The IMF after DSK

The IMF after DSK

Sunday 22 May 2011

by: Mark Weisbrot, Center for Economic and Policy Research

Dominique Strauss-Kahn, the leader of the International Monetary Fund, appears in court for an arraignment over allegations that he had sexually assaulted a maid in New York, May 16, 2011. On Wednesday, May 18, 2011, Strauss-Kahn resigned as head of the IMF while denying any wrongdoing. (Photo: Michael Appleton / The New York Times)

Now that Dominique Strauss-Kahn has re­sig­ned from his posi­tion as man­ag­ing di­rec­tor of the In­ter­nation­al Moneta­ry Fund (IMF), it is worth tak­ing an ob­jec­tive look at his lega­cy there. Until his ar­rest last week on char­ges of at­tempted rape and sexu­al as­sault, he was wide­ly praised as hav­ing chan­ged the IMF, in­creased its in­flu­ence and moved it away from the poli­cies that – ac­cord­ing to the fund's critics – had caused so many pro­blems for de­velop­ing co­unt­ries in the past. How much of this is true?

Strauss-Kahn took the helm of the IMF in Novemb­er of 2007, when the IMF's in­flu­ence was at a low point. Total outstand­ing loans at that time were just $10bn, down from $91bn just four years ear­li­er. By the time he left this week, that numb­er had boun­ced back to $84bn, with agreed-upon loans three times larg­er. The IMF's total capit­al had quad­rupled, from about $250bn to an un­preceden­ted $1tn. Clear­ly, the IMF had re­sour­ces that it had never had be­fore, most­ly as a re­sult of the fin­an­ci­al crisis and world re­cess­ion of 2008-2009.

Howev­er, the de­tails of these chan­ges are im­por­tant. First, the col­lap­se of the IMF's in­flu­ence in the de­cade prior to 2007 was one of the most im­por­tant chan­ges in the in­ter­nation­al fin­an­ci­al sys­tem since the break­down of the Bret­ton Woods sys­tem of fixed ex­chan­ge rates in 1971. Prior to the 2000s, the IMF headed up a power­ful creditors' car­tel that was able to tell many de­velop­ing co­unt­ry govern­ments what their most im­por­tant economic poli­cies would be, under the threat of being de­nied credit not only from the fund but also from other, then larg­er lend­ers such as the World Bank, re­gion­al lend­ers and some­times even the private sec­tor. This made the fund not only the most im­por­tant avenue of in­flu­ence of the US govern­ment in low- and middle-income co­unt­ries – from Rwan­da to Rus­sia – but also the most im­por­tant pro­mot­er of neoliber­al economic "re­forms" that trans­for­med the world economy from the mid 1970s on­ward. These re­forms co­in­cided with a sharp slow­down of economic growth in the vast major­ity of low- and middle-income co­unt­ries for more than 20 years, with con­sequent­ly re­duced pro­gress on soci­al in­dicators such as life ex­pec­tan­cy and in­fant and child mor­tal­ity.

The IMF's big com­eback dur­ing the world re­cess­ion did not bring the middle-income co­unt­ries that had run away from it back to its orbit. Most of the middle-income co­unt­ries of Asia, Rus­sia, as well as Latin America, stayed away, most­ly by pil­ing up suf­ficient re­ser­ves so that they did not have to bor­row from the fund, even dur­ing the crisis. As a re­sult, even a low-income co­unt­ry like Bolivia, for ex­am­ple, was able to re­national­ise its hy­drocar­bon in­dust­ry, in­crease soci­al spend­ing and pub­lic in­vest­ment, and lower its re­tire­ment age from 65 to 58 – th­ings it could never do while it was li­v­ing under IMF ag­ree­ments con­tinuous­ly for 20 years prior. Most of the IMF's new in­flu­ence and lend­ing would land in Europe, which ac­counts for about 57% of its cur­rent outstand­ing loans.

As for chan­ges in IMF poli­cy, these have been re­lative­ly small. A re­view of 41 IMF ag­ree­ments made dur­ing the world fin­an­ci­al crisis and re­cess­ion found that 31 of them con­tained "pro-cyclical" poli­cies: that is, fisc­al or moneta­ry poli­cies that would be ex­pec­ted to furth­er slow the economy. And in Europe, where the IMF has most of its lend­ing, the poli­cies at­tached to the loan ag­ree­ments for Greece, Ir­eland and Por­tug­al are de­cided­ly pro-cyclical – mak­ing it ex­treme­ly dif­ficult for these econom­ies to get out of re­cess­ion. The IMF's in­flu­ence on Spain, which does not yet have a loan ag­ree­ment, is similar. And in Lat­via, the IMF pre­sided over an Argentine-style re­cess­ion that set a world his­tor­ical re­cord for the worst two-year loss of out­put (about 25%) – a com­plete dis­ast­er.

To be fair, some chan­ges at the fund dur­ing the tenure of Strauss-Kahn were sig­nificant. For the first time ever, dur­ing the world re­cess­ion of 2009, the IMF made avail­able some $283bn-worth of re­ser­ves for all mem­b­er co­unt­ries, with no poli­cy con­di­tions at­tached. The fund also made some li­mited credit avail­able with­out con­di­tions, though only to a few co­unt­ries. The bi­ggest chan­ges were in the re­search de­part­ment, where there was toleran­ce for more open de­bate. For ex­am­ple, there were IMF pap­ers that end­or­sed the use of capit­al con­trols by de­velop­ing co­unt­ries under some cir­cumstan­ces, and ques­tion­ing wheth­er centr­al banks were un­neces­sari­ly slow­ing growth with in­fla­tion tar­gets that may be too low.

But as can be seen from what is hap­pen­ing in the per­ip­her­al Eurozone co­unt­ries, the IMF is still play­ing its tradition­al role of apply­ing the mediev­al economic medicine of "bleed­ing the patient". To be fair to both Strauss-Kahn and the fund, neith­er the man­ag­ing di­rec­tor nor an­yone else at the IMF is ul­timate­ly in sole char­ge of poli­cy, es­pecial­ly with re­spect to co­unt­ries that are im­por­tant to the peo­ple who rea­l­ly run the in­stitu­tion. The IMF is run by its gover­nors and ex­ecutive di­rec­tors, of whom the over­whel­ming­ly dominant aut­horit­ies are the US treasu­ry de­part­ment, which in­cludes heavy re­presen­ta­tion from Goldman Sachs, and, secon­dari­ly, the European pow­ers.

