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Last Updated: Friday, 28 September 2007, 16:21 GMT 17:21 UK
New IMF boss faces daunting task
By Katie Hunt
Business reporter, BBC News

Dominique Strauss-Kahn
Strauss-Kahn has said reforming the IMF will be a hard task
Dominique Strauss-Kahn, the new head of the International Monetary Fund, has taken the helm of a struggling multilateral organisation.

Mr Strauss-Kahn, a former French finance minister and presidential candidate, now faces the task of restoring the body's battered credibility.

The IMF is still dominated by the United States and Europe, and does not fully reflect the economic rise of India and China.

Poorer countries are also losing faith in the IMF's economic prescriptions.

Mr Strauss-Kahn was backed by the EU and US, making him a certainty for the post.

The Frenchman replaces managing director Rodrigo de Rato.

Mr Strauss-Kahn competed for the position with Josef Tosovsky, the former Czech prime minister and central bank governor nominated by Russia.

Russia's nomination challenged the custom that Europe chooses the boss of the IMF, while the US gets to pick the World Bank chief - a practice many countries regard as unfair.

In his interview with the IMF's board, Mr Strauss-Kahn vowed reform and said the agreement between Europe and the US was "less and less defensible".

"It will be a hard task for all of us to rebuild both the relevance and legitimacy of this organisation," he said the previous week.

Challenges ahead

Reforming the appointment system is not the only challenge faced by the new IMF chief.

The Fund gives advice and financial assistance to many developing countries and is also charged with maintaining global financial stability.

The problem with the IMF is that it's becoming more and more marginal to the management of globalisation
Ngaire Woods, Oxford University

Some poorer countries complain that the IMF's economic policy advice is too rigid and the body's power and voting structure is dominated by a handful of rich nations.

The IMF's reluctance to reform its governance structure means it lacks clout with countries such as China that now play a pivotal role in global economic stability, says Ngaire Woods, director of Oxford University's Programme for Global Economic Governance.

"The first thing Mr Strauss-Kahn should do is visit Brazil, China, India and Nigeria and ask them what it would take for them to have confidence in the IMF," she said.

"He needs to think big and even consider moving headquarters away from Washington."

"The problem with the IMF is that it's becoming more and more marginal to the management of globalisation."

Loss of relevance

IMF debtor countries, such as Argentina, are paying off their loans quicker than expected to free themselves from IMF influence.

Other countries, particularly in Asia, are stockpiling foreign exchange and forging regional agreements to provide a cushion in times of financial instability.

China's emergence as a rival lender to the IMF in Africa has underscored the organisation's loss of relevance.

"If he can't find a way to improve the representation of developing countries then we can expect them to continue to move away from involvement in the IMF," said Peter Chowla, policy officer at the Bretton Woods Project, an NGO which monitors the IMF.

Anti-globalisation protester
The IMF has been a target of anti-globalisation protests

The IMF has also been accused of being asleep at the wheel when monitoring members' exchange rates, particularly by the US which believes China is keeping its currency undervalued to boost exports.

Mr Strauss-Kahn said he would implement the organisation's new surveillance system, announced in June, for foreign exchange policies that cause instability in the world system.

Cleared of wrongdoing

Born on April 25, 1949 to a Jewish family in an affluent Paris suburb, Mr Strauss-Kahn spent part of his childhood in Morocco before studying at an elite political science academy.

Named Finance Minister in 1997, he played a key role in the introduction of the euro and oversaw the part-privatisation of France Telecom and Air France.

He was forced to step down two years later because of allegations that he had received payment from a student health insurance fund for legal work he did not perform.

He was cleared of any wrongdoing in 2001.

During the French presidential campaign, Mr Strauss-Kahn attacked the successful conservative candidate Nicolas Sarkozy, saying he presented a danger to France.

But Mr Sarkozy said that Mr Strauss-Kahn was "the most capable candidate" for the IMF post and secured EU backing.

Mr Strauss-Kahn told the IMF board that he will build consensus and not pitch North against South; rich against poor.

That, however, suggests a more cautious approach.

"I don't think he will push through radical changes," says Mr Chowla at the Bretton Woods Project.

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