Frenchman takes IMF helm with promise of reform

FE Team | Published: November 03, 2007 00:00:00 | Updated: February 01, 2018 00:00:00

WASHINGTON, Nov 2 (Reuters): Frenchman Dominique Strauss-Kahn took the reins of the International Monetary Fund yesterday under pressure to give emerging economies like China a bigger say in the global financial institution.
A former French Socialist finance minister, Strauss-Kahn (58) got the job on promises that he would pursue reforms of an institution whose makeup still reflects the global economic order following World War Two, with the United States and Europe as the dominant powers.
As he takes the helm from Spaniard Rodrigo Rato, one of the most intensely political issues he faces is finding agreement among the 185- member countries by a 2008 deadline on how to boost the voting power of under-represented emerging powers.
Strauss-Kahn's biggest challenge, analysts say, will be to persuade European countries, including his own country France, to relinquish some voting power.
Countries like France and Britain are nervous that an adjustment in the IMF's votes could push them below China, whose rapidly growing economy is now the fourth largest in the world behind the United States, Japan and Germany.
With China and India driving the world's economic expansion and concern growing about the growth prospects in the US and Europe, developing countries are demanding a bigger piece of the institution.
With Strauss-Kahn at the helm and Italian Finance Minister Tommaso Padoa-Schioppa recently appointed to head the IMF's steering committee, Lombardi said together they could persuade Europe to accept change.
"Europe will have to accept an erosion in its voting power, there is no question about it, but at the same time it could enact some measures that will by far increase its leverage within the institution," said Lombardi, who is also a senior scholar at Washington's Brookings Institute think tank.
One way Europe could do this, Lombardi said, would be for European countries to pool their voting power into a single chair at the IMF's board. Currently European countries occupy 8 of the board's 24 chairs.
"It's in Europe's long-term interest to have a global monetary institution that is well functioning and that can really contribute to global financial stability," he said.
Some developing countries such as Brazil and Argentina have bluntly warned that emerging countries are likely to abandon the fund unless there is a shift within the IMF.
New leadership at the IMF also comes as member countries call for sharper focus by the institution on monitoring a more integrated global financial system and shifts brought on by recent market turmoil, a falling US dollar, rising oil prices and economic imbalances.