Strauss-Kahn’s Choice

CHICAGO – When Dominique Strauss-Kahn, a former French finance minister, was appointed Managing Director of the International Monetary Fund in 2007, many developing countries objected – not to him, but to the tradition that gave the IMF’s top job to a European, with the Americans installing one of their own at the World Bank.

This antiquated international spoils system is a leftover of the post-World War II order, in which the victorious powers divided the leading positions in the world economic institutions among themselves. That arrangement made some sense when the United States represented 35% of the world economy and Western Europe another 26%, but today, the balance of economic power has shifted. The US accounts for only 20% of the world economy, and Western Europe for 19%.

But there was an even more compelling reason – though not obvious at the time – why the IMF director appointed in 2007 should not have come from Europe: the need to avoid conflicts of interest.

When the IMF’s lending was mostly concentrated in Asia and Latin America, it was only logical that the director should come from a country outside of those regions. After all, how credibly could a Japanese managing director impose tough conditions on South Korea, or a Chilean director on neighboring Argentina? At a time when developing countries did most of the borrowing and developed countries did most of the lending, the primacy of the US and Europe was justified.