The resignation of International Monetary Fund chief Dominique Strauss-Kahn in the face of sexual assault charges has intensified the debate on abolishing the traditional rule of appointing the heads of the Fund and the World Bank, with China wanting a shot at the helm.
Europeans have led the IMF since its inception after World War II while the Americans have occupied both the number-two position at the Fund and the top post at its sister institution, the World Bank.
As Strauss-Kahn quit late Wednesday after his arrest and jailing in New York on attempted rape charges, and as the Europeans move to fend off any challenge to fill the post, emerging nations, including China, are flexing their muscle to underscore their strategic stakes in the global economy.
But it may be difficult for China to lead the IMF, a global financial watchdog, when it is dragging its feet on critical currency reforms, some experts say.
“I think for a Chinese person to head the IMF would be difficult because there is still the not-settled issue of the Chinese exchange rate, but for a Chinese person to head the World Bank will be much more feasible,” Simon Johnson, an economics professor at the Massachusetts Institute of Technology and a former IMF chief economist, said in an interview.
China has been accused particularly by the United States and the European Union of manipulating the value of its yuan currency to gain a trade advantage. The IMF itself has previously accused Beijing of keeping the yuan, which is not freely traded, "substantially undervalued."
The IMF is sending a team to China in the coming weeks as part of its yearly economic survey of the country, and Fund officials have said Beijing's currency policy would be discussed in depth.
Senior Chinese finance officials have indicated recently that they may allow the yuan to appreciate as an effective tool to tame rising inflation in the world's most populous nation.
China, holding the world’s biggest reserves at more than three trillion U.S. dollars, has poured a lot of cash into the IMF in recent years to boost its influence. It also has had people at the top levels of the World Bank for quite some time.
“So you could imagine something like the Chinese person gets the World Bank [top post] and the Indian or Brazilian gets to head the IMF. That would be an entirely sensible goal for the emerging markets to pursue,” Johnson said.
But are China and other key emerging nations such as Brazil and India ready for such responsibility?
“Look, the world has changed a great deal since 1945 and it has changed a great deal over the past 20 years," Johnson said.
"Key emerging markets such as China, India, Brazil, Russia and others have come a long way. It is time to recognize that. What we are discussing is not a radical change but is a sensible and a moderate evolution of the governance structures that we have, all of which of course are imperfect and will remain imperfect. “
China, among countries that have long called for an overhaul of the IMF’s voting system so that influence reflects changes in economic status, has overtaken Japan to become the world's second-largest economy, while Brazil and India have emerged among the top 10 economies.
On the other hand, the United States, the world’s largest economy, and the European nations are mired deep in debt and struggling to induce economic growth.
Signaling early that it is eying the top IMF post, China has stressed the basis for selection of the IMF’s leadership.
Chinese Foreign Ministry spokeswoman Jiang Yu said early this week that the selection process for any incoming IMF boss "should be based on fairness, transparency, and merit," effectively telling the world that it will not simply go along with European plans to maintain the post.
And after U.S. Treasury Secretary Timothy Geithner said late Tuesday that Strauss-Kahn is "obviously not in a position" to run the IMF, the Chinese edition of the Global Times, a sister publication of the ruling Chinese Communist Party’s mouthpiece The People’s Daily, speculated on the prospect of a Chinese taking over the post.
“If a Chinese person takes the post”—of managing director—“it will greatly promote economic exchange between China—the country with the largest trade volume and holdings of foreign reserves—and the international community,” the paper said.
Beijing-based finance magazine Caijing in a story Wednesday citing international media said that China’s top official at the IMF, Zhu Min, a Johns Hopkins-and-Princeton-trained economist, is a “possible candidate” to replace Strauss-Kahn.
A former deputy governor of the tightly-run People's Bank of China who worked as a World Bank economist, Zhu is currently a special adviser to Strauss-Kahn.
Since two of the top five positions at the IMF are already filled by Asians, allowing China to take the top post would be hard for most countries to accept, some experts said.
European leaders have strongly hinted that they would not tolerate any Strauss-Kahn successor from outside their continent.
German Chancellor Angela Merkel said there are "good reasons" for Europe, the IMF's biggest capital contributor, to keep the post, referring to the eurozone's debt crisis which has been a top IMF agenda under Strauss-Kahn.
Christine Lagarde, the French Finance Minister, is considered by many as a front-runner for the IMF post, but she may face objections as four of the Fund's 10 managing directors have been French and her appointment would be the second time the post was held by successive French politicians.
“[Our] point is that there are more credible candidates from emerging countries this time than arguably ever before,” economists Arvind Subramanian and Nicolas Véron of the Peterson Institute for International Economics, a Washington think tank, said in a report this week.
Since Asia is at present the location of the world’s strongest-growing economies, and the countries of Asia are clamoring for more of a role in all international institutions, the IMF would do well to look carefully at candidates from that continent, they said.