Freedom Line Blog

In an email regarding yesterday’s post, reader Eric Coykendall sent this helpful article from Foreign Policy explaining why a European traditionally heads the International Monetary Fund (IMF): a so-called “gentlemen’s agreement” brokered by economist John Maynard Keynes.

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 the wake of scandal engulfing the recently resigned Dominique Strauss-Kahn from France, developing nations like Brazil and South Africa are pushing for a non-European to manage the world’s leading investment/bailout bank.  In the article sent by Coykendall,  FP makes this keen observation about the European double-standard likely to decide the outcome.

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.