Until decision-making at the IMF un­der­goes a dramatic chan­ge, we can ex­pect only very small chan­ges in IMF poli­cy. This can be seen most clear­ly in the cur­rent case of Greece: Strauss-Kahn was aware that the fisc­al tighten­ing or­dered by the European aut­horit­ies and the IMF waspre­vent­ing Greece from gett­ing out of re­cess­ion; but while he pus­hed for "soft­er" con­di­tions, he was power­less to chan­ge the lend­ing con­di­tions from punish­ment to ac­tu­al help. That's ul­timate­ly be­cause the European aut­horit­ies (European Com­miss­ion and European Centr­al Bank), not the IMF, are call­ing the shots – al­though Strauss-Kahn en­coun­tered plen­ty of re­sis­tance with­in the fund it­self, too.

The vot­ing shares of the IMF have chan­ged only mar­ginal­ly, de­spite all the re­forms of the last five years. The share of "em­erg­ing mar­ket and de­velop­ing co­unt­ries" – with the vast major­ity of the world's popula­tion – has gone from 39.4% to 44.7%, while the G7 co­unt­ries have 41.2%, in­clud­ing 16.5% for the US (down from 17.0% pre-reform).

But the vot­ing and gover­nance struc­ture is not cur­rent­ly the main ob­stac­le to chang­ing IMF poli­cy. At this point, the de­velop­ing co­unt­ries – and we should add in the vic­timised co­unt­ries of the eurozone – are not using their poten­ti­al in­flu­ence with­in the fund. Their re­presen­tatives are main­ly going along with the de­cis­ions of the G7. If any numb­er of these co­unt­ries were to band togeth­er in a size­able bloc for chan­ge with­in the fund, there could be some real re­forms at the IMF.

Such an out­come can be seen from the last de­cade of struggle with­in the World Trade Or­ganisa­tion, where de­velop­ing co­unt­ries have often not ac­cepted the G7 con­sen­sus, and have suc­cessful­ly bloc­ked the negotia­tion and im­plemen­ta­tion of rules that would hurt them – de­spite the fact that the WTO rules have been, from the out­set, stac­ked against de­velop­ing co­unt­ries. It is true that the WTO op­erates by con­sen­sus rath­er than a quota-based vot­ing struc­ture, but that is not the key dif­fer­ence bet­ween it and the IMF. The key dif­fer­ence is in the role of de­velop­ing co­unt­ries and their re­presen­tatives.

There is talk now of re­plac­ing Strauss-Kahn with an open, merit-based pro­cess of selec­tion, break­ing with the 67-year tradi­tion of re­serv­ing the posi­tion for a European – most often, a French – of­fici­al. At the mo­ment, such chan­ge does not ap­pear li­ke­ly to happ­en. It would be a step for­ward, but it would be only a sym­bolic chan­ge, and the odds are good that the next man­ag­ing di­rec­tor – of whatev­er national­ity – will be to the right of Strauss-Kahn. Real chan­ge at the IMF is in the hands of the govern­ments of most of the world – but only if they dare to or­gan­ise it.

This ar­ticle original­ly ap­peared in the Guar­dian UK.

The IMF after DSK

Sunday 22 May 2011

by: Mark Weisbrot, Center for Economic and Policy Research

Dominique Strauss-Kahn, the leader of the International Monetary Fund, appears in court for an arraignment over allegations that he had sexually assaulted a maid in New York, May 16, 2011. On Wednesday, May 18, 2011, Strauss-Kahn resigned as head of the IMF while denying any wrongdoing. (Photo: Michael Appleton / The New York Times)

Now that Dominique Strauss-Kahn has resigned from his position as managing director of the International Monetary Fund (IMF), it is worth taking an objective look at his legacy there. Until his arrest last week on charges of attempted rape and sexual assault, he was widely praised as having changed the IMF, increased its influence and moved it away from the policies that – according to the fund's critics – had caused so many problems for developing countries in the past. How much of this is true?

Strauss-Kahn took the helm of the IMF in November of 2007, when the IMF's influence was at a low point. Total outstanding loans at that time were just $10bn, down from $91bn just four years earlier. By the time he left this week, that number had bounced back to $84bn, with agreed-upon loans three times larger. The IMF's total capital had quadrupled, from about $250bn to an unprecedented $1tn. Clearly, the IMF had resources that it had never had before, mostly as a result of the financial crisis and world recession of 2008-2009.

However, the details of these changes are important. First, the collapse of the IMF's influence in the decade prior to 2007 was one of the most important changes in the international financial system since the breakdown of the Bretton Woods system of fixed exchange rates in 1971. Prior to the 2000s, the IMF headed up a powerful creditors' cartel that was able to tell many developing country governments what their most important economic policies would be, under the threat of being denied credit not only from the fund but also from other, then larger lenders such as the World Bank, regional lenders and sometimes even the private sector. This made the fund not only the most important avenue of influence of the US government in low- and middle-income countries – from Rwanda to Russia – but also the most important promoter of neoliberal economic "reforms" that transformed the world economy from the mid 1970s onward. These reforms coincided with a sharp slowdown of economic growth in the vast majority of low- and middle-income countries for more than 20 years, with consequently reduced progress on social indicators such as life expectancy and infant and child mortality.

The IMF's big comeback during the world recession did not bring the middle-income countries that had run away from it back to its orbit. Most of the middle-income countries of Asia, Russia, as well as Latin America, stayed away, mostly by piling up sufficient reserves so that they did not have to borrow from the fund, even during the crisis. As a result, even a low-income country like Bolivia, for example, was able to renationalise its hydrocarbon industry, increase social spending and public investment, and lower its retirement age from 65 to 58 – things it could never do while it was living under IMF agreements continuously for 20 years prior. Most of the IMF's new influence and lending would land in Europe, which accounts for about 57% of its current outstanding loans.

As for changes in IMF policy, these have been relatively small. A review of 41 IMF agreements made during the world financial crisis and recession found that 31 of them contained "pro-cyclical" policies: that is, fiscal or monetary policies that would be expected to further slow the economy. And in Europe, where the IMF has most of its lending, the policies attached to the loan agreements for Greece, Ireland and Portugal are decidedly pro-cyclical – making it extremely difficult for these economies to get out of recession. The IMF's influence on Spain, which does not yet have a loan agreement, is similar. And in Latvia, the IMF presided over an Argentine-style recession that set a world historical record for the worst two-year loss of output (about 25%) – a complete disaster.

To be fair, some changes at the fund during the tenure of Strauss-Kahn were significant. For the first time ever, during the world recession of 2009, the IMF made available some $283bn-worth of reserves for all member countries, with no policy conditions attached. The fund also made some limited credit available without conditions, though only to a few countries. The biggest changes were in the research department, where there was tolerance for more open debate. For example, there were IMF papers that endorsed the use of capital controls by developing countries under some circumstances, and questioning whether central banks were unnecessarily slowing growth with inflation targets that may be too low.

