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Archive for June, 2011

It is Time for IMF to Select a Managing Director from a Developing Country

The International Monetary Fund has 187 member countries, and, all candidates, regardless of the country of origin, need consideration for the Managing Director (MD) position and not revert automatically to a European.

Since its formation in 1947, the International Monetary Fund (IMF) has had ten managing directors, and all were Europeans. Four of these MDs came from France. It is time for the major powers within IMF, the United States and European Union, to embrace new leadership, which means to choose a new MD from a developing country.

The IMF is a fund set by member nations for the members as a system for economic cooperation towards macro-economic stability. The members draw from the fund when necessary to meet certain economic imbalances. Before the additional capitalization to $750 billion in 2009, the fund had a capital of about $280 billion.

For the period of 2008 and 2009, things looked bleak for USA and some advanced economies in Europe. IMF faced excessive demand for the fund’s financial support by some members in Europe, particularly Spain, Portugal, Greece, and Ireland. It became imperative for IMF to seek an infusion of additional capital.

The developing countries, especially Brazil, Russia, India and China collectively called the BRIC, and Japan contributed most of the capital needed to boost the IMF. The developed countries were hurting, but the developing countries were flush.

A new world economic order was ushered; the so-called rich nations had to be bailed out. The European Union (EU) members like the United Kingdom (UK), Ireland, Portugal and Spain could not contribute as much capital as the BRIC; yet the four BRIC countries get about 10.68 percent of the IMF votes.

The developing countries were responsible for the additional funds that IMF dishes out to its members. Europe is the biggest borrower from IMF and the developing countries are the biggest lenders to IMF.  If this is the case, then, why does the IMF continue to revert to Europe the position of managing director?

This unfair assignment of voting rights relies on the size of worldwide economies after World War II. Economic power has shifted since WW II from Europe and America to the developing countries, especially the BRIC, but the IMF retains the old structures to the benefit of Europe and America.

The 27 states that together form the European Union (EU) hold over 33 percent of the votes in the IMF and the United States holds about 17 percent. As long as EU and America unite behind a candidate, it does not matter the qualifications of other candidates, the one supported by EU and America wins the MD spot. America plus EU hold over 50 percent and all the other members combined hold less than 50 percent of the votes.

The IMF follows an antiqued system of voting which smacks the democratic processes that America and Europe preaches. IMF has 24 executive directors; one each from USA, France, UK, Germany and Japan. The rest of the memberships is divided into 19 constituencies, each with a director who votes for the constituency represented. The voting powers of the constituencies depend on the economic influence of the countries within the constituency.

China, which is the second largest economy in the world, has 4 percent of the votes, whilst UK has 4.3% and France has 4.52%, but the economies of UK and France combined are less than the size of the Chinese economy. Germany holds another 6.14% of the votes. Well, that is the way IMF does its math of proportional representation.

The IMF is in the process of selecting a new MD after Dominique Strauss-Kahn (DSK) resigned over sexual assault charges in New York for forcing sex with a hotel maid. Three candidates- Agustin Carstens, Christine Lagarde, Trevor Manuel – have emerged.

Manuel is the former finance minister of South Africa. He studied engineering and law. 44 African countries form two constituencies with fewer than 5 percent of the total votes. So just forget an African ever becoming an MD. An African from the continent cannot conjure up enough votes to win the MD spot unless Manuel gets the endorsement of the United States and the European Union.

Carstens comes with an impressive record of accomplishments. He holds a PhD in economics from the prestigious University of Chicago, and the position of Governor of the Mexican Central Bank.  He served for three years as Deputy MD of IMF. One would expect that a former or current deputy MD will get a promotion to fill the vacant MD spot. Unfortunately, Mexico belongs to a constituency of eight countries with voting power of 5%.

Lagarde is the finance minister for France, and its former minister of agriculture. She is the only female finance minister in the Group of Eight (G8) advanced economies, but she is a lawyer and not an economist. Lagarde served as the chairperson of the prestigious international law firm Baker & McKenzie, and she is an expert on trade in Europe. Lagarde belongs to the rich voting bloc within the EU.

What prevents someone with the record of achievements of Carstens is that he is not European.  Some countries in Europe are facing financial problems. Unless IMF bails out Greece and Portugal, they will fall into bankruptcy. IMF needs an economist with experience in dealing with financial crisis, and not a lawyer, at the helm.

In the end, credentials and experience might not matter, but the voting block or country of origin determines if one gets the chance to head the IMF. The current method of selecting the MD of IMF is not fair to the developing countries because of the way IMF assign voting power to its members outside the US, France, Germany, UK, group.

By Kofi Amoabin. Send comments to adansi@inbox.com

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Black Women Expo in Tinley Park

Ever wandered into an event where each speaker talked like a millionaire, the Black Women’s Expo in Tinley Park this Saturday was the place. This event was the place to meet aspiring entrepreneurs.

Other than Mr. Darnley Howard, a business consultant, and Ms. Diana Martin, a bank employee looking to break into international trade, the event was devoid of opportunities on imports and exports.

Three years ago, Martin bought a compact disc on international trade and heard about how African countries buy billions of dollars of everything from the United States. Martin lost money on her first attempt, but she is willing to try again. Martin shipped used clothing to Ghana, but she was unable to get the used clothing out of the port.

“My partner was inexperienced, and he thought that, coming from America, I had a lot of money,” Martin said.

Some exporters from United States of America do not factor the cost of clearing goods from the port into their business expense calculations. The bottleneck at African ports, including the port of Tema in Ghana, can be expensive.

“A way to get items out the ports as quick as possible is to ship food,” Howard said. “You cannot lose on shipping rice to Africa.”

Howard explained that imported food gets priority at the ports, because the African governments want to bring the price of food down. Excessive duties and fees paid by importers translate into high cost of food for the most vulnerable.

Companies looking to sell and exhibit their products lined the sides of the auditorium. Some of the entrepreneurs sold dresses, gourmet coffee, and compact discs on real estate investments, children’s book and many others. The number of entrepreneurs in business selling compact discs out-numbered all the sellers in different lines of business at the Expo.

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Meeting with Kofa International, Inc.
Mr. Ganiyu A. Dada offers a tour of his Africa Room and declares that African countries cannot meet the stringent financial requirements set by the U.S. government.
Dada, president of Kofa International, talked about his next trade mission to Nigeria and his long record of experience in exporting American-made equipment to Africa. Kofa International ships heavy equipment – tractors, excavators – to Nigeria.
Mr. Dada gave a tour of his Africa Room, which serves as a demonstration room for products that African countries export to USA, and products that American companies export to Africa. The walls of the Africa Room show the interdependency among countries.
The Unite States is the biggest food exporter in the world, and most of the food exports go to the poorest countries in the world. U.S. government agencies finance food exports to Africa. Mr. Dada explained that most African countries have exhausted funds allocated under Exim Bank, which guarantees or insure loans from high-risk countries.
African companies looking to import food from the United States must go to the private sector or the Commodity Credit Corporation (CCC).
“How many African countries take advantage of CCC programs?” I asked.
“In the past, most African countries got food aid from the US, but the US cannot afford to give away food for free any longer,” Dada said.
The private sector agencies that finance exports to Africa require the African companies to make a 15% cash down payment. Most African companies cannot meet this down payment requirement. The private sector in most African countries does not have banks with such liquidity.
“So how do we solve the food security problem in Africa if African countries cannot find the funds to buy from USA?” I asked.
“Africa must increase production,” Dada answered. “Kofa is shipping a lot of equipment to Nigeria, but Nigeria still needs a lot of food.”
Reported by Kofi Amoabin

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