Why IMF chiefs prefer never to say jamais

Dominique Strauss-Kahn, the former French finance minister and sometime socialist contender for the French presidency, did the International Monetary Fund (IMF) no favours last week.

On 1 October, at a press conference in Paris, he did not rule out the possibility that in a couple of years’ time he might duck out of his new job as the IMF’s managing director to run again for the French presidency.

As a prelude to the annual meetings of the World Bank and the IMF (20-22 October), this was less than ideal.

Strauss-Kahn’s appointment to the top IMF job (he starts on 1 November), was controversial. Purists complained that it perpetuated Europe’s grip on the post and argued that the time had come to select "the best person for the job", whether a European or not.

Such an argument conveniently ignores that the United States has an equivalent lock on the presidency of the World Bank, the IMF’s Bretton Woods twin. Indeed it had just exercised this droit de seigneur, parachuting Robert Zoellick, the former US trade representative, into the post to replace Paul Wolfowitz.

But it is not just a question of tit-for-tat. Now is not the time for Europe to give up its stranglehold on the leadership of the IMF. On paper the European Union is going to be the big loser when, over the next few years, agreements are struck to increase the power of developing countries in the IMF to try to enhance its fading legitimacy and credibility. A European managing director should find it easier to persuade EU countries both to reduce the 32% of the votes that they currently hold in the IMF and to accept changes in the way the Fund is managed, to permit an increase in the influence wielded in its boardroom by the likes of China and Brazil.

But one thing the IMF does need, and which a responsible Europe should have insisted on, is the sort of long-term commitment to serve which Strauss-Kahn’s eminent and effective French predecessors, Jacques de Larosière and Michel Camdessus, provided. Both, incidentally, were public servants by profession, not politicians.

Strauss-Kahn is replacing Rodrigo Rato, who quit after three years, insiders say just as he was finally demonstrating some commitment to the job. The Spaniard’s still mysterious resignation earlier this year came amid rumours that he too wants to pursue his domestic political ambitions. His predecessor at the IMF, the current German President Horst Köhler, only lasted four years. Strauss-Kahn’s refusal to rule out a return to French politics risks giving the impression that the IMF is getting another absentee European landlord who is just parking himself in Washington until a ‘better’ job comes along.

It is not as if the IMF is sailing serenely through troubled international financial waters. De Rato’s leadership contributed to unhealthy divisions between the Fund’s management and staff. This distrust will have contributed to recent high-level resignations and may have contributed to the difficulty the Fund has had recruiting a new director for the important European department to succeed Michael Deppler.

De Rato was the cheerleader for the April 2006 announcement that the next big thing for the IMF would be its multilateral surveillance initiative. This aimed to bring the US, Japan, Europe, China and (via Saudi Arabia’s partici-pation) the Middle East into intimate talks about their increasingly interdependent economies and currencies.

The US and China baulked at the idea, Europe split, and the words "multilateral surveillance" are not even whispered in polite company any more. The issue of currency misalignments (is the euro too strong? will the dollar crash?) is high on the agenda of the Group of Seven (G7) advanced economies which meet in Washington on 19 October. At the meeting China will watch again from the sidelines and the IMF will not have the guiding brief on international economic policy co-operation which Rato hoped for.

To his credit, Strauss-Kahn is making it clear that he knows he has his hands more than full if he wants to strengthen the floundering institution which, he says, he believes to be "priceless," but badly in need of reform.

In his pomp, a decade ago, few would have doubted his capacity to have a real impact on the Fund. Perhaps with the backing of a G7 govern-ment (France) and a new US president, probably from the Democratic Party, he will surprise his many critics, especially if he learns the right lessons from Wolfowitz and de Rato’s experiences. But he should beware. Unlike Paris, Washington is a place in which his political foes will probe for weaknesses in his leader-ship and exploit ruthlessly any that they find.

There is, too, a visionary, ready-made, agenda which Strauss-Kahn could adopt. The IMF has been pushing, actively, the cause of deeper European financial market integration. But, surprisingly, as its limited role in the international credit crunch of the past two months illustrates, it has not been providing the strong intellectual leadership it should have on the way that financial markets are shaping the world economy. This has been left to the Basel-based Bank for International Settlements. There is, however, still plenty of serious work to be done on the challenge of developing a better understanding of, and managing, the interaction of macro-economics and micro-financial market innovation.

• Stewart Fleming is a freelance journalist based in Brussels.

Dominique Strauss-Kahn, the former French finance minister and sometime socialist contender for the French presidency, did the International Monetary Fund (IMF) no favours last week.