But as can be seen from what is happening in the peripheral Eurozone countries, the IMF is still playing its traditional role of applying the medieval economic medicine of "bleeding the patient". To be fair to both Strauss-Kahn and the fund, neither the managing director nor anyone else at the IMF is ultimately in sole charge of policy, especially with respect to countries that are important to the people who really run the institution. The IMF is run by its governors and executive directors, of whom the overwhelmingly dominant authorities are the US treasury department, which includes heavy representation from Goldman Sachs, and, secondarily, the European powers.

Until decision-making at the IMF undergoes a dramatic change, we can expect only very small changes in IMF policy. This can be seen most clearly in the current case of Greece: Strauss-Kahn was aware that the fiscal tightening ordered by the European authorities and the IMF waspreventing Greece from getting out of recession; but while he pushed for "softer" conditions, he was powerless to change the lending conditions from punishment to actual help. That's ultimately because the European authorities (European Commission and European Central Bank), not the IMF, are calling the shots – although Strauss-Kahn encountered plenty of resistance within the fund itself, too.

The voting shares of the IMF have changed only marginally, despite all the reforms of the last five years. The share of "emerging market and developing countries" – with the vast majority of the world's population – has gone from 39.4% to 44.7%, while the G7 countries have 41.2%, including 16.5% for the US (down from 17.0% pre-reform).

But the voting and governance structure is not currently the main obstacle to changing IMF policy. At this point, the developing countries – and we should add in the victimised countries of the eurozone – are not using their potential influence within the fund. Their representatives are mainly going along with the decisions of the G7. If any number of these countries were to band together in a sizeable bloc for change within the fund, there could be some real reforms at the IMF.

Such an outcome can be seen from the last decade of struggle within the World Trade Organisation, where developing countries have often not accepted the G7 consensus, and have successfully blocked the negotiation and implementation of rules that would hurt them – despite the fact that the WTO rules have been, from the outset, stacked against developing countries. It is true that the WTO operates by consensus rather than a quota-based voting structure, but that is not the key difference between it and the IMF. The key difference is in the role of developing countries and their representatives.

There is talk now of replacing Strauss-Kahn with an open, merit-based process of selection, breaking with the 67-year tradition of reserving the position for a European – most often, a French – official. At the moment, such change does not appear likely to happen. It would be a step forward, but it would be only a symbolic change, and the odds are good that the next managing director – of whatever nationality – will be to the right of Strauss-Kahn. Real change at the IMF is in the hands of the governments of most of the world – but only if they dare to organise it.

This article originally appeared in the Guardian UK.

The IMF after DSK

Sunday 22 May 2011

by: Mark Weisbrot, Center for Economic and Policy Research

Dominique Strauss-Kahn, the leader of the International Monetary Fund, appears in court for an arraignment over allegations that he had sexually assaulted a maid in New York, May 16, 2011. On Wednesday, May 18, 2011, Strauss-Kahn resigned as head of the IMF while denying any wrongdoing. (Photo: Michael Appleton / The New York Times)

Now that Dominique Strauss-Kahn has resigned from his position as managing director of the International Monetary Fund (IMF), it is worth taking an objective look at his legacy there. Until his arrest last week on charges of attempted rape and sexual assault, he was widely praised as having changed the IMF, increased its influence and moved it away from the policies that – according to the fund's critics – had caused so many problems for developing countries in the past. How much of this is true?

Strauss-Kahn took the helm of the IMF in November of 2007, when the IMF's influence was at a low point. Total outstanding loans at that time were just $10bn, down from $91bn just four years earlier. By the time he left this week, that number had bounced back to $84bn, with agreed-upon loans three times larger. The IMF's total capital had quadrupled, from about $250bn to an unprecedented $1tn. Clearly, the IMF had resources that it had never had before, mostly as a result of the financial crisis and world recession of 2008-2009.

However, the details of these changes are important. First, the collapse of the IMF's influence in the decade prior to 2007 was one of the most important changes in the international financial system since the breakdown of the Bretton Woods system of fixed exchange rates in 1971. Prior to the 2000s, the IMF headed up a powerful creditors' cartel that was able to tell many developing country governments what their most important economic policies would be, under the threat of being denied credit not only from the fund but also from other, then larger lenders such as the World Bank, regional lenders and sometimes even the private sector. This made the fund not only the most important avenue of influence of the US government in low- and middle-income countries – from Rwanda to Russia – but also the most important promoter of neoliberal economic "reforms" that transformed the world economy from the mid 1970s onward. These reforms coincided with a sharp slowdown of economic growth in the vast majority of low- and middle-income countries for more than 20 years, with consequently reduced progress on social indicators such as life expectancy and infant and child mortality.

The IMF's big comeback during the world recession did not bring the middle-income countries that had run away from it back to its orbit. Most of the middle-income countries of Asia, Russia, as well as Latin America, stayed away, mostly by piling up sufficient reserves so that they did not have to borrow from the fund, even during the crisis. As a result, even a low-income country like Bolivia, for example, was able to renationalise its hydrocarbon industry, increase social spending and public investment, and lower its retirement age from 65 to 58 – things it could never do while it was living under IMF agreements continuously for 20 years prior. Most of the IMF's new influence and lending would land in Europe, which accounts for about 57% of its current outstanding loans.

As for changes in IMF policy, these have been relatively small. A review of 41 IMF agreements made during the world financial crisis and recession found that 31 of them contained "pro-cyclical" policies: that is, fiscal or monetary policies that would be expected to further slow the economy. And in Europe, where the IMF has most of its lending, the policies attached to the loan agreements for Greece, Ireland and Portugal are decidedly pro-cyclical – making it extremely difficult for these economies to get out of recession. The IMF's influence on Spain, which does not yet have a loan agreement, is similar. And in Latvia, the IMF presided over an Argentine-style recession that set a world historical record for the worst two-year loss of output (about 25%) – a complete disaster.

To be fair, some changes at the fund during the tenure of Strauss-Kahn were significant. For the first time ever, during the world recession of 2009, the IMF made available some $283bn-worth of reserves for all member countries, with no policy conditions attached. The fund also made some limited credit available without conditions, though only to a few countries. The biggest changes were in the research department, where there was tolerance for more open debate. For example, there were IMF papers that endorsed the use of capital controls by developing countries under some circumstances, and questioning whether central banks were unnecessarily slowing growth with inflation targets that may be too low.

But as can be seen from what is happening in the peripheral Eurozone countries, the IMF is still playing its traditional role of applying the medieval economic medicine of "bleeding the patient". To be fair to both Strauss-Kahn and the fund, neither the managing director nor anyone else at the IMF is ultimately in sole charge of policy, especially with respect to countries that are important to the people who really run the institution. The IMF is run by its governors and executive directors, of whom the overwhelmingly dominant authorities are the US treasury department, which includes heavy representation from Goldman Sachs, and, secondarily, the European powers.

