By Dominique Strauss-Kahn*
Wall Street JournalSeptember 6, 2007 In the weeks to come, the executive board of the International Monetary Fund will have the responsibility of appointing its managing director for the next five years. Regardless of nationality, what truly matters is that whoever is selected to run the IMF should embrace a number of vital changes within the organization. That is why, as the candidate of reform, I have recently embarked on an extensive tour of world capitals, listening to points of views of all IMF members, not just the largest, and building consensus on the need for change. More than ever, we need the IMF to help us face the challenges of our times. Our world is very different from what it was when the founding fathers met at Bretton Woods. International trade and capital flows have grown exponentially, contributing to our prosperity and, at the same time, making our economies increasingly dependent on each other. Exchange rate regimes have diversified. Capital markets have developed, both domestically and internationally. And, last but not least, a new economic geography has arisen, with emerging economies becoming major actors in the world economy, a fact which has yet to be reflected in their voting power in the Fund.
However, it seems to me that the fundamental purpose and mission of the IMF remain the same: to enable all countries, whether rich or poor, big or small, to fully embrace the process of globalization and reap the benefits of an open international economic and financial system. Of course, our environment has changed, and the IMF methods and tools should adapt accordingly. Interdependence has increased the spill-over effects of our national policies. That is why we should build on progress made in recent years in developing new approaches to multilateral surveillance. Recent events have shown furthermore that domestic and international financial stability cannot be taken for granted. It is very encouraging to see how emerging economies have withstood current episodes of market turbulences, thus reaping the benefits of past efforts to strengthen domestic financial systems and implement sound macroeconomic policies. Nevertheless, the Fund should stand ready to play its role and bring necessary assistance, if needed, to countries hit by external financial shocks. Its mission remains, as ever, to ensure world financial stability and promote sound domestic policies.
Finally, poor countries should be encouraged in their endeavors to better integrate in the world economy and must be able to count on the Fund's support. The Fund's role is not to substitute development agencies. But, in light of how important macroeconomic stability is to poverty reduction, there is no doubt in my mind that the IMF should remain active in low-income countries. I discussed this issue in depth with the African governors in Maputo in July and with Latin American governors in August, together with the ways to improve the coordination between the IMF and development agencies, first and foremost the World Bank.
A key issue in the current debates is that we must find a multilateral approach to our problems. This renewed approach towards multilateralism does not mean that other approaches are to be turned down, and indeed, as an unflagging champion of the introduction of the euro, I welcome the various initiatives to promote regional integration. But these initiatives will be even more successful if there is a place where common rules can be discussed and agreed upon. The main asset of the Fund to be that place is the exceptional dedication and quality of its staff, which helps it provide adequate intellectual impetus and state-of-the art analysis. There is certainly scope to include more diversity in the staff, in order to ensure that the Fund develops the right expertise on countries to which it gives advice.
Another key issue is legitimacy. Let us be clear: The emerging and developing world does not feel sufficient ownership in the Fund. In order to reassert the legitimacy of the IMF, these countries must be granted a greater voice and more effective representation. This is linked to the so-called "quota issue," on which some progress has been achieved at the annual meetings in Singapore last September. We should go much further and aim to agree swiftly on significant further increases for those countries whose dynamism and growing role in the world economy is not appropriately reflected in the quota distribution, while ensuring that all categories of countries are given sufficient voice. But quota reform may not be enough. I believe the dynamic of decision making has to be changed in order to decisively increase the input of developing and emerging economies. To achieve that, new voting rules may be worth considering. For example, for a handful of crucial decisions, a double majority of quotas and countries could be required, thus ensuring that those decisions affecting key aspects of the institution command unquestionable support. A system of double majority voting would entail two sets of criteria for assessing a majority, for example possibly using the existing "quotas" -- the IMF votes weighted by size of the economy -- as well as a single vote per country.
Lastly, the IMF needs both a resource-efficient budgetary framework and a more sustainable income model. In that respect, I find most of the recommendations of the recent Crockett report, which contained various suggestions on how to establish sustainable revenue sources for the IMF, to be eminently sensible.
As the candidate of reform, I would aim to steer the IMF on a path to confront and surmount its major challenges: adapting the institution to a changing world while reflecting the views and needs of all members. In a welcome break with past practice, the IMF executive board said on July 12 that all candidates should be assessed on their merits rather than on nationality. Although I was invited by the European Union to stand for the job, I believe it has been crucial to ensure the broader international support for this vital position. During my recent world tour, I have learned much and I feel confident that, if appointed, I would find the necessary support to implement an ambitious reform program to ensure the enduring relevance of the IMF in a rapidly changing world economy.
About the Author: Mr. Strauss-Kahn, a former French finance minister, is a candidate for the post of managing director of the International Monetary Fund.
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