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Why the Next IMF Leader Should Not Come from Europe

Thursday, June 9, 2011

A flawed selection process will produce a director whose legitimacy will be in question from day one.

This is not a diatribe against “Old Europe.” Nor is it a critique of the personal attributes and leadership qualities of French Finance Minister Christine Lagarde—Europe’s choice to lead the IMF—who is, by all accounts, a formidable negotiator, fluent (in English) communicator, and able manager. I do argue, however, that there are strong reasons that the IMF should move beyond the traditional anointing of a European as its managing director—both for the sake of the institution and, additionally, in the real interest of Europe itself.

First, the substance: in what seemed a panic-driven move to preempt other candidates, European leaders quickly rallied behind Lagarde after the sudden resignation of Dominique Strauss-Kahn. They initially argued that, given the developing crisis in Greece and, possibly Portugal and Spain, only a European could guide the delicate political and economic process of finding acceptable solutions. These arguments—justifiably—were met with universal derision and scorn, as many commentators noted that no one had suggested an IMF managing director from Thailand during the 1997 Asian financial crisis, or an Argentine during Latin America’s time of trouble.

Many commentators noted that no one had suggested a IMF managing director from Thailand during the 1997 Asian financial crisis, or an Argentine during Latin America’s time of trouble.

Christine Lagarde herself soon switched to the theme that “nationality shouldn’t matter,” only competence and ability. But the truth is nationality, or at least regional identity, does matter. As France’s finance minister, Lagarde has been at the center of the fierce, unsettled debates regarding the short-term Greek financial crisis and the longer term future of the eurozone and the euro itself. The IMF is looked to as a detached and hardnosed arbiter and the repository of sound technical economic judgment. Its role in this regard was already traduced by the impending candidacy of Strauss-Kahn for the French presidency.

Whatever her leadership qualities, Lagarde will inevitably be tarred with the brush of Euro-centricity. And in reality, can one imagine Lagarde presiding over measures that allow Greece’s default on its obligations or its departure from the currency zone—particularly when such a course would drag down leading French and German banks? Looming behind all of this is a nightmare scenario of the breakup of the eurozone itself—a course of action that is anathema to most Europeans, including Lagarde. In sum, a European cannot be asked to provide dispassionate leadership over what Martin Wolf of the Financial Times has labeled “intolerable choices for the eurozone.”

Can one imagine Lagarde presiding over measures that allow Greece’s default on its obligations or its departure from the currency zone?

Then, there is the flawed selection process. In recent days, there has been a chorus of cries that the choice of IMF managing director must be “transparent and merit-based.” But given the realities of the unfolding process, these pious pledges have a strong element of hypocrisy and, indeed, duplicity. As matters now stand, formal candidacies must be declared by June 10; and the IMF board will make a choice by June 30. There are likely to be only two serious announced candidates: Lagarde and Agustín Carstens, head of Mexico’s central bank.

Many knowledgeable and diverse commentators (from Joseph Stiglitz to Wolf) have pushed for a true opening of the process by appointing a high-level search committee that would lay out clear criteria and then proceed expeditiously but independently to select a new IMF leader.

And here is where the role of the United States has been crucial—and wanting. Treasury Secretary Tim Geithner, too clever by a half, has coyly praised both Lagarde and Carstens, but has done nothing to combat the widely held perception that in the end the United States will back Europe in order to preserve its own neocolonial prerogatives that include the head of the World Bank and a deputy director of the IMF. In a recent Washington Post op-ed, Sebastian Mallaby of the Council of Foreign Relations cited the example of President Franklin Roosevelt, who pushed through the Bretton Woods institutions over European objections. But, stated Mallaby, (accurately): “The Obama administration appears to lack Franklin Roosevelt’s stomach for sidelining arrogant Europeans.”

Europe and the United States are greatly overrepresented in the IMF governing body.

On a broader scale, the world economy has evolved rapidly over the past two decades. Europe and the United States, particularly Europe, are greatly overrepresented in the IMF governing body: Europe retains 33 percent of the votes at a time when its percentage of total world GDP is declining rapidly (25 percent in 2000; projected 18 percent in 2015). European and U.S. leaders have committed to a larger role for the major developing countries, and the unexpected opening for the top position at the IMF gave them an opportunity to make good on their promise to renounce the outdated post-Second World War bargain that gave a European the lead post at the IMF, while an American took the top job at the World Bank. The Economist has labeled this “stitch up…a disgrace.” Alas, they seem to be following Saint Augustine’s plea to God—“Oh Lord, make me pure, but not yet.”

It is not as if there were not highly qualified and highly regarded economists from developing countries, in addition to Carstens, who could be recruited with a more extended and serious search process: Tharman Shanmugaratnam (Singapore), Trevor Manuel (South Africa), and Kemal Dervis (Turkey), for example.  

It is true that major developing countries such as China, Brazil, and India have not united behind a single candidate, as many urged them to do. However, this failure still does not excuse condoning a flawed selection process that seems likely to produce a personally able director whose legitimacy will be in question from day one.

Claude Barfield is a resident scholar at the American Enterprise Institute.

FURTHER READING: Barfield has also written, “From ‘Government’ Motors to ‘Shanghai’ Motors?” and “Resurrection of the New Democrats.” He has recently published, “The Trans-Pacific Partnership,” “The Doha Round: No More Delays,” and “Patent Reform: A Rare Bipartisan Triumph for Innovation and Growth.”

Image by Darren Wamboldt/Bergman Group.

 

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