New IMF Head: Dominique Strauss-Kahn
Seeking to restore its relevance and legitimacy, France's Dominique Strauss-Kahn took over Thursday as the head of the International Monetary Fund.A former finance minister, he has pledged to make change at the 185-nation lending organization the core of his strategy "without delay," including reallocating votes so big developing countries have a larger say and improving finances so the IMF does not operate in the red.
Founded 63 years ago to promote global economic stability, the IMF put together multibillion dollar rescue packages for countries in financial crises while prescribing belt-tightening economic policies.
While it still lends to poor countries in Africa, many countries have access to the billions of dollars sloshing through international capital markets and no longer need the IMF. As a result, the IMF no longer earns interest on its loans has to overhaul its own finances.
Strauss-Kahn, a self described free-market Socialist known as DSK for his initials, said he wants to continue the mission of his predecessor, Spain's Rodrigo de Rato, to make the IMF more representative. De Rato led the organization through its annual meeting Oct. 21-22 and stepped down Wednesday for personal reasons two years before his term ends.
In interviews before assuming control, he suggested that to ensure a fairer representation within the institution of fast-growing economies, such as Brazil, India and China, that Europe, Russia and some other nations give up some of their power.
He added that this would not come at the expense of the United States, the largest shareholder in the IMF with veto power over its decisions.
Voting shares are based on a complex formula that takes account of a country's economic weight. Various proposals to change this have been advanced and Strauss-Kahn, facing a deadline in 2008 to find a solution, will preside over the bargaining.
"There is no doubt that the IMF needs serious institutional changes," said Jeremy Hobbs, executive director of Oxfam International, the aid agency and frequent critic of the IMF and other international financial institutions. "Nowadays the Netherlands has more votes than 23 African nations grouped together."
During the IMF annual meetings, Strauss-Kahn's push for reform got a boost from Italian Economy Minister Tommaso Padoa-Schioppa, the new head of the IMF's policy-making committee. He proposed that "since the EU has one money, it should consolidate" its representation. France and Germany, the two biggest economies in the euro zone each with its own seat on the 24-member IMF board are likely to resist.
The policy committee has urged the board to cut costs and shed staff in the next six months. Strauss-Kahn said has said he will submit proposals to make the IMF "more efficient and less costly.
"Finding new sources of income is an issue for the IMF as out lending activity is decreasing, which reduces our income," he said. But he said he opposes dipping into the IMF's substantial gold reserves, worth about $77 billion (€53 billion), for cash.
The IMF is facing a deficit approaching $100 million (€69 million), its first in decades. It has $17 billion (€11.8 billion) in outstanding loans, down from $97 billion (€67 billion) at the end of 2004.
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