Until decision-making at the IMF undergoes a dramatic change, we can expect only very small changes in IMF policy. This can be seen most clearly in the current case of Greece: Strauss-Kahn was aware that the fiscal tightening ordered by the European authorities and the IMF waspreventing Greece from getting out of recession; but while he pushed for "softer" conditions, he was powerless to change the lending conditions from punishment to actual help. That's ultimately because the European authorities (European Commission and European Central Bank), not the IMF, are calling the shots – although Strauss-Kahn encountered plenty of resistance within the fund itself, too.

The voting shares of the IMF have changed only marginally, despite all the reforms of the last five years. The share of "emerging market and developing countries" – with the vast majority of the world's population – has gone from 39.4% to 44.7%, while the G7 countries have 41.2%, including 16.5% for the US (down from 17.0% pre-reform).

But the voting and governance structure is not currently the main obstacle to changing IMF policy. At this point, the developing countries – and we should add in the victimised countries of the eurozone – are not using their potential influence within the fund. Their representatives are mainly going along with the decisions of the G7. If any number of these countries were to band together in a sizeable bloc for change within the fund, there could be some real reforms at the IMF.

Such an outcome can be seen from the last decade of struggle within the World Trade Organisation, where developing countries have often not accepted the G7 consensus, and have successfully blocked the negotiation and implementation of rules that would hurt them – despite the fact that the WTO rules have been, from the outset, stacked against developing countries. It is true that the WTO operates by consensus rather than a quota-based voting structure, but that is not the key difference between it and the IMF. The key difference is in the role of developing countries and their representatives.

There is talk now of replacing Strauss-Kahn with an open, merit-based process of selection, breaking with the 67-year tradition of reserving the position for a European – most often, a French – official. At the moment, such change does not appear likely to happen. It would be a step forward, but it would be only a symbolic change, and the odds are good that the next managing director – of whatever nationality – will be to the right of Strauss-Kahn. Real change at the IMF is in the hands of the governments of most of the world – but only if they dare to organise it.

This article originally appeared in the Guardian UK.

The IMF after DSK

Sunday 22 May 2011

by: Mark Weisbrot, Center for Economic and Policy Research

Dominique Strauss-Kahn, the leader of the International Monetary Fund, appears in court for an arraignment over allegations that he had sexually assaulted a maid in New York, May 16, 2011. On Wednesday, May 18, 2011, Strauss-Kahn resigned as head of the IMF while denying any wrongdoing. (Photo: Michael Appleton / The New York Times)

Now that Dominique Strauss-Kahn has resigned from his position as managing director of the International Monetary Fund (IMF), it is worth taking an objective look at his legacy there. Until his arrest last week on charges of attempted rape and sexual assault, he was widely praised as having changed the IMF, increased its influence and moved it away from the policies that – according to the fund's critics – had caused so many problems for developing countries in the past. How much of this is true?

Strauss-Kahn took the helm of the IMF in November of 2007, when the IMF's influence was at a low point. Total outstanding loans at that time were just $10bn, down from $91bn just four years earlier. By the time he left this week, that number had bounced back to $84bn, with agreed-upon loans three times larger. The IMF's total capital had quadrupled, from about $250bn to an unprecedented $1tn. Clearly, the IMF had resources that it had never had before, mostly as a result of the financial crisis and world recession of 2008-2009.

However, the details of these changes are important. First, the collapse of the IMF's influence in the decade prior to 2007 was one of the most important changes in the international financial system since the breakdown of the Bretton Woods system of fixed exchange rates in 1971. Prior to the 2000s, the IMF headed up a powerful creditors' cartel that was able to tell many developing country governments what their most important economic policies would be, under the threat of being denied credit not only from the fund but also from other, then larger lenders such as the World Bank, regional lenders and sometimes even the private sector. This made the fund not only the most important avenue of influence of the US government in low- and middle-income countries – from Rwanda to Russia – but also the most important promoter of neoliberal economic "reforms" that transformed the world economy from the mid 1970s onward. These reforms coincided with a sharp slowdown of economic growth in the vast majority of low- and middle-income countries for more than 20 years, with consequently reduced progress on social indicators such as life expectancy and infant and child mortality.

The IMF's big comeback during the world recession did not bring the middle-income countries that had run away from it back to its orbit. Most of the middle-income countries of Asia, Russia, as well as Latin America, stayed away, mostly by piling up sufficient reserves so that they did not have to borrow from the fund, even during the crisis. As a result, even a low-income country like Bolivia, for example, was able to renationalise its hydrocarbon industry, increase social spending and public investment, and lower its retirement age from 65 to 58 – things it could never do while it was living under IMF agreements continuously for 20 years prior. Most of the IMF's new influence and lending would land in Europe, which accounts for about 57% of its current outstanding loans.

As for changes in IMF policy, these have been relatively small. A review of 41 IMF agreements made during the world financial crisis and recession found that 31 of them contained "pro-cyclical" policies: that is, fiscal or monetary policies that would be expected to further slow the economy. And in Europe, where the IMF has most of its lending, the policies attached to the loan agreements for Greece, Ireland and Portugal are decidedly pro-cyclical – making it extremely difficult for these economies to get out of recession. The IMF's influence on Spain, which does not yet have a loan agreement, is similar. And in Latvia, the IMF presided over an Argentine-style recession that set a world historical record for the worst two-year loss of output (about 25%) – a complete disaster.

To be fair, some changes at the fund during the tenure of Strauss-Kahn were significant. For the first time ever, during the world recession of 2009, the IMF made available some $283bn-worth of reserves for all member countries, with no policy conditions attached. The fund also made some limited credit available without conditions, though only to a few countries. The biggest changes were in the research department, where there was tolerance for more open debate. For example, there were IMF papers that endorsed the use of capital controls by developing countries under some circumstances, and questioning whether central banks were unnecessarily slowing growth with inflation targets that may be too low.

But as can be seen from what is happening in the peripheral Eurozone countries, the IMF is still playing its traditional role of applying the medieval economic medicine of "bleeding the patient". To be fair to both Strauss-Kahn and the fund, neither the managing director nor anyone else at the IMF is ultimately in sole charge of policy, especially with respect to countries that are important to the people who really run the institution. The IMF is run by its governors and executive directors, of whom the overwhelmingly dominant authorities are the US treasury department, which includes heavy representation from Goldman Sachs, and, secondarily, the European powers.

Until decision-making at the IMF undergoes a dramatic change, we can expect only very small changes in IMF policy. This can be seen most clearly in the current case of Greece: Strauss-Kahn was aware that the fiscal tightening ordered by the European authorities and the IMF waspreventing Greece from getting out of recession; but while he pushed for "softer" conditions, he was powerless to change the lending conditions from punishment to actual help. That's ultimately because the European authorities (European Commission and European Central Bank), not the IMF, are calling the shots – although Strauss-Kahn encountered plenty of resistance within the fund itself, too.

