International Monetary Fund: western past or Asian future?

Posted on | mei 23, 2011 | No Comments

Western Europeans demand that the US abide by tradition and allow for the next IMF chief to come from the EU, probably another French national like finance minister Christine Lagarde. Russia, Brazil and South Africa do not want the next IMF chief to come from Europe, but preferably from a developing nation. China and Japan want one of their own. In terms of policy that the IMF would follow, it does not make much difference who is in charge, because IMF policy does not change.

For symbolic as well as political reasons, I wonder if the EU and US should not support the Chinese and Japanese governments’ positions about an ‘open process’ in deciding the selection of the new IMF managing director. Given that the IMF and World Bank have a long history of shaping policies for developing nations, should the Board not consider a candidate from a Third World nation that would actually further the agenda of international finance capital?

Among other non-Western nations, China and Japan have criticized the US and EU for using the IMF and World Bank as their fiefdoms, when in fact the largest contributors in the 21st century will be Asian, not Western. Offering the IMF top position to an Asian would take off a great deal of pressure from the Fund as an instrument of Wall Street. The Western Europeans are using the dreadful situation of Greece under austerity currently, as well as the cases of Portugal and Ireland to demand that a European must hold the IMF top job, as though it would make any difference to Ireland, Greece and Portugal who is in charge of the IMF.

The IMF and World Bank were founded in the mid-1940s amid a Cold War climate, in part as ‘political economy instruments’ of US Cold War policies to help undermine the emerging Communist bloc after WWII. The two banks served their role very well as pillars of international finance capitalism, and they still do. However, there have been major shifts of core capitalist countries in the last six decades, while the IMF and World Bank continue to reflect the early Cold War American-centered structure.

There is no evidence that the IMF has never been since its inception an institution operating under ‘cult of personalities’, so the top job is not as significant as politicians and the press claim that it is. Second, the US-EU historic deal is that the World Bank presidency goes to an American, while the IMF top position goes to a European.

In the 1940s, the US could more or less do what it wanted with the two sister banks. The banks were based in Washington and they were in essence extensions of the US government. Wall Street wanted an American banker running the World Bank, or at least some one that the markets trusted but from the US. Given that Europe and Japan were destroyed and Latin America was the backyard of the US, President Truman’s Treasury Secretary Frederick Vinson agreed with Wall Street.

The question was how it would look for US nationals to head both banks, considering that the IMF’s role was to provide (currency) stabilization loans, and the World Bank to follow with development loans to debtor nations encountering inflationary economies and needing development capital. The first World Bank president was an American as Wall Street demanded. A Belgian national was given the leadership at the IMF whose governing board deferred on policy matters to the US as the largest subscriber member (contributor) to the two banks.

Although John Maynard Keynes is the originator and really wanted something very different from these two institutions, the IMF and World Bank were US creations with Harry Dexter White, Leo Pasvolsky, and Frederick Vinson structuring the sister banks to have a stabilization and expansionary role for the American-centered world economy of the early Cold War. The IMF and World Bank also served a Cold War political function, in so far as their role was to strengthen the Western market-based economy as a weapon against the Soviet bloc that created its own integrative economic bloc to rival that of the US. In short, the sister banks were from the very beginning creatures of Cold War politics, not just financial institutions.

Today there is no Cold War and no need to use the IMF and World Bank as the US once used them with blatant political purposes to determine the balance of power at the expense of Communist countries. In the early 21st century, the US is one of the world’s largest debtor nations and within five years it will lose the top spot in the world economy. China is the largest creditor buying up US debt and keeping the American economy competitive against the EU.

During Eisenhower’s second term, the IMF began to caution the US about the impact of huge balance of payments deficits on the dollar’s value as a reserve currency. Those discreet warnings continued throughout the 1960s, and in the past forty years we have seen the dollar continue to slide. If it were not a reserve currency, the dollar’s value would be a good deal less. However, as Warren Buffet noted, the US does not need to worry about a “debt crisis” because it has its own printing press! Monetary sovereignty of course helps, but it also catches up with the real economy eventually.

On 17 May 2011, the World Bank announced the end of the dollar’s hegemony, as though the world’s markets and politicians needed a reminder. The time is fast approaching for a multi-currency reserve currency system, with the center shifting way from the US and toward East Asia. If it made sense – within the mindset of the IMF’s mission reflecting the interests of international finance capital – that the country which enjoyed the largest surplus in the world and was the largest subscriber member should also have the dominant voice, then the time for US dominance in the IMF belongs in the past.

The global economic balance of power has shifted from the Atlantic to the Asian Pacific but there is no commensurate institutional representation to reflect that reality in IMF and World Bank. There were originally 29 members of the IMF-World Bank, while today there are 187 and they represent the developing nations, exactly as Brazil, South Africa and Russia argue.

Leadership is about political prestige, projecting power and glory, and that is what is at stake today, and that is why China, Japan, EU, US, India and Brazil are making so much noise about the top job at the IMF. The idea that IMF policy is based on personalities or national origin of the managing director is a myth that unfortunately even politicians and journalists present as fact to the public. The only thing that matters for finance capital is policy and nothing more.

A monkey could succeed Dominique Strauss-Khan and the IMF’s policy would not change toward any country, nor would it make a bit of difference as far as Greece, Portugal, and Ireland are concerned. If policy is the only thing that matters, then why are the Japanese, Chinese, Russians, Europeans, Brazilians, and South Africans openly making so much noise about the top job?

Why are non-Westerners openly defying the US and European governments that are determined to hold on to lucrative posts in the IMF and World Bank? Is this a case of the world reluctantly having to follow the leadership of the West steeped in institutions molded during the Cold War, institutions that have not evolved with the changing world? Is the answer that there is tremendous political prestige associated with the top positions in international institutions, which translates into political leverage that non-Western nations want to reflect their ascendancy?

AUTHOR: Jon Kofas
E-MAIL: jonkofas [at]


Leave a Reply

Page 1 of 11