Fri, May 20, 2011 - Page 9 News List

The IMF’s lessons on how to replace Dominique Strauss-Kahn

By Harold James

How the mighty IMF has fallen. More than a decade ago, the French magazine Paris Match carried a picture of the IMF’s then managing director, Michel Camdessus, with the title: “The Most Powerful Frenchman in the World.” Today, his successor, Dominique Strauss-Kahn, handcuffed and grave in ubiquitous front-page photos, is the most humiliated Frenchman in the world.

One unanticipated result of the lurid New York sex scandal involving Strauss-Kahn is that the question of his successor is attracting an unprecedented level of public interest and concern. Indeed, the scandal has exposed some fundamental problems about the IMF’s governance, and even about its existence.

Strauss-Kahn tried to remake the IMF into a doctor of global finance, rather than a policeman. In mitigating or even preventing financial crises, however, sometimes policemen are needed. At the moment, the combination of excesses still evident in the -financial sector and in public finance in many countries calls for some fairly tough police action.

Any organization is always much more than simply the person who happens to lead it, but a weak or politicized figure at its head can do great damage. Unfortunately, about half of the IMF’s past managing directors have been either weak or overly political — or both.

The IMF’s first two managing directors, the Belgian Camille Gutt and the Swede Ivar Rooth, were both weak figures. Indeed, the IMF almost disappeared into complete oblivion during their tenure.

The IMF’s two most recent managing directors before Strauss-Kahn, a German and a Spaniard, were also weak. Horst Kohler, appointed in 2000, got the millennium started on a bad note. He had been an influential state secretary in Germany’s finance ministry before becoming the head of the associations of savings banks. Germany’s then chancellor, Gerhard Schroder, pressed hard for a German appointee to lead the IMF, but Kohler was always an implausible second-choice candidate. He resigned in 2004 to run as German Chancellor Angela Merkel’s candidate for the largely ceremonial office of president of the German Federal Republic, a job he performed capriciously until he abruptly resigned.

Kohler’s successor, Rodrigo Rato, had been the leader of Spain’s center-right party, which was unexpectedly defeated in the 2004 general election by current Spanish Prime Minister Jose Luis Rodriguez Zapatero. He was sent to Washington as a consolation prize and was never very happy there. The IMF’s influence dwindled and he resigned in 2007 “for personal reasons.”

Strauss-Kahn, too, began his tenure at the IMF as a politician-in-exile, after emerging as French President Nicolas Sarkozy’s most formidable domestic opponent. Sarkozy and his strategists, no doubt, thought that sending Strauss-Kahn to the IMF, which before the global financial crisis looked unimportant and marginal, was a brilliant coup. They may have even calculated that his private life might cause a stir in a country that is both more prudish and prurient than France. However, when the IMF reemerged after 2008 as a central global institution, with Strauss-Kahn appearing to reorient it with substantial political and economic skill, he started to look again like a threat to Sarkozy’s re-election bid.

The IMF’s heavy engagement in resolving Europe’s sovereign-debt crisis adds another element of political complexity. Non-Europeans suspected that the Europeans were getting favorable deals under a French politician-turned-economist who wanted to return to politics. And some Europeans worried that the IMF was taking sides in a polarized intra-European dispute about how the costs of the financial crisis should be shared.

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