The arrest of IMF chief Dominique Strauss-Kahn on charges of sexual assault and his subsequent resignation have left the IMF without a leader and France's Socialist Party without a strong candidate to run against Nicolas Sarkozy.
Strauss-Kahn, or DSK as he's often called, steered the IMF through the recent global financial meltdown and initiated a sweeping reform of the organization. The search for a successor is likely to be long and arduous.
Of course, the IMF will not collapse overnight, and loan negotiations will proceed. Like all powerful UN bureaucracies, the IMF is extremely resilient and can survive for quite a long time without a head. Moreover, DSK's deputy John Lipsky, who planned to resign in August, has stepped in as acting managing director.
Silver lining
Many financial experts believe that the downfall of the womanizing banker could propel IMF reforms toward more than a simple redistribution of quotas and votes on the fund's key policy issues. After all, the world's financial health depends on it.
The IMF is like the world's financial IV drip, a mutual aid fund designed to help out any of the 185 member states that are experiencing budget or currency problems - or both, as is often the case.
Member states can borrow up to 100% of their contributions to the IMF interest-free. Low-interest loans are available to members in excess of this amount on the condition that the IMF's recommendations on cutting their budget deficits are implemented. This is the price they have to pay, the bitter pill they must swallow, even though this medicine often has such side effects as social unrest. The IMF receives the brunt of the criticism for this, and mostly from its biggest borrowers - developing countries.
Traditionally, leadership of the IMF and its close counterpart the World Bank is divided between the Americans (who get the World Bank job) and the Europeans (the IMF). This arrangement ceased to reflect the global economic realities by the beginning of this young century; and it had become totally absurd by 2010.
Last year, China became the world's second largest economy with the world's largest international reserves. But it still ranked 10th on the IMF list, which is led by the United States (the largest contributor, with 16.74% of total voting rights), followed by Japan, Germany, France and Britain. Since the fund's charter capital is limited, China cannot increase its contribution to receive a larger quota and more voting rights.
Strauss-Kahn initiated sweeping changes after becoming the managing director of the IMF in 2007. In 2008, it was decided that the fund's charter capital should be increased and the members' contributions redistributed, leading to changes in their voting rights. The decision took effect in 2011. The member countries agreed to increase the charter capital from 238.4 billion Special Drawing Rights (SDRs) to 476.8 billion SDRs.
The SDR is a virtual IMF currency whose exchange rate is calculated on the basis of a basket of currencies comprising the US dollar, the euro, the pound sterling and the yen. One SDR is equal approximately to $1.50, putting the IMF's total reserves at some $750 billion.
China and Russia both insisted that the IMF should adjust more quickly to the new financial realities of the world.
The reforms this year increased their quotas, as well as the quotas of India and Brazil, giving them more clout in the IMF. China is now the third largest member after Japan, and Russia broke into the top 10 IMF countries in terms of voting rights.
This is good, but not good enough, as the combined votes of West European countries and the United States still outnumber the combined votes of BRIC.
The resignation of Strauss-Kahn is a good pretext for demanding more change. The top job at the IMF has been held by a European since the IMF's inception in 1945, and China believes now is the time to rewrite this unwritten rule.
Some believe that DSK's replacement should be a European, while others think the new managing director should come from a developing economy like Brazil or China.
Fresh blood
The Chinese newspaper Renmin Ribao has called for the job to be given to a Chinese economist. This would be more than fair. After all, China is now the world's second largest economy after the United States, and many experts argue that it is the only country that can help the world overcome the economic and financial crisis.
So, why not appoint a Chinese person to head the fund?
Already the names of several non-Europeans have been put forward as possible successors. A frontrunner for the $436,000-a-year role is Kemal Dervis, a former finance minister of Turkey with economics degrees from the LSE and Princeton, and currently head of the UNDP. Other candidates are central bank heads Stanley Fischer (Israel) and Agustin Carstens (Mexico).
But the strongest candidates are still Europeans, for example former British Prime Minister Gordon Brown and Christine Lagarde, the highly regarded French finance minister.
Lagarde is an acceptable candidate. And, as a woman, she could help turn the page on DSK's sordid downfall. But if she is chosen, she will be the fifth IMF managing director from France.
According to the British press, Brown is optimistic about his chances, although the current prime minister, David Cameron, suggested that the IMF should look for a replacement in "another part of the world." Some claim that Cameron is motivated not by a sense of fairness but by a desire to deny the job to a prominent opposition figure.
A compromise candidate will likely be found for the job of the IMF managing director, because Europe and the United States are not yet ready to give up the reins.
The views expressed in this article are the author's and do not necessarily represent those of RIA Novosti.
