Some Historical Reminders:
The IMF was created in 1944 during the famous Bretton Woods conference. Its role was to ensure the stability of the international monetary system after the First World War and thus to stimulate the growth of international trade.
Until 1976, exchange rates were fixed (meaning that currency rates were not variable but defined as a fixed parity with gold). Each state thus had to ensure the maintenance of this parity under the constraint of its budget balance (its trade surpluses or deficits).
The Scope of the IMF Since 1976
The Jamaica Accords marked the end of fixed exchange rates. This began the floating of currencies. The mission of the IMF was no longer the same. It now aims to prevent financial crises in countries that could endanger international trade. To do so, the IMF lends to central banks and ensures a long-term recovery from economic difficulties.
It particularly involves:
• granting loans to countries in financial difficulty
• advising member states on their economic policies
• providing technical assistance and training offers to member states in need.
Operation and Criticism of the IMF, DSK’s Presidency
The IMF is governed by its 185 members. Even though decisions are made by majority, the “votes” of the members are weighted by their financial contribution. The largest is that of the United States, which represents 17.5% of the votes, the smallest is that of Palau, which represents 0.001% of the votes. Eight member states have permanent representation and the other sixteen members of the Board of Directors are elected by the member countries.
The main critics present the IMF as an institution serving its largest contributors. They see it as an instrument to impose their economic views on the rest of the world, particularly on developing countries (its main borrowers).
Mr. Strauss-Kahn, who defines himself as a free trade socialist, seeks to break with this established order. In his interview with the newspaper Le Monde on October 1, 2007, DSK explains that he wants the IMF “to no longer be content just to be a policeman” but wishes to adapt it “to the realities of the world.” In line with his predecessor (Rodrigo Rato), DSK wants to tackle the question of quotas so that the representation within the International institution reflects the realities of the economic world as it is in the 21st century. This would involve allowing less wealthy countries to represent a greater weight within the institution.
By accepting the role of Managing Director of the IMF, Mr. Strauss-Kahn will have the opportunity to work for global economic development. However, for scheduling reasons, he will not be able to run for the 2012 presidential election.