The voting shares of the IMF have changed only marginally, despite all the reforms of the last five years. The share of "emerging market and developing countries" – with the vast majority of the world's population – has gone from 39.4% to 44.7%, while the G7 countries have 41.2%, including 16.5% for the US (down from 17.0% pre-reform).

But the voting and governance structure is not currently the main obstacle to changing IMF policy. At this point, the developing countries – and we should add in the victimised countries of the eurozone – are not using their potential influence within the fund. Their representatives are mainly going along with the decisions of the G7. If any number of these countries were to band together in a sizeable bloc for change within the fund, there could be some real reforms at the IMF.

Such an outcome can be seen from the last decade of struggle within the World Trade Organisation, where developing countries have often not accepted the G7 consensus, and have successfully blocked the negotiation and implementation of rules that would hurt them – despite the fact that the WTO rules have been, from the outset, stacked against developing countries. It is true that the WTO operates by consensus rather than a quota-based voting structure, but that is not the key difference between it and the IMF. The key difference is in the role of developing countries and their representatives.

There is talk now of replacing Strauss-Kahn with an open, merit-based process of selection, breaking with the 67-year tradition of reserving the position for a European – most often, a French – official. At the moment, such change does not appear likely to happen. It would be a step forward, but it would be only a symbolic change, and the odds are good that the next managing director – of whatever nationality – will be to the right of Strauss-Kahn. Real change at the IMF is in the hands of the governments of most of the world – but only if they dare to organise it.

This article originally appeared in the Guardian UK.

The IMF after DSK

The IMF after DSK

The IMF after DSK

Sunday 22 May 2011

by: Mark Weisbrot, Center for Economic and Policy Research

Dominique Strauss-Kahn, the leader of the International Monetary Fund, appears in court for an arraignment over allegations that he had sexually assaulted a maid in New York, May 16, 2011. On Wednesday, May 18, 2011, Strauss-Kahn resigned as head of the IMF while denying any wrongdoing. (Photo: Michael Appleton / The New York Times)

Now that Dominique Strauss-Kahn has resigned from his position as managing director of the International Monetary Fund (IMF), it is worth taking an objective look at his legacy there. Until his arrest last week on charges of attempted rape and sexual assault, he was widely praised as having changed the IMF, increased its influence and moved it away from the policies that – according to the fund's critics – had caused so many problems for developing countries in the past. How much of this is true?

Strauss-Kahn took the helm of the IMF in November of 2007, when the IMF's influence was at a low point. Total outstanding loans at that time were just $10bn, down from $91bn just four years earlier. By the time he left this week, that number had bounced back to $84bn, with agreed-upon loans three times larger. The IMF's total capital had quadrupled, from about $250bn to an unprecedented $1tn. Clearly, the IMF had resources that it had never had before, mostly as a result of the financial crisis and world recession of 2008-2009.

However, the details of these changes are important. First, the collapse of the IMF's influence in the decade prior to 2007 was one of the most important changes in the international financial system since the breakdown of the Bretton Woods system of fixed exchange rates in 1971. Prior to the 2000s, the IMF headed up a powerful creditors' cartel that was able to tell many developing country governments what their most important economic policies would be, under the threat of being denied credit not only from the fund but also from other, then larger lenders such as the World Bank, regional lenders and sometimes even the private sector. This made the fund not only the most important avenue of influence of the US government in low- and middle-income countries – from Rwanda to Russia – but also the most important promoter of neoliberal economic "reforms" that transformed the world economy from the mid 1970s onward. These reforms coincided with a sharp slowdown of economic growth in the vast majority of low- and middle-income countries for more than 20 years, with consequently reduced progress on social indicators such as life expectancy and infant and child mortality.

The IMF's big comeback during the world recession did not bring the middle-income countries that had run away from it back to its orbit. Most of the middle-income countries of Asia, Russia, as well as Latin America, stayed away, mostly by piling up sufficient reserves so that they did not have to borrow from the fund, even during the crisis. As a result, even a low-income country like Bolivia, for example, was able to renationalise its hydrocarbon industry, increase social spending and public investment, and lower its retirement age from 65 to 58 – things it could never do while it was living under IMF agreements continuously for 20 years prior. Most of the IMF's new influence and lending would land in Europe, which accounts for about 57% of its current outstanding loans.

As for changes in IMF policy, these have been relatively small. A review of 41 IMF agreements made during the world financial crisis and recession found that 31 of them contained "pro-cyclical" policies: that is, fiscal or monetary policies that would be expected to further slow the economy. And in Europe, where the IMF has most of its lending, the policies attached to the loan agreements for Greece, Ireland and Portugal are decidedly pro-cyclical – making it extremely difficult for these economies to get out of recession. The IMF's influence on Spain, which does not yet have a loan agreement, is similar. And in Latvia, the IMF presided over an Argentine-style recession that set a world historical record for the worst two-year loss of output (about 25%) – a complete disaster.

To be fair, some changes at the fund during the tenure of Strauss-Kahn were significant. For the first time ever, during the world recession of 2009, the IMF made available some $283bn-worth of reserves for all member countries, with no policy conditions attached. The fund also made some limited credit available without conditions, though only to a few countries. The biggest changes were in the research department, where there was tolerance for more open debate. For example, there were IMF papers that endorsed the use of capital controls by developing countries under some circumstances, and questioning whether central banks were unnecessarily slowing growth with inflation targets that may be too low.

But as can be seen from what is happening in the peripheral Eurozone countries, the IMF is still playing its traditional role of applying the medieval economic medicine of "bleeding the patient". To be fair to both Strauss-Kahn and the fund, neither the managing director nor anyone else at the IMF is ultimately in sole charge of policy, especially with respect to countries that are important to the people who really run the institution. The IMF is run by its governors and executive directors, of whom the overwhelmingly dominant authorities are the US treasury department, which includes heavy representation from Goldman Sachs, and, secondarily, the European powers.

Until decision-making at the IMF undergoes a dramatic change, we can expect only very small changes in IMF policy. This can be seen most clearly in the current case of Greece: Strauss-Kahn was aware that the fiscal tightening ordered by the European authorities and the IMF waspreventing Greece from getting out of recession; but while he pushed for "softer" conditions, he was powerless to change the lending conditions from punishment to actual help. That's ultimately because the European authorities (European Commission and European Central Bank), not the IMF, are calling the shots – although Strauss-Kahn encountered plenty of resistance within the fund itself, too.

The voting shares of the IMF have changed only marginally, despite all the reforms of the last five years. The share of "emerging market and developing countries" – with the vast majority of the world's population – has gone from 39.4% to 44.7%, while the G7 countries have 41.2%, including 16.5% for the US (down from 17.0% pre-reform).

