Why Have Europeans Dominated The IMF?

For 65 years, the head of the International Monetary Fund has been chosen from industrialized Europe. Linda Wertheimer talks to Simon Johnson, a former chief economist at the IMF, about the debate over who should run the organization.

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STEVE INSKEEP, host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

LINDA WERTHEIMER, host:

And I'm Linda Wertheimer.

This week, the French Finance Minister, Christine Lagarde, is in China. It's part of a strategic world tour to several carefully chosen destinations, hoping to shore up support for her candidacy as the new managing director of the IMF.

For 65 years, the head of the International Monetary Fund has been chosen from industrialized Europe. Joining us to discuss this tradition and whether it's a good idea is Simon Johnson. He previously served as chief economist for the IMF and is now a professor at MIT and a senior fellow at the Peterson Institute for International Economics.

Welcome.

Dr. SIMON JOHNSON (Economics, MIT): Thanks for having me.

WERTHEIMER: Now, why is it that Europeans have dominated the IMF? The mandate of the fund is to loan money to developing countries and countries in trouble. But the leadership is coming from the richest part of the world.

Dr. JOHNSON: Well, this is a convention that was established, rather informally, back in the 1950s, actually, sort of when the Europeans and the Americans were the predominant players in the market or into part of the world economy.

Of course, as that part of the world economony's gotten bigger, a lot of developing countries became independent and have become much more dynamic. They have wanted more voice, more seats at the table. And now some of them would like to have this job, managing director of the IMF, which is very important.

WERTHEIMER: France has provided the IMF with leader for 36 or the 65 years. And the leading candidate to replace Dominique Strass-Kahn at the job, is Christine Lagarde. Do you think she's qualified, capable? Would she be good at it?

Dr. JOHNSON: Well, in terms of her personal qualifications, I think I have no complaint. The problem is that in her official capacity as French finance minister, she's been at the center of the mess that has developed around the Eurozone and the inability of that group of countries, despite their massive financial resources, they have not been able to sort out their problems for themselves.

So they've called in the IMF. That's fine. But now appointing one of them from the center of that problem to run the IMF is a severe conflict of interest, which all the other member governments should have severe reservations about.

WERTHEIMER: Certainly Christine Lagarde, from what I've read, has been a consistent advocate for bailing out European countries that are in trouble -Greece, Ireland, Portugal, maybe even Spain. These are problems that are going to be on the plate for the new IMF director.

Dr. JOHNSON: Absolutely. These are going to be some of the most important problems that the new managing director faces. In addition, Madame Lagarde is on the record as wanting to protect French banks to the fullest extent possible.

Now, the latest data that came out this week, on bank exposure to different parts of Europe, puts the French right at the top in terms of their risky loans, foolish loans, foolhardy loans that they made to countries like Greece. So this will be like putting the chief poacher in charge of the hen house. Not generally a good idea.

WERTHEIMER: But of course, you can also argue that the industrial nations of Europe would be in a lot more trouble if somebody from the developing world were in charge of the IMF and looking in another direction. These countries that've been sort of the bulwark of the world economy, can't be allowed to sink, can they?

Dr. JOHNSON: Look, they're not going to sink. These are very rich, very powerful countries. It is convenient for them to draw on the IMF, to draw actually, by the way, on the U.S. taxpayer, in part, because we own about 17 percent of the IMF. That's our money in there.

They'd like to use that money. They'd like to sort of cover up, with regard to the sorts of problems they have so their own taxpayers, their own voters, don't fully figure it out.

Maybe we don't have a problem with that. You have to decide for yourselves. But why let the Europeans run the IMF programs to help them? That makes no sense at all. That is jeopardizing our U.S. taxpayer money.

WERTHEIMER: So what do you think the chances are that Christine Lagarde will not be head of the IMF? Do you think that there's any kind of a rebellion brewing in the ranks?

Dr. JOHNSON: No. From what we see right now, the emerging markets have not been able to get their act together. They've not rallied around other candidates. And it's most unfortunate, because they will have to live with the consequences of Madame Lagarde getting this job and the decisions that she makes. And so will the U.S. And we'll see how much money we lose, and on what basis, through these arrangements.

WERTHEIMER: Simon Johnson is the former chief economist of the IMF.

Thank you very much.

Dr. JOHNSON: Thank you.

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