Thanks to Nancy Birdsall at Center for Global Development in Washington for expressing things with characteristic American forthrightness: “IMF Leader Selection: It’s the Process, Stupid”. She references the Heading for the right choice? briefing paper published by over 20 NGOs in April, and asks “Would [Lagarde] not seem to be biased even if she wasn’t – beholden to Sarkozy and Merkel generating immoral hazard for the IMF (or the euro or Greece. . . )? Won’t she represent, whether she wants to or not, the stench of colonialism wafting around the IMF?” Indeed.
Nancy goes on with a pessimistic tone though: “These changes are less likely to happen between now and end of June (by when IMF Board promises it will have selected a new leader) but pumping for them now could help improve the process in the next round.” While Nancy may be right that since the IMF board formally set out a procedure on Friday and it will be hard to change the process now, it is not impossible. IMF governors, that means finance ministers, can exert their influence, particularly ones from outside Europe, including in Nancy’s country, the US. In fact it might just be up to the Americans to rescue this selection process from the crash course it is on.
Larry Elliot at the Guardian also set out his complaints on the process yesterday. With a British take, which references former UK prime minster Gordon Brown’s desire to have the IMF role, Larry points out that the UK government’s “support for Lagarde appears to be based on the fact that she is not Brown rather than on what the French finance minister plans to do with the IMF. Again, this is depressingly parochial.”
“what is really important is to get someone who can change the IMF’s approach and orientation. The media discussion about Dominique Strauss-Kahn has, inevitably, been stressing that he was a successful IMF chief. But that completely ignores inadequacies of his abbreviated tenure: despite objections, the IMF continued to push procyclical policies on countries in distress that could magnify economic or financial fluctuations; barely provided non-conditional lending to poor developing countries even when the IMF was given carte blanche and huge resources by G20; and did not suggest compensatory finance to alleviate the effects of the food and fuel price rises, which is well within its powers.
… Would someone like Christine Lagarde be better? Unfortunately, she may even be worse, if her record as France’s finance minister is any indication. The irony is that she would pursue, even more enthusiastically, the same self-defeating and economically damaging measures whose only beneficiaries are the German, French, Dutch and British banks already heavily involved in lending to these countries.”
This strain of thought has also been supported by Mark Weisbrot at Washington DC-based CEPR:
“As for changes in IMF policy, these have been relatively small. A review of 41 IMF agreements made during the world financial crisis and recession found that 31 of them contained ‘pro-cyclical’ policies: that is, fiscal or monetary policies that would be expected to further slow the economy. And in Europe, where the IMF has most of its lending, the policies attached to the loan agreements for Greece, Ireland and Portugal are decidedly pro-cyclical – making it extremely difficult for these economies to get out of recession.
… as can be seen from what is happening in the peripheral Eurozone countries, the IMF is still playing its traditional role of applying the medieval economic medicine of “bleeding the patient”. To be fair to both Strauss-Kahn and the fund, neither the managing director nor anyone else at the IMF is ultimately in sole charge of policy, especially with respect to countries that are important to the people who really run the institution. The IMF is run by its governors and executive directors, of whom the overwhelmingly dominant authorities are the US treasury department, which includes heavy representation from Goldman Sachs, and, secondarily, the European powers. Until decision-making at the IMF undergoes a dramatic change, we can expect only very small changes in IMF policy.”
Clearly the selection process is about governance. But policy issues at the Fund are also about governance. One element of governance is the head of the institution. While Jayati makes the point that the head of an institution can’t change the institutions very much, they can push things in the right direction. But the wrong one will certainly push the institution in the wrong direction – further towards the ‘medieval’ in Mark Weisbrot’s peice.
But another element of governance is mostly missing in this debate so far: the drivers of US and European policy towards the Fund. Whose interests are these powerful governments really representing? Pepe Escobar, writing on Al-Jazeera’s website, thinks it is the financial elite. ” He argues that support for Lagarde is because she is “someone Washington and Wall Street trust won’t come up with ‘exotic’ wealth redistribution ideas.”