But the voting and governance structure is not currently the main obstacle to changing IMF policy. At this point, the developing countries – and we should add in the victimised countries of the eurozone – are not using their potential influence within the fund. Their representatives are mainly going along with the decisions of the G7. If any number of these countries were to band together in a sizeable bloc for change within the fund, there could be some real reforms at the IMF.

Such an outcome can be seen from the last decade of struggle within the World Trade Organisation, where developing countries have often not accepted the G7 consensus, and have successfully blocked the negotiation and implementation of rules that would hurt them – despite the fact that the WTO rules have been, from the outset, stacked against developing countries. It is true that the WTO operates by consensus rather than a quota-based voting structure, but that is not the key difference between it and the IMF. The key difference is in the role of developing countries and their representatives.

There is talk now of replacing Strauss-Kahn with an open, merit-based process of selection, breaking with the 67-year tradition of reserving the position for a European – most often, a French – official. At the moment, such change does not appear likely to happen. It would be a step forward, but it would be only a symbolic change, and the odds are good that the next managing director – of whatever nationality – will be to the right of Strauss-Kahn. Real change at the IMF is in the hands of the governments of most of the world – but only if they dare to organise it.

This article originally appeared in the Guardian UK.

The IMF after DSK

Sunday 22 May 2011

by: Mark Weisbrot, Center for Economic and Policy Research

Dominique Strauss-Kahn, the leader of the International Monetary Fund, appears in court for an arraignment over allegations that he had sexually assaulted a maid in New York, May 16, 2011. On Wednesday, May 18, 2011, Strauss-Kahn resigned as head of the IMF while denying any wrongdoing. (Photo: Michael Appleton / The New York Times)

Now that Dominique Strauss-Kahn has resigned from his position as managing director of the International Monetary Fund (IMF), it is worth taking an objective look at his legacy there. Until his arrest last week on charges of attempted rape and sexual assault, he was widely praised as having changed the IMF, increased its influence and moved it away from the policies that – according to the fund's critics – had caused so many problems for developing countries in the past. How much of this is true?

Strauss-Kahn took the helm of the IMF in November of 2007, when the IMF's influence was at a low point. Total outstanding loans at that time were just $10bn, down from $91bn just four years earlier. By the time he left this week, that number had bounced back to $84bn, with agreed-upon loans three times larger. The IMF's total capital had quadrupled, from about $250bn to an unprecedented $1tn. Clearly, the IMF had resources that it had never had before, mostly as a result of the financial crisis and world recession of 2008-2009.

However, the details of these changes are important. First, the collapse of the IMF's influence in the decade prior to 2007 was one of the most important changes in the international financial system since the breakdown of the Bretton Woods system of fixed exchange rates in 1971. Prior to the 2000s, the IMF headed up a powerful creditors' cartel that was able to tell many developing country governments what their most important economic policies would be, under the threat of being denied credit not only from the fund but also from other, then larger lenders such as the World Bank, regional lenders and sometimes even the private sector. This made the fund not only the most important avenue of influence of the US government in low- and middle-income countries – from Rwanda to Russia – but also the most important promoter of neoliberal economic "reforms" that transformed the world economy from the mid 1970s onward. These reforms coincided with a sharp slowdown of economic growth in the vast majority of low- and middle-income countries for more than 20 years, with consequently reduced progress on social indicators such as life expectancy and infant and child mortality.

The IMF's big comeback during the world recession did not bring the middle-income countries that had run away from it back to its orbit. Most of the middle-income countries of Asia, Russia, as well as Latin America, stayed away, mostly by piling up sufficient reserves so that they did not have to borrow from the fund, even during the crisis. As a result, even a low-income country like Bolivia, for example, was able to renationalise its hydrocarbon industry, increase social spending and public investment, and lower its retirement age from 65 to 58 – things it could never do while it was living under IMF agreements continuously for 20 years prior. Most of the IMF's new influence and lending would land in Europe, which accounts for about 57% of its current outstanding loans.

As for changes in IMF policy, these have been relatively small. A review of 41 IMF agreements made during the world financial crisis and recession found that 31 of them contained "pro-cyclical" policies: that is, fiscal or monetary policies that would be expected to further slow the economy. And in Europe, where the IMF has most of its lending, the policies attached to the loan agreements for Greece, Ireland and Portugal are decidedly pro-cyclical – making it extremely difficult for these economies to get out of recession. The IMF's influence on Spain, which does not yet have a loan agreement, is similar. And in Latvia, the IMF presided over an Argentine-style recession that set a world historical record for the worst two-year loss of output (about 25%) – a complete disaster.

To be fair, some changes at the fund during the tenure of Strauss-Kahn were significant. For the first time ever, during the world recession of 2009, the IMF made available some $283bn-worth of reserves for all member countries, with no policy conditions attached. The fund also made some limited credit available without conditions, though only to a few countries. The biggest changes were in the research department, where there was tolerance for more open debate. For example, there were IMF papers that endorsed the use of capital controls by developing countries under some circumstances, and questioning whether central banks were unnecessarily slowing growth with inflation targets that may be too low.

But as can be seen from what is happening in the peripheral Eurozone countries, the IMF is still playing its traditional role of applying the medieval economic medicine of "bleeding the patient". To be fair to both Strauss-Kahn and the fund, neither the managing director nor anyone else at the IMF is ultimately in sole charge of policy, especially with respect to countries that are important to the people who really run the institution. The IMF is run by its governors and executive directors, of whom the overwhelmingly dominant authorities are the US treasury department, which includes heavy representation from Goldman Sachs, and, secondarily, the European powers.

Until decision-making at the IMF undergoes a dramatic change, we can expect only very small changes in IMF policy. This can be seen most clearly in the current case of Greece: Strauss-Kahn was aware that the fiscal tightening ordered by the European authorities and the IMF waspreventing Greece from getting out of recession; but while he pushed for "softer" conditions, he was powerless to change the lending conditions from punishment to actual help. That's ultimately because the European authorities (European Commission and European Central Bank), not the IMF, are calling the shots – although Strauss-Kahn encountered plenty of resistance within the fund itself, too.

The voting shares of the IMF have changed only marginally, despite all the reforms of the last five years. The share of "emerging market and developing countries" – with the vast majority of the world's population – has gone from 39.4% to 44.7%, while the G7 countries have 41.2%, including 16.5% for the US (down from 17.0% pre-reform).

But the voting and governance structure is not currently the main obstacle to changing IMF policy. At this point, the developing countries – and we should add in the victimised countries of the eurozone – are not using their potential influence within the fund. Their representatives are mainly going along with the decisions of the G7. If any number of these countries were to band together in a sizeable bloc for change within the fund, there could be some real reforms at the IMF.

