Dominique Strauss-Kahn Takes Over Management of the IMF

Former French Finance Minister Dominique Strauss-Kahn took office as the Executive Director of the International Monetary Fund (IMF) on Thursday, announcing a more vigorous implementation of reforms at the global financial institution to align its structure and operations with changes in the global economy.

Strauss-Kahn (58) was welcomed at the entrance of the new IMF headquarters in Washington by outgoing Executive Director Rodrigo de Rato, who resigned in June, the IMF announced. The new head of the IMF stated that he would continue with the reforms initiated by De Rato, particularly changes aimed at ensuring a greater role for leading emerging economies and low-income countries in decision-making at the Fund. Strauss-Kahn takes over the IMF at a time of concern about the impact that losses in the high-risk mortgage market in the U.S. will have on the global economy, as well as worries about the potential for accelerated global imbalances and effects on major currencies, the IMF noted. One of the biggest challenges for Strauss-Kahn will be reaching an agreement among the 185 member countries of the IMF on the redistribution of voting quotas in the IMF to strengthen the influence of currently underrepresented emerging economies. 

The annual meeting of the IMF and the World Bank in October coincided with the release of the World Economic Outlook, which showed that China, India, and Russia today account for half of global economic growth, while the decision-making system in the IMF still largely reflects the balance of power from the post-World War II period. Strauss-Kahn is expected to persuade European countries to give up part of their voting rights, analysts say. “Historically, we have been used to thinking that the blockage is in Washington, but now the blockage is actually in Europe,” assessed Domenico Lombardi, president of the Oxford Institute for Economic Policy and a fellow at the institute in Washington.   If the reform of the IMF’s voting system reflected the current strength of individual economies in the world, where China ranks fourth behind the U.S., Japan, and Germany, Beijing could have more influence in the Fund than Great Britain and France, which would be difficult for them to accept.

Lombardi assesses that Strauss-Kahn and Italian Finance Minister Tommaso Padoa-Schioppa, who was appointed head of the IMF’s board in October, should jointly persuade European countries of the need to give up part of their voting rights. “It is in Europe’s long-term interest to have a global monetary institution that works well and can truly contribute to global financial stability,” he added. Some developing countries, such as Brazil and Argentina, have openly warned that they might leave the IMF if there is no turnaround within it. Strauss-Kahn, who announced that he intends to be a reformist executive director, also emphasized that the Fund is facing questions about its own importance and legitimacy. In a recent interview, he stated that some countries are questioning the usefulness of the Fund, given that they have sufficient foreign exchange reserves and depend on the IMF. The former French socialist finance minister and professor of economics at the Institute of Political Studies in Paris emphasized that the IMF needs to help ensure that globalization works in the interest of all people in the world.

“I will not say that globalization is good for everyone because there are always people who suffer from inequality and poverty. But at least we can strive to make globalization better for all,” said Strauss-Kahn, adding that this will help maintain international stability and security. Strauss-Kahn announced that one of his priorities will also be addressing the issue of the gap between the IMF’s revenues and expenditures. Namely, as many countries repaid loans to the IMF and concluded arrangements with it in the first half of the decade, the Fund’s revenues have declined and cannot cover an annual budget of about one billion dollars for 2,700 employees. The Fund is now seeking an alternative financing model, and one option is the sale of part of its gold reserves, but Strauss-Kahn also announced a reduction in spending, which has always been the IMF’s main recipe for countries in financial difficulties. (H)