Resident Fellow  Desmond Lachman

Mr. Strauss-Kahn's assumption of the helm at the International Monetary Fund last November could hardly have come at a more propitious time. With the global credit crisis now showing every sign of gathering pace and with the U.S. dollar verging on freefall, Mr. Strauss-Kahn is providing the IMF with the bold and imaginative leadership that was so sorely lacking under his two predecessors, Messrs. Horst Koehler and Rodrigo de Rato. By so doing, he is providing us with at least a glimmer of hope that today's very serious global economic challenges might be addressed in the coordinated manner that they deserve.

Most new chief executives bide their time before making bold reform recommendations for their organizations. Not so Mr. Strauss-Kahn, who has literally hit the ground running. In his first 100 days in office, he has clearly identified that the IMF's two key problems are those of waning relevance and loss of legitimacy amongst important parts of its membership. More encouraging yet, he has crafted a coherent strategy to expeditiously and simultaneously address both of these problems.

There can be no doubting that under Messrs. Kohler and de Rato's ineffective leadership, the IMF had become increasingly irrelevant to the global economy. After all, most of the IMF's larger emerging market borrowers had long since prepaid their IMF loans and had strengthened their finances in a manner that made any early return by them to the IMF's loan window highly improbable. At the same time, despite its mandate, the IMF studiously refrained from assuming the role of umpire in arbitrating between its major shareholders as to how best to address the vexing issue of an unprecedented global payment imbalance problem.

To enhance the IMF's relevance, Mr. Strauss-Kahn is now seeking a very much more active role for the IMF in helping its member countries deal with the global financial crisis than did his predecessor. In that context, he is emphasizing that the overriding goal of the IMF remains that, as it has over the past sixty years, of promoting a co-operative approach between nations to secure economic growth and stability. However, he strongly believes that the Fund needs to adapt its approach to the changed world financial environment by sharpening its surveillance of its member countries' policies and by focusing on those issues that are most relevant for the IMF's mandate.

In exercising the IMF's surveillance role, Mr. Strauss-Kahn has been very much more vocal than his two immediate predecessors in identifying what needs to be done to address the present global financial crisis. He has done so by candidly highlighting the present major downside risks to growth and by calling on member countries to consider fiscal stimulus measures as needed to support a slowing global economy. He has also had the courage to begin talking more critically about Chinese exchange rate undervaluation and to openly question whether the European Central Bank is being overly restrictive in its monetary policy stance by focusing too much on inflation and too little on economic growth.

As to the IMF's legitimacy problem, very high on Mr. Strauss-Kahn's agenda has been the urgent need to address the issue of the under-representation of the dynamic emerging market economies, especially in Asia. These latter countries have accounted for more than half of the world's economic growth over the past five years and they have become important creditors to the international financial system. Yet, their relative representation in the governance of the IMF has not nearly kept pace with their relative economic importance.

On March 28, 2008, Mr. Strauss Kahn succeeded in getting the IMF's Executive Board to endorse a major package of reforms aimed at enhancing the institution's governance structure. Once approved as expected by the Fund's Board of Governors by the end of this month, the agreement will adjust quota shares to better reflect the relative weight of the dynamic emerging market economies in the world economy. It will do so in large measure by using at least in part purchasing power parity calculations in determining member countries' GDP in the IMF's new quota formula.

Closer to home, Mr. Strauss-Kahn is embarked on a major and painful restructuring of the IMF aimed at putting the IMF's own finances on a sounder long-term footing. This is the first such restructuring in the organization's sixty year history. The planned restructuring will involve staff reductions of between 300 and 400 persons from the IMF's 2,600 staff and it will involve budget savings of around U.S.$100 million a year. It is expected that once the IMF has implemented such budget savings, the IMF's main shareholders, including the United States, will allow the IMF to start selling some part of its very large gold holding to fill the IMF's present financing gap.

It is far too early, of course, to say whether Mr. Strauss-Kahn will succeed in single handedly turning around the IMF on a sustainable basis. However, it is not too early to give him the highest of marks for the way that he has handled his first 100 days in office.

Desmond Lachman is a resident fellow at AEI.