Such an outcome can be seen from the last decade of struggle within the World Trade Organisation, where developing countries have often not accepted the G7 consensus, and have successfully blocked the negotiation and implementation of rules that would hurt them – despite the fact that the WTO rules have been, from the outset, stacked against developing countries. It is true that the WTO operates by consensus rather than a quota-based voting structure, but that is not the key difference between it and the IMF. The key difference is in the role of developing countries and their representatives.

There is talk now of replacing Strauss-Kahn with an open, merit-based process of selection, breaking with the 67-year tradition of reserving the position for a European – most often, a French – official. At the moment, such change does not appear likely to happen. It would be a step forward, but it would be only a symbolic change, and the odds are good that the next managing director – of whatever nationality – will be to the right of Strauss-Kahn. Real change at the IMF is in the hands of the governments of most of the world – but only if they dare to organise it.

This article originally appeared in the Guardian UK.

The IMF after DSK

Sunday 22 May 2011

by: Mark Weisbrot, Center for Economic and Policy Research

Dominique Strauss-Kahn, the leader of the International Monetary Fund, appears in court for an arraignment over allegations that he had sexually assaulted a maid in New York, May 16, 2011. On Wednesday, May 18, 2011, Strauss-Kahn resigned as head of the IMF while denying any wrongdoing. (Photo: Michael Appleton / The New York Times)

Now that Dominique Strauss-Kahn has resigned from his position as managing director of the International Monetary Fund (IMF), it is worth taking an objective look at his legacy there. Until his arrest last week on charges of attempted rape and sexual assault, he was widely praised as having changed the IMF, increased its influence and moved it away from the policies that – according to the fund's critics – had caused so many problems for developing countries in the past. How much of this is true?

Strauss-Kahn took the helm of the IMF in November of 2007, when the IMF's influence was at a low point. Total outstanding loans at that time were just $10bn, down from $91bn just four years earlier. By the time he left this week, that number had bounced back to $84bn, with agreed-upon loans three times larger. The IMF's total capital had quadrupled, from about $250bn to an unprecedented $1tn. Clearly, the IMF had resources that it had never had before, mostly as a result of the financial crisis and world recession of 2008-2009.

However, the details of these changes are important. First, the collapse of the IMF's influence in the decade prior to 2007 was one of the most important changes in the international financial system since the breakdown of the Bretton Woods system of fixed exchange rates in 1971. Prior to the 2000s, the IMF headed up a powerful creditors' cartel that was able to tell many developing country governments what their most important economic policies would be, under the threat of being denied credit not only from the fund but also from other, then larger lenders such as the World Bank, regional lenders and sometimes even the private sector. This made the fund not only the most important avenue of influence of the US government in low- and middle-income countries – from Rwanda to Russia – but also the most important promoter of neoliberal economic "reforms" that transformed the world economy from the mid 1970s onward. These reforms coincided with a sharp slowdown of economic growth in the vast majority of low- and middle-income countries for more than 20 years, with consequently reduced progress on social indicators such as life expectancy and infant and child mortality.

The IMF's big comeback during the world recession did not bring the middle-income countries that had run away from it back to its orbit. Most of the middle-income countries of Asia, Russia, as well as Latin America, stayed away, mostly by piling up sufficient reserves so that they did not have to borrow from the fund, even during the crisis. As a result, even a low-income country like Bolivia, for example, was able to renationalise its hydrocarbon industry, increase social spending and public investment, and lower its retirement age from 65 to 58 – things it could never do while it was living under IMF agreements continuously for 20 years prior. Most of the IMF's new influence and lending would land in Europe, which accounts for about 57% of its current outstanding loans.

As for changes in IMF policy, these have been relatively small. A review of 41 IMF agreements made during the world financial crisis and recession found that 31 of them contained "pro-cyclical" policies: that is, fiscal or monetary policies that would be expected to further slow the economy. And in Europe, where the IMF has most of its lending, the policies attached to the loan agreements for Greece, Ireland and Portugal are decidedly pro-cyclical – making it extremely difficult for these economies to get out of recession. The IMF's influence on Spain, which does not yet have a loan agreement, is similar. And in Latvia, the IMF presided over an Argentine-style recession that set a world historical record for the worst two-year loss of output (about 25%) – a complete disaster.

To be fair, some changes at the fund during the tenure of Strauss-Kahn were significant. For the first time ever, during the world recession of 2009, the IMF made available some $283bn-worth of reserves for all member countries, with no policy conditions attached. The fund also made some limited credit available without conditions, though only to a few countries. The biggest changes were in the research department, where there was tolerance for more open debate. For example, there were IMF papers that endorsed the use of capital controls by developing countries under some circumstances, and questioning whether central banks were unnecessarily slowing growth with inflation targets that may be too low.

But as can be seen from what is happening in the peripheral Eurozone countries, the IMF is still playing its traditional role of applying the medieval economic medicine of "bleeding the patient". To be fair to both Strauss-Kahn and the fund, neither the managing director nor anyone else at the IMF is ultimately in sole charge of policy, especially with respect to countries that are important to the people who really run the institution. The IMF is run by its governors and executive directors, of whom the overwhelmingly dominant authorities are the US treasury department, which includes heavy representation from Goldman Sachs, and, secondarily, the European powers.

Until decision-making at the IMF undergoes a dramatic change, we can expect only very small changes in IMF policy. This can be seen most clearly in the current case of Greece: Strauss-Kahn was aware that the fiscal tightening ordered by the European authorities and the IMF waspreventing Greece from getting out of recession; but while he pushed for "softer" conditions, he was powerless to change the lending conditions from punishment to actual help. That's ultimately because the European authorities (European Commission and European Central Bank), not the IMF, are calling the shots – although Strauss-Kahn encountered plenty of resistance within the fund itself, too.

The voting shares of the IMF have changed only marginally, despite all the reforms of the last five years. The share of "emerging market and developing countries" – with the vast majority of the world's population – has gone from 39.4% to 44.7%, while the G7 countries have 41.2%, including 16.5% for the US (down from 17.0% pre-reform).

But the voting and governance structure is not currently the main obstacle to changing IMF policy. At this point, the developing countries – and we should add in the victimised countries of the eurozone – are not using their potential influence within the fund. Their representatives are mainly going along with the decisions of the G7. If any number of these countries were to band together in a sizeable bloc for change within the fund, there could be some real reforms at the IMF.

Such an outcome can be seen from the last decade of struggle within the World Trade Organisation, where developing countries have often not accepted the G7 consensus, and have successfully blocked the negotiation and implementation of rules that would hurt them – despite the fact that the WTO rules have been, from the outset, stacked against developing countries. It is true that the WTO operates by consensus rather than a quota-based voting structure, but that is not the key difference between it and the IMF. The key difference is in the role of developing countries and their representatives.

