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December 2007 News East-West Debt

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From the December 2007 publication: IMF International Monetary Fund

International Monetary Fund turns its attention to emerging markets.
IMF turns its attention to emerging markets
The International Monetary Fund has found a new managing director in the person of Dominique Strauss-Kahn. The former socialist French Finance minister has taken office on the first of November. He is clearly presenting himself as a reformer and seems to be planning an overhaul of the institution.
His prime emphasis is on emerging markets and their representation within the organisation. In his first news conference since he was nominated for the prestigious position he immediately stated that "the overhauls he intends for the IMF will allow it to adapt to a new balance of power in the world and to the new kind of financial crisis that has hit the financial markets recently".
Mr. Strauss-Kahn said he wants to continue the mission of his predecessor, Rodrigo de Rato, to make the IMF more representative. This means that emerging markets such as China, India and Brazil should be ensured a fairer representation within the institution. Other shareholders such as Russia and Europe would have to give up some of their voting power to make room for the expansion of the emerging market shareholders new voting rights.
Surprisingly however is that Mr. Strauss-Kahn stated that this shuffling of votes should not come at the expense of the Funds largest shareholder: the United States. Although credit markets experienced a bad summer because of the U.S. sub-prime problems, he believes global growth has solid foundations. "The shock we experienced last summer will have consequences for world growth, but it is difficult to measure them yet.
However, I believe these consequences won't be dramatic" he said. "Global growth will be respectable next year and growth will be driven once more by emerging countries" he said, adding that the worst of the turmoil is over because of central-bank intervention. The current exchange rate imbalances did not seem to bother Mr. Strauss-Kahn who vehemently declared he "could not see the dollar collapsing".
The debate arisen about the Chinese currency's should be discussed within multilateral institutions he said because "it is in nobody's interest to let this debate grow sour" between China and U.S.. Furthermore the new director wants to submit proposals to make the IMF "more efficient, more relevant and less costly".
The IMF income is decreasing because of the decrease of lending activity which reduces its income. Mr. Strauss-Kahn wants to cut costs within the institution instead of selling some of its gold reserves. This seems to be a very prudent way to operate and should be applauded by the shareholders.
One could however ask oneself, if the director would have had the same leniency in his future plans towards its prime shareholder and its voting power, were the income of the IMF not under the pressure it currently is.