Dispatch: Europe Likely to Prevail for IMF Chief
Video Transcript:
Analyst Marko Papic discusses the jockeying to replace IMF Managing Director Dominique Strauss-Kahn and how the likely replacement will be a European.
Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.
IMF Managing Director Dominique Strauss-Kahn resigned on Wednesday night. This means that the race to replace him has now begun in earnest.
Strauss-Kahn's resignation has renewed the debate of whether the gentlemen's agreement between the United States and Europe on dividing up the World Bank and IMF, respectively, should stay. This was a Cold War-era agreement between what were essentially the only two economic powerhouses in the world: Europe and the United States. As emerging economies such as Brazil, India, Russia and China have gained economic clout, they have become more vociferous in questioning this agreement.
The race for the new managing director is therefore not really important in terms of the position itself. It is important to understand that managing director does not make decisions by fiat. He is bound by the decisions of the 24-member executive board and therefore decisions on whether to bail out a lot of peripheral eurozone states will ultimately be a political one made by IMF member states.
Nonetheless, the real importance of this race really comes down to the contestation between emerging markets in developing countries and the established democracies for control of a very important international institution. The race therefore symbolizes a competition between the two blocs of countries that really has run the gamut on a number of issues, from whether or not the Chinese currency needs to appreciate more to trade to global financial regulation. The emerging markets and developing economies have therefore proposed a number of candidates from their own bloc. However, the reality here is that the emerging countries are in no way united in this. Not only to have divergent economic interests but they also have geopolitical differences. China would not want to see a South Korean or an Indian at the head of the IMF just as India or South Korea would not want to see a Chinese.
Therefore there are competitions within this bloc that is unified only really an emotional appeal that the gentleman's agreement between America and Europe needs to end. On the other hand, the Europeans are very much united. What unites Europeans is of course the eurozone sovereign debt crisis, and that means that EU's 27 member states are most likely all going to agree on a single candidate. The European Union has more than 32 percent of the total share of the IMF vote, which means that it has the ability to block any candidate that it does not want. Europe seems to be unified behind a single candidate in French Finance Minister Christine Lagarde, and Strauss-Kahn's relative quick resignation gives Europe a head start on the emerging world, which while unified behind the idea that a Europeans shouldn't take the post, is in no way unified on who that alternative should be.