There is talk now of replacing Strauss-Kahn with an open, merit-based process of selection, breaking with the 67-year tradition of reserving the position for a European – most often, a French – official. At the moment, such change does not appear likely to happen. It would be a step forward, but it would be only a symbolic change, and the odds are good that the next managing director – of whatever nationality – will be to the right of Strauss-Kahn. Real change at the IMF is in the hands of the governments of most of the world – but only if they dare to organise it.

This article originally appeared in the Guardian UK.

The IMF after DSK

Sunday 22 May 2011

by: Mark Weisbrot, Center for Economic and Policy Research

Dominique Strauss-Kahn, the leader of the International Monetary Fund, appears in court for an arraignment over allegations that he had sexually assaulted a maid in New York, May 16, 2011. On Wednesday, May 18, 2011, Strauss-Kahn resigned as head of the IMF while denying any wrongdoing. (Photo: Michael Appleton / The New York Times)

Now that Dominique Strauss-Kahn has resigned from his position as managing director of the International Monetary Fund (IMF), it is worth taking an objective look at his legacy there. Until his arrest last week on charges of attempted rape and sexual assault, he was widely praised as having changed the IMF, increased its influence and moved it away from the policies that – according to the fund's critics – had caused so many problems for developing countries in the past. How much of this is true?

Strauss-Kahn took the helm of the IMF in November of 2007, when the IMF's influence was at a low point. Total outstanding loans at that time were just $10bn, down from $91bn just four years earlier. By the time he left this week, that number had bounced back to $84bn, with agreed-upon loans three times larger. The IMF's total capital had quadrupled, from about $250bn to an unprecedented $1tn. Clearly, the IMF had resources that it had never had before, mostly as a result of the financial crisis and world recession of 2008-2009.

However, the details of these changes are important. First, the collapse of the IMF's influence in the decade prior to 2007 was one of the most important changes in the international financial system since the breakdown of the Bretton Woods system of fixed exchange rates in 1971. Prior to the 2000s, the IMF headed up a powerful creditors' cartel that was able to tell many developing country governments what their most important economic policies would be, under the threat of being denied credit not only from the fund but also from other, then larger lenders such as the World Bank, regional lenders and sometimes even the private sector. This made the fund not only the most important avenue of influence of the US government in low- and middle-income countries – from Rwanda to Russia – but also the most important promoter of neoliberal economic "reforms" that transformed the world economy from the mid 1970s onward. These reforms coincided with a sharp slowdown of economic growth in the vast majority of low- and middle-income countries for more than 20 years, with consequently reduced progress on social indicators such as life expectancy and infant and child mortality.

The IMF's big comeback during the world recession did not bring the middle-income countries that had run away from it back to its orbit. Most of the middle-income countries of Asia, Russia, as well as Latin America, stayed away, mostly by piling up sufficient reserves so that they did not have to borrow from the fund, even during the crisis. As a result, even a low-income country like Bolivia, for example, was able to renationalise its hydrocarbon industry, increase social spending and public investment, and lower its retirement age from 65 to 58 – things it could never do while it was living under IMF agreements continuously for 20 years prior. Most of the IMF's new influence and lending would land in Europe, which accounts for about 57% of its current outstanding loans.

As for changes in IMF policy, these have been relatively small. A review of 41 IMF agreements made during the world financial crisis and recession found that 31 of them contained "pro-cyclical" policies: that is, fiscal or monetary policies that would be expected to further slow the economy. And in Europe, where the IMF has most of its lending, the policies attached to the loan agreements for Greece, Ireland and Portugal are decidedly pro-cyclical – making it extremely difficult for these economies to get out of recession. The IMF's influence on Spain, which does not yet have a loan agreement, is similar. And in Latvia, the IMF presided over an Argentine-style recession that set a world historical record for the worst two-year loss of output (about 25%) – a complete disaster.

To be fair, some changes at the fund during the tenure of Strauss-Kahn were significant. For the first time ever, during the world recession of 2009, the IMF made available some $283bn-worth of reserves for all member countries, with no policy conditions attached. The fund also made some limited credit available without conditions, though only to a few countries. The biggest changes were in the research department, where there was tolerance for more open debate. For example, there were IMF papers that endorsed the use of capital controls by developing countries under some circumstances, and questioning whether central banks were unnecessarily slowing growth with inflation targets that may be too low.

But as can be seen from what is happening in the peripheral Eurozone countries, the IMF is still playing its traditional role of applying the medieval economic medicine of "bleeding the patient". To be fair to both Strauss-Kahn and the fund, neither the managing director nor anyone else at the IMF is ultimately in sole charge of policy, especially with respect to countries that are important to the people who really run the institution. The IMF is run by its governors and executive directors, of whom the overwhelmingly dominant authorities are the US treasury department, which includes heavy representation from Goldman Sachs, and, secondarily, the European powers.

Until decision-making at the IMF undergoes a dramatic change, we can expect only very small changes in IMF policy. This can be seen most clearly in the current case of Greece: Strauss-Kahn was aware that the fiscal tightening ordered by the European authorities and the IMF waspreventing Greece from getting out of recession; but while he pushed for "softer" conditions, he was powerless to change the lending conditions from punishment to actual help. That's ultimately because the European authorities (European Commission and European Central Bank), not the IMF, are calling the shots – although Strauss-Kahn encountered plenty of resistance within the fund itself, too.

The voting shares of the IMF have changed only marginally, despite all the reforms of the last five years. The share of "emerging market and developing countries" – with the vast majority of the world's population – has gone from 39.4% to 44.7%, while the G7 countries have 41.2%, including 16.5% for the US (down from 17.0% pre-reform).

But the voting and governance structure is not currently the main obstacle to changing IMF policy. At this point, the developing countries – and we should add in the victimised countries of the eurozone – are not using their potential influence within the fund. Their representatives are mainly going along with the decisions of the G7. If any number of these countries were to band together in a sizeable bloc for change within the fund, there could be some real reforms at the IMF.

Such an outcome can be seen from the last decade of struggle within the World Trade Organisation, where developing countries have often not accepted the G7 consensus, and have successfully blocked the negotiation and implementation of rules that would hurt them – despite the fact that the WTO rules have been, from the outset, stacked against developing countries. It is true that the WTO operates by consensus rather than a quota-based voting structure, but that is not the key difference between it and the IMF. The key difference is in the role of developing countries and their representatives.

There is talk now of replacing Strauss-Kahn with an open, merit-based process of selection, breaking with the 67-year tradition of reserving the position for a European – most often, a French – official. At the moment, such change does not appear likely to happen. It would be a step forward, but it would be only a symbolic change, and the odds are good that the next managing director – of whatever nationality – will be to the right of Strauss-Kahn. Real change at the IMF is in the hands of the governments of most of the world – but only if they dare to organise it.

This article originally appeared in the Guardian UK.