International Monetary Fund: Succession Wars

Published by MBA Skool Team, Published on June 15, 2011

International Monetary Fund (IMF) has been in news for the past few months not because of the good work it has been doing but for the infamous scandal involving its Managing Director. Once that news died down now it is again in news about the selection of its new chief. Isn't selection of such a high profile position based on merit? Partly yes and partly no. That's where the whole issue is dividing the developing and developed economies.

IMF-The Succession Wars !

So what exactly is IMF and how is it's functioning so important to the world. It is a intergovernmental organization which has been designated to look after the global financial system by intertwining the macroeconomic policies of its member nations to help them with their balance of payments and exchange rate problems. It is headquartered in Washington D.C and had come in existence in 1945 with 29 member countries. Over the years its clout has increased and it has now 187 member countries marking it a truly global organization.

Traditionally a European has been at the helm of IMF like how an American gets a top job at World Bank. Though the selection process is based on voting by it's member countries the percentage of votes to each member country is not uniform. It is actually based on the weight of the economy. However these voting rights were determined long time back and now with the realignment of the economies, the voting rights have not kept up with time. The slow shift towards developing economies is what is actually causing the rift in the current selection.

So what exactly is the criterion for inclusion as a member country? First step would be the scrutiny of the application by the IMF executive board. After the scrutiny it will submit a report to the IMF board along with the recommendations. The recommendations will cover the amount of quota, the form of payment of subscription and other terms and conditions of the membership. A member’s quota will determine its amount of subscription, it's voting rights, access to IMF financing and access to Special Drawing Rights (SDR).

Now each member country can cast its vote in favor of any candidate in the selection process. However Europe and USA with its voting right of more than 50% percent can actually decide the next IMF chief. And this is where there is heartburn among the other countries. So looks like with 2 candidates in the fray this time, it could be the first time truly an election is held to select the next IMF chief. In one sense one might it say it is very simple as the person with a simple majority gets a shot at the top job. But in reality that is not the case as we see the candidate’s jet setting across the world to get backing from different countries.

Now in the 187 member list, though the percentage of voting rights has changed it still considers Europe a major economic power which may not be in reality. What was true in the post war period may not hold good in the post recession scenario. The ground realities have changed and hence there is a need to change the voting rights as well. But till then the odds are stacked against the Mexican Central Governor and in all probability it is going to be the French Finance Minister who is going to be the next IMF chief.

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