Why does a European get the IMF post?

With the sudden departure of the International Monetary Fund's head, Dominique Strauss Kahn, after his arrest in New York for alleged sexual assault, a quick review of the institution is in order. The International Monetary Fund is an organization based in Washington DC that oversees the global financial system - tracking and influencing economic policies of its member countries, especially in regard to exchange rates and the balance of payments issues. It is also a provider of loans with varying levels of conditionality, mainly to poorer countries, though recent debt stresses that Greece and Ireland have experienced highlights its assistance to developed countries.

The International Monetary Fund was conceived in July 1944 and came into existence in December 1945 when 29 countries signed the agreement. As the world began to recover after WWII the goal was to stabilize exchange rates and assist the reconstruction of the world’s international payment system. Countries contributed to a pool which could be borrowed from, on a temporary basis, by countries with payment imbalances.

Western Europe's recovery after World War II was assisted by the fledgling IMF

With its origins in the ruins of Western Europe, one confidence building aspect was that a European would head the organization, while the largest donor and supporter at the time - America - would provide the location. Nearly 70 years later, IMF describes itself as “an organization of 187 countries (as of July 2010), working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.”

France's current Finance Minister, Christine Legarde, has been rallied around by European countries to replace the disgraced Dominique Strauss-Kahn as the new IMF director.

Over the several decades, the IMF has grown in importance as the numbers of member countries increased, and the pool of money collected by member nations allowed the institution a very strong ability to establish terms of loans, debt relief and aid to poorer countries.

Indeed criticism has emerged over the past 30 years that the European/American perspective on economies was somewhat overpowering when nations sought loans. For example, the IMF would typically state terms that would essentially require a country (in exchange for the loan or debt relief) to structure its economy to engage in international trade while the country preferred to protect and nurture its own internal economy. Food security, impact on environment, dollars to spend on health and education all have been pointed to as deserving more consideration in an IMF loan, rather than the emphasis on global trade and export.

International commodity trading is the apparent preference for IMF structured loans

Food security, health, and education first, say many poorer nations, then trading as it develops from our internal surpluses

Such international trade often tends to benefit those nations with sophisticated manufacturing and agricultural infrastructure, providing critics the opening to say the IMF was acting on behalf of the status quo (ie. the US and Western Europe. Former U.S. president Bill Clinton, during a speech at United Nations World Food Day, October 16, 2008 noted this shortcoming, "We need the World Bank, the IMF, all the big foundations, and all the governments to admit that, for 30 years, we all blew it, including me when I was president. We were wrong to believe that food was like some other product in international trade, and we all have to go back to a more responsible and sustainable form of agriculture."

So, while much of the criticism has centered around developing nations vs the developed world, or around capitalist vs socialist perspectives, the newest voices of concern is now coming simply from four countries, three of whom hold the most vibrant economies today and widely expected to grow the most in the next few decades. BRIC stands for Brazil, Russia, India and China - the group is now asking if its time to broaden the traditional choice of the IMF head position from Europe to other parts of the globe.

Brazil's swelling middle class a product of the nation's vibrant growth.

While India has a long ways to go on many fronts and its middle class is often overlooked in world media, its potential is huge.

China's surge in contrast is nearly front page reading in every Western media.

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Russia is a bit of the odd man out in BRIC, in that its middle class remains under stress, and the population of Russia as a whole is stagnant. But its oil wealth fuels its economic prowess.

While it is unlikely this round that the IMF vacancy will be filled by any other than a European, the changing global economic power adds pressure that someday, it will.

PS. The World Bank, also headquartered in Washington DC and another powerful global lending institution is by tradition headed by an American.