GSAM backs idea of non-European head for IMF

Goldman Sachs Asset Management’s chairman has backed appointing a non-European to head the International Monetary Fund, and dubs “rather ridiculous” any suggestion the body’s involvement in supporting the eurozone means a European is necessarily preferable.

Jim O’Neill said on such an argument, the IMF’s head should have been Latin American in the 1980s and Asian in the late 1990s, and “that every time there is a country at the centre of a global crisis, its finance minister should become the head of the IMF.

“The exact opposite could be the case – to really solve the European Monetary Union crisis, it might be better if some leadership and authority came from outside of Europe with a fresh set of independent eyes.”

The IMF is seeking a new managing director by July after Dominique Strauss-Kahn (pictured) resigned last week, facing pressure from European politicians amid allegations he sexually assaulted a hotel worker.

France’s finance minister Christine Lagarde is the leading contender to replace him, and received support from Great Britain, Germany, and the Netherlands.

There has been some opposition, notably from Australia, South Africa, Switzerland, India, Brazil and China, that a European should almost automatically be appointed head.

GSAM’s O’Neil suggested in his weekly Viewpoints note an appropriate Chinese candidate might be worth considering, given China alone will contribute half of the next decade’s global GDP change, and its $400bn import growth last year eclipsed Greece’s entire economy.

“In principle, China should have a big say about the IMF’s future.”

Tackling the contention the IMF’s head should not come from an undemocratic nation, O’Neill added: “It is not a requirement to be a democracy to be an [IMF] member, so it doesn’t strike me as though its leader necessarily needs to come from a democratic country.

“What an effective leader of the IMF needs to be is someone who understands the complex changing structure of the world, which involves both democracies and those which are not. It requires someone with strong leadership skills and vision.”

O’Neill said the IMF’s next leader must not be “simply a figurehead of a pure European and US ‘deal’ to sustain the historic arrangement that the IMF always has a European leader and the World Bank has an American leader.”

He said Strauss-Kahn’s resignation was an “additional blow” to Europe’s leaders, “already struggling” to restore the eurozone to sounder footing, with financial help from the IMF for a stabilisation fund.

“At the core of the EMU problem are the difficulties facing German leaders concerning leadership. In my judgment, the EMU crisis is more one of governance and leadership and not really a sovereign debt crisis,” O’Neill said.

He dubbed as “blatantly clear” the fact too many countries were allowed to join the eurozone from 1999 and it is “not an optimal currency area – easy for me to offer this observation, not easy for either the leaders of those countries or Germany, or the EU, to change it.”

O’Neill also reiterated his belief what happens in emerging economies over the coming decade will be more important to the global economy than the eurozone.

The combined GDP growth of eight developing economies – Brazil, Russia, India, China and South Korea, Indonesia, Mexico and Turkey – is predicted to be more than fivefold the eurozone’s combined expansion.

“By the end of the decade, their collective GDP will probably be bigger than the euro area,” O’Neill added.

“If the ‘Growth Eight’ were part of a regional club as is the EU, in my opinion it would seem a straightforward choice that the new IMF leader should come from one of their countries – perhaps they should try to decide on a jointly preferred candidate rather than each one promoting their own.”

David Walker

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