No More Gentleman's Agreements

We need a broader range of faces at the world's top economic institutions

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Illustration by Harry Campbell for TIME

You have to wonder about the state of economic leadership in the world when it turns out that Dominique Strauss-Kahn, the former head of the International Monetary Fund (IMF) who stepped down on May 19 after being accused of sexually assaulting a maid in a New York City hotel room, was a stabilizing figure. Whatever happened in that $3,000-a-night suite didn't come at a good moment for the world economy. The former IMF chief was one of the key players trying to solve the euro-zone debt crisis, which is now threatening to boil over as Greece and Italy lose their credit standing, Spaniards riot over unemployment, global markets fall and the entire future of the euro — not to mention the stability of the European Union — is questioned.

Still, one bright spot in the whole sordid DSK debacle is that it finally brought front and center the issue of how global institutions like the IMF need to change to reflect the new order of things. There's a certain grotesque echo in the fact that Strauss-Kahn has been accused of attempting to rape a maid from a developing nation. The IMF has been under fire for years for offering at best hypocritical and at worst dangerous advice to developing countries about how to manage their economies. Many Asians believe the IMF exacerbated their regional financial crisis in the late 1990s.

The problem hasn't been so much the absolute nature of its advice (mainly austerity measures that often haven't been taken by Western countries) but that it has been offered in such a cookie-cutter fashion. What worked in Latin America must surely work again in Asia — or so went the thinking among the teams of mostly older white male economists from the West. They would descend on emerging markets, attempt to suss out their troubles and dispense appropriate medicine within a matter of weeks, acting all the while as if they were "shouldering Rudyard Kipling's white man's burden," as Joseph Stiglitz, former chief economist of the World Bank, has put it. (For more on that, read his book Globalization and Its Discontents.)

No wonder that in the wake of the DSK scandal, the IMF executive directors for Brazil, Russia, India, China and South Africa have called for an end to the gentleman's agreement that a European heads the IMF (Americans get the World Bank). In an era when China could buy and sell the IMF — the Middle Kingdom's $3 trillion in currency reserves dwarfs the IMF's $750 billion lending pool — and 8 out of the top 10 contributors to global economic growth are emerging economies, it seems only fair. "It has to be wrong for multilateral bodies to have a recruitment process where birthright is more important than ability," said Trevor Manuel, a South African Cabinet Minister and former Finance Minister who's among the candidates being considered for the job, which will be voted on in June under a system in which rich countries hold more votes.

Ironically, DSK had been a supporter of up-and-coming economic powers, giving them greater voice within the institution. But change has not come quickly enough. For 36 of the fund's 65 years, the managing director has been French. That will likely continue, since the leading contender is French Finance Minister Christine Lagarde: bookies have her in the pole position, at odds of 1 to 10. She's a rock star on the global stage and an extremely capable candidate. Yet there's a curious logic in her candidacy, as many of her proponents are backing her because they believe the euro-zone crisis requires a European at the IMF's helm. Nobody said during the Argentine crisis that the IMF should be run by somebody from Buenos Aires. To really solve the euro-zone crisis, "it might be better," as Goldman Sachs chief economist Jim O'Neill put it recently, "if some leadership and authority came from outside of Europe with a fresh set of independent eyes."

It should come soon — if not during this leadership tenure, then during the next. Likewise, flush developing nations should step up their financial contributions to the fund. The euro-zone crisis shows how difficult it is to manage a diverse set of national interests. Yet the world is nothing if not more diverse and polarized. Witness the rise of populist politics in Europe and the U.S., combative trade agendas around the world and the wider range of battle lines between and within rich and poor nations. The fact that the emerging-market nations haven't lined up to support one single candidate for IMF leadership is telling.

All this makes the IMF more, not less, important. As flawed as it is, it's what we have to manage a world that's becoming increasingly complex. If it's to continue to be the central table for the world's economic discussions, we should make sure it has the broadest possible range of chairs.