The International Monetary Fund, Troubles On The Left

Socialist Dominique Strauss-Kuhn, former Managing Director of the IMF has resigned; apparently, he realized how difficult it will be to run such a dynamic enterprise from prison. French Finance Minister Christine Lagarde is being considered as his replacement. The job has benefits, staying in $3,000 night hotel rooms with complete maid service, at least in Europe, is considered part of the package among Europe’s privileged Elite. However, since DSK managed to expose the seamier side of the of the European notion of privilege or of ‘noblesse’ and their dubious feelings ‘noblesse oblige’ toward the common masses, concepts that play so conveniently for the European Socialist, the world is beginning to question the wisdom of installing European Socialists to run this complex and powerful monetary fund.

There is no rule that states the director will be European, no not at all, the Europeans maintain that there has been a “gentleman’s agreement” since the inception of the IMF and the World Bank, that all directors would be European. A tradition that keeps control of the money and the power in Europe. Officials from Brazil and South Africa are demanding that the next director be from a developing country, the list of countries will surely be growing by the time you read this article.

It is important to understand the purposes and reasons for the formation of the IMF and the World Bank to understand the intricacies of this organ that wields so much power in the world.

The Bretton Woods Conference established both the IMF and the World Bank in 1944. John Maynard Keynes was the architect of both entities at the conference; his main collaborator was a treasury department official Harry Dexter White, who was a covert Soviet agent. Keynes assumed that White would run the IMF, a choice that was endorsed by President Truman. However, Treasury Secretary Fredrick Vinson, maintained that an American should run the World Bank, a suggestion that was applauded by Wall Street. It was decided that Americans shouldn’t run both the IMF and the World Bank; especially, in light of the Communist sympathies of White that were beginning to emerge. Consequently, Washington Post publisher Eugene Meyer gained control of the World Bank and Belgium’s Camille Gutt was selected for leadership of the IMF.

The Articles of Agreement for the IMF has nothing concerning the nationality of the director, only that the director be appointed by the organization’s executive board. Membership on the board is based on countries with the highest “quotas”, a measure of their economies and economic activities; thus, board members have always been American and European.

Directors of the IMF have all been European, but America has maintained control over the selection process. Another informal arrangement allows the deputy managing director to be appointed by the US Treasury.

In 1946, the IMF had 44 member countries, today there are 187 members. Now, developing countries are participating in the selection process. In 1973, a group of developing countries, led by Indonesia and Iran blocked the nomination of Dutchman, Emile van Lennap, because he was seen as too closely aligned with wealthy countries.

The tradition of the gentleman’s agreement is coming to a close. The IMF has determined, through an internal review, that the convention reduces choice. The G-20 meeting in 2010 decided that membership of the executive board should be opened up to developing countries.

Now that DSK has split the sheets with the IMF, the question of leadership and nationality will be stressed. The European Union is hemorrhaging, specifically in Greece, but Ireland is in trouble also, as well as the Euro, the competitor of the dollar in more recent times when the US had a vibrant economy. Europeans will insist that control remain in Europe so that they can address their failing economies and the faltering Euro.

From the IMF public affairs website:

The International Monetary Fund (IMF) came into official existence on December 27, 1945, when 29 countries signed its Articles of Agreement at a conference held in Bretton Woods, New Hampshire, USA, from July 1-22, 1944. The IMF began financial operations on March 1, 1947.

Current Membership: 182 countries
Staff: Approximately 2,600 from 110 countries
Managing Director: Michel Camdessus assumed office in 1987
Governing Bodies: Board of Governors, Interim Committee, Executive Board
Total Quotas: SDR 145 billion (US $195 billion)
Accounting Unit: Special Drawing Right (SDR). As of September 10, 1998, SDR 1 equaled US $1.36163.

Statutory Purpose

The IMF was created to promote internatioal monetary cooperation; to facilitate the expansion and balanced growth of internatioal trade; to promote exchange stability; to assist in the establishment of a multilateral system of payments; to make its general resources temporarily available to its members experiencing balance of payments difficulties under adequate safeguards; and to shorten the duration and lessen the degree of disequilibrium in the international balances of payments of members.

Now Greece is having problems because of Socialist policies and entitlements they can’t afford. There is a distinct irony when you consider that DSK, the Great Seducer, would have waited for a more appropriate circumstance to have his ashes hauled, A socialist could continue to help a Socialist country overcome its Socialist entitlement problems and help them adopt a system of fiscal responsibility so they would avoid defaulting on their debt.

The Greeks are not likely to be anxious to listen to a Third World financier advise them on how to run their country.