global economic decision-making.
The IMF is a highly visible international institution thanks to the critical role it plays in providing oversight of the global economy and coordinating economic rescue policies in response to economic crises.
In the past decade, the IMF has assembled bailout plans for Mexico, five East Asian countries, Russia, Brazil, Turkey and, most recently, Argentina. Developing-country governments know that if they suffer a financial sector collapse, it will be the IMF they must confront. Who governs the IMF is therefore a matter of great importance. Its power should be matched by the perception of legitimacy.
Wheeling and dealing over the next IMF chief is being done behind closed doors -- and only a small percentage of the world's population is represented in the room. European governments are engaged in round after round of backroom horse-trading to make their selection. The top candidate appears to be Rodrigo Rato, the former finance minister of Spain, although there also appears to be substantial support for a Frenchman and to a lesser extent for a nominee of the Italian government.
Meanwhile, 11 IMF regional directors -- representing 126 developing countries, or over two-thirds of all members -- are demanding a fair and transparent selection process. They want all members to be involved in the selection of the managing director. They also want an end to the discrimination against developing countries.
Excluding non-Europeans from the search for the IMF's top official is discriminatory.
In addition to maintaining control of the top position, Europe also has a disproportionate share of votes and seats on the IMF's executive board. Today, Europe holds nine.
These control almost 30 percent of the total voting power.
Nations defined as having developing or transition economies account for 85 percent of the world's population, and have a gross domestic product more than double that of the European Union -- yet they have only 38 percent of total votes. Looked at individually, Denmark has more voting power than Korea, and Belgium has 52 percent more voting power than Brazil and 74 percent more than Mexico, despite their larger populations, economic output and volume of international trade.
It's time to restore the balance of power in this important economic institution in order to reflect how the world has changed since it was created 60 years ago.
Defenders of the status quo cite the Europeans' unique institutional knowledge and expertise that qualify them for the managing director post. But there are many highly qualified candidates from developing countries as well. If they are dismissed, it would be a cruel irony that the people most affected by the IMF and its policies have no voice in the selection of its chief executive.
The IMF Executive Board -- including the United States -- has already made a commitment to this goal in 2001 with a report stating "a plurality of candidates representing the diversity of members across regions would be in the best interests of the Fund; the goal is to attract the best candidates regardless of nationality."
The United States should insist that this promise be kept by insisting that a diverse slate of candidates be considered for. The head of such an important economic policy-making institution should be chosen according to merit, not nationality.
Randall Dodd is director of the Financial Policy Forum, a Washington, D.C., think tank, and a Foreign Policy In Focus scholar. He wrote this for the Institute for Policy Studies. The Institute for Policy Studies (IPS) is the only multi-issue progressive think tank in Washington, D.C. Through books, articles, films, conferences, and activist education, IPS offers resources for progressive social change locally, nationally, and globally. www.ips-dc.org.