25 July 2007
The Europeans will likely select French socialist, Dominique Strauss-Kahn to replace Rodrigo de Rato as the Managing Director of the IMF, very much in the same, closed and undemocratic fashion that the U.S. handpicked Robert Zoellick to replace Paul Wolfowitz at the helm of the World Bank. Few Latin American countries have contested the IMF or the World Bank Presidential selection process, with the exception of some mild finger pointing by Brazil.
The Europeans will likely select French socialist, Dominique Strauss-Kahn to replace Rodrigo Rato as the Managing Director of the IMF, very much in the same, closed and undemocratic fashion that the U.S. handpicked Robert Zoellick to replace Paul Wolfowitz at the helm of the World Bank. Few Latin American countries have contested the IMF or the World Bank Presidential selection process, with the exception of some mild finger pointing by Brazil. The lack of opposition from Latin America to these blatant power plays in trading Presidential privileges at the Bretton Woods Institutions suggests a mix of resignation, newly won autonomy and the distraction of regional power struggles that could exacerbate the crisis of relevance at these institutions, but also opens a window for their recovery.
The most obvious challenge is simply that Latin America does not need the IMF at the moment. The region has largely stopped borrowing from the IMF or taking its advice. Outstanding IMF commitments in the region have fallen from $50 billion to about $3 billion in recent years. Given the accumulated reserves, shifting ideologies and acute memory of the IMF’s failures in Argentina and Bolivia, only a massive recession could restore the Fund’s role in the eyes of many Latin American governments. With a bloated staff of 3,000 and an estimated operating deficit of $200 million, the Fund is under heavy pressure to lend. Should the current primary commodity driven prosperity sustain Latin America’s independence from the Fund, the IMF may be forced to dip into its own reserves.
A second related challenge is the move to replace the Fund. Growing interest in the creation of the Bank of the South and rumors of a Latin American monetary fund, both backed by Venezuela’s oil wealth, represent important symbolic and quite possibly real barriers to the IMF ever recovering its prior hegemonic influence in the region.
An opportunity for the Fund is that there is little consensus and increasing competition for asserting regional influence over alternatives to the Fund and Bank, which could easily scuttle the consolidation of these plans. While Brazil has roundly criticized the Fund, Latin America’s most influential power has hedged its bets. By lobbying for limits to the Bank of the South, expanding its own regional financial influence through BNDES (now lending over $20 billion per year), subscribing to the CAF – perhaps the principal beneficiary of the mis-steps by Washington based IFIs, as well as its own power play for the most strategic Vice-Presidency of Countries in the newly reorganized Inter-American Development Bank.
A second opportunity is Latin America’s complacence in the face of the most difficult reforms. Perhaps the region’s familiarity with gentlemen’s agreements to elect leaders explains the lack of any seriously contest to Northern naming rights of IFI leaders. In Mexico, the ruling Institutional Revolutionary party in Mexico practiced the “dedazo” (or the incumbent’s right to appoint the next candidate) as a substitute for transparent, competitive Presidential elections. Latin America’s relative silence could suggest a reluctance to bring greater exposure to the region's own corniest practices.