New IMF Head

Jul 01, 2011 Editorial

After the ignominious fall from grace by the head of the IMF, Dominique Strauss-Kahn, in the wake of his sexual predator proclivity, the hunt was on for a successor. With US$320 billions in its coffers, the IMF is a key institution in the struggle to coordinate macroeconomic policies in the global economy when matters go awry. Established as the banker of last resort after WWII, the IMF has played the most pivotal role in imposing economic policies on countries in trouble since that time. The head of the IMF, therefore, is not an inconsequential figure.
It is said that in war, to the victors go the spoils. And after WWII, the US and Europe (without the USSR) were the victors. So the UN was so constituted that in the UN Security Council – which had the ultimate say in the global political system of states -they had control. In the economic realm, the World Bank and the IMF (the International Financial Institutions – the IFIs) were formed to deal with economic development and financial stability and the victors not only took control, they used that control to insist that the head of the World Bank would always be an American and the head of the IMF would be a European.
Because these countries constituted the bulk of what constituted the “developed” world (Japan was admitted into the club by the seventies) while the developing world chafed under a regime of unilateral decision making, they did not have the economic clout to do anything about it. But in the last two decades, countries from that bloc – notably in the Far East and what is now deemed the BRICS (Brazil, Russia, India, China and South Africa) made enormous economic strides. In fact, after the economies of the “developed world” imploded in 2008, it has been these countries that have kept the international globalised economy afloat.
At that time, it was promised that not only the voting weights of the membership of the IFIs would be reassigned to reflect the new economic realities, but that even the tradition of heads from fixed jurisdictions might be changed. There has been some cosmetic change in voting weight that upped China’s share, but on Tuesday, the IMF chair once more went to a European, former French Finance Minister Christine Lagarde. It appears that fundamental equity in the IFIs is still some distance away.
After candidates from India, Turkey and Mexico among others were floated, it came down to a two-person race between Lagarde and Mexico’s central bank governor Agustin Carstens. Even though Carstens had the more impressive resume in the economic arena – that has been the criterion for head of the IMF – (apart from being a European) Lagarde’s sex and the present crisis in the EU monetary zone were said to be in her favour.
But as Martin Wolf, the chief economics commentator at the Financial Times, wrote last week: “Did anyone think to themselves that the head of the IMF should be an Asian during the Asian financial crisis of 1991-1998, or a Latin American during the crisis in the 1980s and 1990s?”
Following Lagarde’s appointment, Raymond Offenheiser, president of Oxfam America, declared “The Obama administration could have stepped up and welcomed emerging powers taking a leadership role in the IMF [but] it chose instead to be quiet about the disenfranchisement of emerging markets and developing countries in this process and jump on the European bandwagon at the very last minute.”
Caroline Hooper-Box, acting head of Office and Essential Services Media Lead at Oxfam International, was even more scathing, “This farcical appointment process has damaged the IMF’s credibility… The IMF is badly in need of reform. To protect the institution’s credibility, Lagarde will have to act to loosen Europe’s stranglehold of the IMF Board, and give others more of a voice.”
We shall see. Lagarde had toured Asian capitals to lobby for their support and did in fact obtain such support. She had to have made promises. But we doubt that she promised to commit Hara-kiri.

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