When power trumps principle, inevitably there are casualties. The process to replace Dominique Strauss-Kahn as IMF managing director has been a sham. While the process of appointing Christine Lagarde has damaged the IMF’s credibility, she now has the power to restore the fund’s credibility and transparency.
Unlike the US, Britain, Germany, France and Japan, which speak only for themselves on the IMF board, Australia holds a unique position in the fund as it also represents multiple developing countries’ interests. As a broker between developed and developing countries, Australia should fly the flag for institutional reform during Lagarde’s tenure.
World leaders have been too quiet about the disfranchisement of emerging markets and developing countries in this process. Oxfam is on the ground in many countries dependent on IMF assistance, working to alleviate poverty and social inequality, which often have been exacerbated by conditions the IMF attaches to its loans. IMF policies have an enormous impact on developing countries, so it is important they have a say in the decisions that affect them.
One such decision for Lagarde is what to do with the nearly $US3 billion the IMF unexpectedly received from the sale of its gold reserves last year. Oxfam says this money must be directed to where it is most needed and where it will have the most impact, without harmful conditions. That means channeling the excess profits to poor and vulnerable citizens of developing nations.
We are concerned European IMF board members want to bury the funds in the books of the institution where they hold disproportionate power.
It’s another reminder that the time has come to end the outdated gentleman’s agreement that consolidates European control of this key global institution.
A number of European economies are on the edge of collapse, and many around the world are struggling with rising food and fuel prices, so the IMF’s role in shoring up international monetary stability is more critical than ever. The world needs an IMF with legitimacy and authority.
The role of IMF first deputy managing director, traditionally filled by a US national, will fall vacant next month. This could present a chance to fix the democratic deficit in the IMF’s governance. Allowing emerging markets a say that accords with their rising influence will benefit the institution.
Lagarde has the power to bring about real change at the IMF. She must accelerate reform to loosen Europe’s stranglehold on the executive board, and gives other member countries more voice.
This opinion editorial was first published in The Australian on 1 July 2011.