By Lee Chang-sup
The G20 leaders will endorse the IMF reform plan in Seoul next month, producing a symbolism of contrasts. For the past 65 years, the Washington-based organization has changed little, while Korea is a country that has undergone the most dramatic transformation in the world. The governance structure of the Bretton Woods institutions, the IMF and World Bank, has changed little, whereas Korea has now become an East Asian miracle economy from one of the world’s poorest countries. A global accord on changing the least-changed organization in the fastest-changing country carries special irony and meaning.
Historically, the IMF’s managing director has been from Europe and an American has led the World Bank. The rule has now become a potential source of conflict between the U.S. and EU, and other member countries. There are talks of opening the two posts to talented figures from any part of the world.
Three Frenchmen, two Swedes, a German, a Belgian, a Spaniard and a Dutchman have served as the managing director of the Washington-based organization. Currently the Frenchman Dominique Strauss-Kahn is leading the organization. Traditionally, an American is his deputy.
The number of the IMF member countries has more than quadrupled to 187 countries from the 44 inaugural member states in 1945. Korea, then one of Asia’s three poorest countries, joined it in 1955.
At the meeting of G20 Finance Ministers and central bank chiefs in Gyeongju last week, the participants struck a surprising deal to retool the IMF.
The EU agreed to cede two of the 24-member IMF executive seats to emerging economies including China, India and Brazil. Six percent of the IMF voting quota will also go to emerging and developing economies. China will become the third largest shareholder in the IMF after the United States and Japan. This is just a symbolic gesture to embrace the disgruntled emerging economies. The concessions are just the start of the long march for a new IMF.
Incumbent IMF chief Strauss-Kahn also knows that his organization needs to change to meet the changing realities of the global economic map. He said the IMF should be more relevant, more legitimate, truly representative and more effective than now.
The IMF needs a strong leadership which can coordinate sometimes opposing views of the US-EU and the rest of the world. There are reports that Khan is to quit the post early next year to run in the French presidential race.
The next leader should have extensive global knowledge, experience and human networks. He should also be receptive to the U.S., Japan and China, and BRICs. He should able to work as a buffer between potential clashes between the U.S.-EU and emerging economies including China.
One of the candidates may be Sakong Il. He is now orchestrating the preparation for the G20 Summit in Seoul. Unlike other countries, Korea created the Presidential Commission for the G20 Summit under Sakong’s leadership. If the Seoul summit proves to be successful, Sakong may either be approached or have an ambition for the IMF managing director post. Foreign Affairs Minister Ban Ki-moon became the UN secretary general after his successful staging of the APEC forum in Busan in 2005. Khan and the next IMF leaders should tackle the following deficiencies in the organization.
The IMF has credibility and image problems ― it has been nicknamed as an organization for the rich countries.
The IMF has shown double standards in administering its medicine ― the so-called conditions for its loans ― to countries in financial trouble. Many Koreans have a mixed feeling over the fund. When the unprecedented financial crisis hit the country in 1997, it provided the then largest bailout fund to Korea. Through this emergency step, the country moved out of trouble.
In hindsight, the medicine it imposed on Korea in return for the emergency credit was too bitter. The IMF treated Korea like a cancer patient although timely surgery of a benign colon tumor might have been appropriate. The country is still reeling from the side effects of the IMF-administered surgery 13 years ago. Despite a booming economy, the income gap has been widening. More than a million middle-class Koreans, including white-collar workers, lost their jobs and are now struggling on the edge of the poverty line. Koreans remember an ``IMF Crisis, ’’ a misnomer for the IMF rescue funding.
The Eurocentric-IMF was quite lenient on troubled EU peers, including Greece. The IMF injected massive money into the troubled EU countries this year. It did not demand the same tough medicine as it administered to Korea.
The U.S. has veto power with only 16 percent of voting rights on any decision made by other countries. The EU is still overrepresented in the decision-making body despite its recent decision to give up two seats to emerging economies. Unlike the UN, the IMF is not run in a democratic way. One-vote-one-member is not the rule.
Straus-Kahn said, ``When the fund was founded in 1944, it had 45 members. Now it has 187. Back then, a small team of countries powered the global economy. Today, there are many engines across many countries.” He said governance reforms are the key to unlocking legitimacy.
Transcripts of the executive-board meeting are not made public. Major decisions are made through a close-door consensus, peer pressure and a gentleman’s agreement mostly by the U.S. and the EU.
The IMF has been an evangelist of American capitalism, namely brutal reliance on, and blind faith in, the market. Its market-knows-best-theory has been proven not always to be perfect. Blind followers of the market economy, namely the United States and the EU, are in deep economic trouble.
Emerging countries such as China, South Korea, India and Brazil ― as well as Japan ― have proven that there are many types of hybrid capitalism other than the IMF-advocated pure market-based capitalism. Following the currency crisis in several countries, including Korea, the IMF has come to realize that free cross-border capital movement may kill even a strong economy. It has softened its previous position against capital control.
The recent currency war between the US-EU and China has shown that the Euro-centric IMF cannot work as a buffer between industrialized countries and emerging economies.
Most of what the G20 summit is trying to do is the job of the IMF. It means the G20 and IMF are duplicating functions. The importance of the G20 will grow or diminish in keeping with the role the IMF plays.
The coordinating role of the IMF becomes critical as the U.S. and EU economies are experiencing a downturn; and the BRICs (Brazil, Russia, India and China) are emerging. Giving an expanded voting quota and executive seats to emerging economies will not be persuasive to the majority of emerging and developing countries. Ordinary people worldwide may not know details of what the IMF is doing. They have a negative and skeptical perception. Namely countries should be careful in approaching the brutal doctor, IMF (Inappropriate Medical doctors Forum).
Its role has been passively policing the economic health of member countries. It has yet to include Development Models, Green Growth and Climate Change on its agenda.
Why should only Europeans monopolize the IMF leadership post? It smacks of racism and spawns alienation from non-Europeans.
Lee Chang-sup is the chief editorial writer of The Korea Times. He can be reached at editorial@koreatimes.co.kr.