Crazy recent events have opened an opportunity for new leadership at the International Monetary Fund (IMF). The Managing Director position has always gone to a European. The United States - which provides the most IMF resources and gets the most votes in return- has been fine with this arrangement. We get the IMF headquarters (just down the block from the White House and US Treasury) and the head of the other major financial institution, the World Bank. The front-runner to lead the IMF is yet another European - Christine Lagarde. But appointing another Western European would be a mistake for the United States.
No matter what happens, the IMF will remain mainly under the influence of the United States. But if we fail to open up the leadership of this institution, then the emerging market world will take the institution less seriously. Then the United States will be in charge of an institution that risks irrelevance, or one that is no longer an International but rather a European Monetary Fund.
Consider how power is distributed at the IMF Executive Board - the body charged with selecting the Managing Director. The United States controls nearly 17%. The European Union, if it votes as a bloc, controls about 30%. The Directorships of Japan, China, Singapore, and India collectively control nearly 17% of the votes. Latin America is weaker - with less than 10% of the votes, and Africa much weaker, with less than 5% of the votes (see here). But the point is that this is not a decision that the United States or the European Union can make alone. At least part of the rest of the world also has to go along. And the de facto approach has to make the decision by consensus.
So, suppose that the rest of the world does go along. Suppose that once again the IMF appoints a European. It won't be because emerging market and developing countries failed to propose alternatives. There are potential candidates from all over the world (e.g., Asia, Africa, and Latin America). Note that the emerging market and developing world can force the issue if they choose. Right now, Europe is over a barrel. Europe needs the IMF. The rest of the world does not.
Ultimately, if we see another European running the IMF, it's because emerging market and developing countries don't really care. If we see another European Managing Director, it will be because the rest of the world doesn't want to bother to mobilize the necessary political capital to overcome the Europeans (which would be substantial). And herein lies the problem. The emerging market world is done with the IMF.
So, we can appoint another European, but we will further alienate the rest of the world from this institution.
The opportunity for the United States is to draw the rest of the world back into supporting this institution - an institution where the United States will still have the lion's share of voting power.
Of course, irrelevance may be the IMF's destiny.
Global financial power is shifting. In the days of bi-polarity and uni-polarity, it made sense for the global hegemon (the United States) to provide the lion’s share of resources to global financial institutions and receive commensurate political control in return. In the new multi-polar world, however, emerging markets will demand more and more political power as they are able to provide more resources. Meanwhile, Western powers will be less and less willing to support an institution where they have declining control. Power at the IMF is on a tightrope.
The logic of collective action suggests that problems can be overcome when there are power-asymmetries, with the most powerful actor providing the public good. As power-asymmetries diminish at the global level so will the political support for a powerful global financial institution.
Yet, the multi-polar world does not spell the end of international cooperation. Power asymmetries persist at the regional level. There may not be a global economic hegemon, but there are regional economic hegemons. And there is increasing political will for Regional Financial Institutions (for a longer discussion, see this piece by Raj Desai and me).
As the relative financial power of the United States continues to decline, so will the power of the global institutions set up at the end of World War II. In a multi-polar world, political and financial power will be more decentralized. This process will speed up if the next head of the IMF is a European. It will return the IMF to its roots: an institution designed for Europeans, led by a European. But the rest of the world will turn away. If the United States wants to maintain the power of an institution where it exercises the most influence, it should not hasten the decline of the IMF. It should, instead, try to draw in the rest of the world by supporting a leader who comes from outside of Europe.
(Considering their lack of voting power, how about someone from Africa? I vote for Trevor Manuel.)