Why Is the IMF Chief Always a European?

With International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn cooling his heels in Rikers Island after an arrest on sexual assault charges and a growing chorus of international voices — including U.S. Treasury Secretary Timothy Geithner — calling for him to resign, speculation is rampant as to who will be his replacement. Officials from Brazil and South Africa are calling for the next managing director to be from a developing country, but European governments counter that, in accordance with tradition, the next director should be European. (French Finance Minister Christine Lagarde has been floated as one possible candidate.) But when was it agreed that the IMF should always be run by a European?

It never really was. The policy is a long-standing "gentlemen’s agreement" under which the IMF managing director is a European and the World Bank president is an American. There’s no mention of the director’s nationality in the IMF’s Articles of Agreement, which state only that the director is appointed by the organization’s executive board. The voting rules are set up so that countries with the highest "quotas" — a measure of the size of their economy and economic viability — are given preference for membership. In practice, for most of the IMF’s history, this has meant that the United States and Western Europe have dominated the board.

The origins of the gentlemen’s agreement date back to shortly after the Bretton Woods conference in 1944, which established both the IMF and World Bank. According to Miles Kahler’s history, Leadership Selection in the Major Multilaterals, Bretton Woods architect John Maynard Keynes had assumed that his main collaborator at the conference, Treasury Department official Harry Dexter White, would run the IMF. U.S. President Harry Truman also supported White’s choice. However, Treasury Secretary Frederick Vinson, with strong backing from Wall Street, argued that an American should run the World Bank — Washington Post publisher Eugene Meyer got that job in 1946 — and that it wouldn’t be proper for the United States to run both of the world’s major financial institutions. White’s possible communist sympathies — he’s widely suspected today of having been a Soviet agent — may also have played a role in the decision. In the end, Belgium’s Camille Gutt was eventually appointed to run the IMF.

In 1946, there was little question that a non-American managing director meant a European one, but some have questioned whether this was ever actually agreed upon. An American World Bank president "made it inevitable that the Managing Director [of the IMF] would be a non-American. It was less inevitable that he should be a European," remembered Frank Southard, an early deputy managing director of the bank.

While the directors have all been European, the United States has continued to exercise control over their selection. Under another informal agreement, the deputy managing director is appointed by the U.S. Treasury. And Washington has, on occasion, effectively vetoed nominations for the position, such as in 1999, when then U.S. Treasury Secretary Lawrence Summers voiced U.S. opposition to a German nominee, veteran World Bank official Caio Koch-Weser, believing him incapable of reforming the IMF following a decade of bad publicity.

As the IMF’s membership has expanded from 44 countries in 1946 to 187 today, developing countries have also played an increasingly prominent role in the selection process. In 1973, a group of developing countries led by Indonesia and Iran blocked the nomination of the Dutch Emile van Lennep — presumably because as former secretary-general of the OECD, he was seen as too closely associated with wealthy countries.

The days of the gentlemen’s agreement may be numbered. An internal review by the IMF in 2008 acknowledged that the convention "clearly reduces choice" and discussed — without implicitly endorsing — a proposal for ending the continental requirement. This shift has been mirrored by other international organizations: In 2010, the G-20 agreed to open up the membership of the executive board to more developing countries.

The question of nationality is sure to come up again if Strauss-Kahn steps down, but Europeans will not be eager to part with the position. Some, such as German government spokesman Christoph Steegmans, argue that owing to the IMF’s critical role in stemming Europe’s current financial crisis, the managing director should be someone who is familiar with "Europe’s particularities, the currency questions and also the political circumstances here." Strangely, when the IMF was primarily giving loans to countries in Africa and Latin America, local knowledge didn’t seem to be quite as much of a factor.

Thanks to Miles Kahler, Rohr professor of Pacific international relations at the University of California, San Diego, and author of Leadership Selection in the Major Multilaterals.