U.S. presses for fewer Western Europeans on the IMF board

By Howard Schneider
Washington Post Staff Writer
Wednesday, September 22, 2010; 11:48 PM

The Obama administration has launched a battle to cut the number of Western Europeans on the board of the International Monetary Fund and make room for more representatives from developing countries.

Taking on a cluster of small nations such as Belgium and the Netherlands, the administration has threatened to to let the board dissolve unless the Europeans give up two or three of the nine seats they hold. The U.S. appointee to the IMF board, Meg Lundsager, in August blocked a vote needed for new board elections, part of an effort to redistribute power within the IMF and, the administration says, sustain the agency's credibility in newly influential parts of the world.

By most any reckoning, Western Europe's role in the global economy is not what it used to be. But the region accounts for more than a third of the board's 24 seats, and several smaller European countries argue that their presence on the board remains vital.

When the Soviet Union and Warsaw Pact disintegrated, for example, Belgium took on a leadership role, representing some of the former Soviet states and some of the new Eastern European countries, such as the Czech Republic. The Netherlands represents a patchwork coalition that includes the broken-up bits of the former Yugoslavia and the former Soviet Union, as well as Israel, giving the Jewish state an IMF home other than with the Egyptian-led delegation of Arab states.

While the overall management of the fund has become more diverse over the years, it retains a heavily European slant. Along with the executive directors, three of the top seven staff members are from Western Europe, including Managing Director Dominique Strauss-Kahn.

'Very unbalanced'

U.S. Treasury Secretary Timothy F. Geithner, speaking at a congressional hearing last week, said the IMF "still has a very unbalanced governance structure," with Western European countries enjoying a "disproportionate share" of spots on the executive board.

The fight is of more than symbolic importance. The agency is trying to repair relations with Asian countries strained a decade ago during that region's financial crisis. It also is expected to play an expanded role in helping manage the global economy after the recent crisis - goals that require it to build support among the developing nations expected to fuel global growth.

The dispute has raised some related questions about the future management of both the IMF and the World Bank.

European officials have argued that if they give up executive-director seats, the United States should relinquish the effective veto it has over some IMF decisions and set aside the long-standing agreement under which the managing director of the IMF is chosen from Europe and the president of the World Bank is an American. In a more multilateral world, they argue, the jobs should be open to anyone, something the United States, as the top donor to both organizations, has not yet accepted.

"It is not unreasonable to look for change, and people don't object, but these are big steps," said one European director, who like others interviewed would not speak publicly, because of the sensitivities involved.

For instance, Turkey, now represented by far smaller Belgium, could win a place at the table by virtue of its status as a prominent emerging market. But other European countries might balk at being represented by Turkey.

Poland, a significant economy in Eastern Europe, is another country that could stand to win a seat, according to several directors. Sub-Saharan Africa, which now shares two executive board members among more than 40 countries, could gain a third.

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