Christine Lagarde – woman with a mission

Jul 06, 2011 Letters

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Dear Editor,
Christine Lagarde is the new Head of the International Monetary Fund. She succeeded Mr. Strauss-Kahn who resigned following allegations of sexual improprieties involving a Manhattan maid. This is the first time a woman has been appointed to head the Fund, a signal honour for a woman who only recently was a French Finance Minister.
Her appointment to the job was widely anticipated. One had to do with the fact that she was European and French, which was more in keeping with tradition or convention in which a European had always held the top job at the IMF, and an American the top job at the World Bank.
The IMF and the World Bank are the two most powerful financial institutions in the world and together they control and influence fiscal and monetary polices for a significant number of countries in both the developed and the developing world.
The second reason had to do with her acknowledged competence and personality which put her in an almost unassailable position to get the job. Born in Paris, she tasted success at an early period in her life when she represented her country at synchronized swimming when still a teenager.
At age 17, following the death of her father, she went to study in the United States where she mastered the English Language. After a year in the United States, she returned to France where she studied law. She subsequently returned to the United States where she joined the international law firm Baker and McKenzie as an associate, specializing in labour, anti-trust and mergers and acquisitions. Eighteen years later, she became the first female chairman of the firm.
She became France Trade Minister in 2005 and under her watch French exports reached record levels. In 2007, she became Finance Minister the first woman to hold such a post not only in France but in the entire Euro zone. There can be no doubt as to her competence or experience to lead the IMF. What is of concern to quite a number of countries, especially those in the developing world, is the formula for appointment to the top post. The selection process is highly flawed and as mentioned earlier, favours Europe and the United States which together control more than half of the voting rights.
This is assured by the dominance on the executive board by a select group of countries which literally enjoy a monopoly over the choice of who will occupy the top spots in the IMF and the World Bank. There are 24 seats which represented the entire 187 countries. The big economies have their own seat on the Board.
These big countries include the USA, China, Japan and the UK. Others are grouped into constituencies so that one executive director represents a group of countries.
Ideally, they will strive to chose a Managing Director by consensus but if they cannot they can make the choice by voting. The votes they cast are weighted by the country’s subscription to the IMF known as its quota. That in turn is roughly related to the country’s share of the world economy.
As I mentioned earlier, the weights are now out of sync with the changing economic dynamics which saw some of the emerging economies such as China and India being under-represented as compared to Western Europe which continues to enjoy a disproportionate share of the voting rights and are therefore able with the help of the United States to exercise hegemonic control.
Take China as an example. China’s share of the global economy (using a measure known as purchasing power parity GDP) is 13.6 per cent, but its share of the vote is 3.8 per cent. The UK and France each account for 2.9 per cent PPP GDP but each has 4.3 per cent of the vote.
The European Union (EU) has a total share of the vote of about a third. It therefore follows that any candidate for the top post who enjoys the confidence of Europe and the United States is virtually assured of getting through as in the case of Christine.
I have, in my earlier columns, pointed out to the unjust nature of the global institutions both in terms of structure and function which militated against the developing and emerging countries. In the case of the IMF and the World Bank, both of these institutions were established during the aftermath of the Second World War to aid in the reconstruction of the war-ravaged European economies.
It was the convention at that time that the IMF would be headed by a European and the World Bank by an American. Despite the fact that the world economy has changed fundamentally since those years the practice still continues which understandably is resulting in some uneasiness especially among the so-called emerging economies such as China and India.
There are not many success stories insofar as the IMF and to a lesser extent the World Bank intervention are concerned. The IMF, in particular, has gained a reputation as an institution that is more concerned with macro-economic stability rather than addressing bread and butter issues. The recent fiasco in Portugal, Spain, Greece and Ireland is indicative that the IMF medicine is still hard to swallow among wide segments of the working people.
The new Managing Director has promised to make the IMF more responsive to the needs of developing countries. One can only wish her well in her mission.
Hydar Ally

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