The appointment last week of France’s finance minister, Christine Lagarde, as managing director of the International Monetary Fund (IMF) brings an end to a race which, for all its illusions of drama and contest, was in fact entirely predictable.
The so-called Bretton Woods institutions — the World Bank and the IMF, set up in the New Hampshire town of that name by the Allied Powers of World War II in 1944 — have long rested on a cosy deal

within the Western world, under which the former would always be headed by an American and the latter by a West European. The 10 managing directors of the IMF since then have all been Europeans (four from France, two from Sweden, and one each from Belgium, Germany, Netherlands and Spain). All 11 presidents of the World Bank, needless to say, were American.
America’s continued dominance may well reflect its status as a genuine economic superpower, but Europe’s is a reflection of arrangements that have long been questionable. The fact is that Europeans have dominated the IMF’s executive board, the body responsible for the organisation’s day-to-day management. Despite accounting for barely 20 per cent of global GDP in purchasing power parity terms, the member states of the European Union collectively account for 31 per cent of the votes on the IMF board, and in practice cast up to 36 per cent of the votes (since there are only 24 directors, smaller countries entrust their voting rights to the bigger ones — thus Italy casts the votes of Greece, Albania, East Timor and Malta, and the Netherlands votes on behalf of a group that includes Israel, Armenia and the Ukraine). This 36 per cent vote share gives the EU countries an undue advantage in the race to get the 50.1 per cent needed to elect an IMF head.
The irony is that Europe is a borrower from the IMF. Instead of the insolvency of European countries like Greece, Spain or Ireland leading to a reduction in the EU’s voting weight on the board, the problems of Europe have cynically been used to justify Ms Lagarde’s appointment. It is precisely because of Europe’s financial problems, Europeans argue, that a European is needed to head the IMF to deal effectively with them. (Wolfgang Munchau in the Financial Times explained that an IMF boss “will have to bang heads together in meetings of European finance ministers, and will have to converse effectively with some notoriously difficult heads of government and state.”) Oddly, the same argument was never used when the “Asian flu” was being dealt with by a European IMF director, Michel Camdessus, who was clearly unfamiliar with the mores of the continent. Had Asia’s economic troubles in the late 1990s led New Delhi to call for an Asian IMF head, we would have been laughed out of court. The acronym IMF, it used to be said by shame-faced Third Worlders, stands for “Insolvents Must Fawn”. With a European in charge, this may have to be amended to “Insolvents May Flourish”.
So once again a European has become the new chief of an institution supposedly controlled by 187 member nations, in a process which effectively discriminates against 93 per cent of the world’s population. As the Venezuelan commentator Moises Naim trenchantly wrote, before the decision was taken: “In its daily work, the IMF demands that the governments that seek its financial assistance adopt market principles of efficiency, transparency and meritocracy in exchange for its help. Yet that same institution selects its leader through a process completely at odds with those values.”
This is a system ripe for reform. Europe and the world could have benefited from having an IMF chief from a developing country with experience of successfully managing a serious economic crisis. Mexico’s Augustin Carstens, for instance, had impressive, substantive credentials, and was arguably the most qualified candidate for the job amongst those in the fray. An Indian might have been a worthwhile contender, reflecting our country’s increasing influence in the global economy. The Indian economist Arvind Subramanian, a former IMF staffer, argued that “the lack of a strong voice from India is unfortunate because the strength and legitimacy of multilateral institutions, which are in India’s long-term interests, are at stake… The danger here is that if India, along with others, sits on the sidelines and the international debate is not strongly engaged, there will be decision making by default. This will only serve to perpetuate the status quo, of an important multilateral institution that remains basically non-universal in its legitimacy, deficient in wisdom and objectivity, and unduly politicised”.
That is exactly what has now happened. The dominance of a handful of small industrialised Western countries in the international financial institutions looks increasingly anomalous in a world where economic dynamism has shifted irresistibly from the West to the East. We have clearly reached a point where there is need for a system redesign of global governance in the macro-economic arena, to ensure that all countries can participate in a manner commensurate with their capacity.
The Group of Twenty (G20) Summit in Pittsburgh in September 2009 set in motion a process for global redesign of the international financial and economic architecture, and has become a meaningful platform for north-south dialogue precisely because the south is not completely outweighed by the north in the composition of the G20. The Pittsburgh summit decided to reform the Bretton Woods institutions by shifting decision-making power (five per cent of the IMF quota share and three per cent of the World Bank’s voting power) from the developed world to the developing and transition economies. Nations like India, Brazil, Russia and China, have called for higher figures — seven per cent of the IMF quota share and six per cent of the World Bank’s voting powers — to be transferred, and their long-term objective is broad parity between the developed countries and the developing/transition economies in the international financial institutions.
It certainly seems uncontestable that the recent global financial crisis showed that the surveillance of risk by international institutions and early warning mechanisms are needed for all countries. In other words, it is important that, in the context of global governance, the developing countries should have a voice in overseeing the global financial performance of all nations, rather than it simply being a case of the rich supervising the economic delinquency of the poor. The Lagarde appointment, instead of being accepted as a defeat, should serve as a spur to bring about this much-needed change.

The author is a member of Parliament from Kerala’s Thiruvananthapuram constituency