HONG KONG – Which of the following often used words is wrong — “Japan’s the world’s third biggest economic power”?
Clearly it is the use of the word “power.” In the last week, there has been a major change at the International Monetary Fund with the enforced resignation of its managing director Dominique Strauss-Kahn and the scramble to find a successor
I have been looking in vain for a statement from Tokyo on how it regards the world’s top financial job and who should fill it, or whether it is even aware of the problem. Japan is still the No. 2 shareholder in the IMF with 6.25 percent of the vote after the United States with 16.80 percent.
Nominations only opened Monday, but leading European nations are ganging up demanding that Christine Lagarde, France’s finance minister, should succeed her compatriot Strauss-Khan and maintain the European monopoly and recent French stranglehold over the IMF chief executive’s job. It now requires the unlikely event of the emerging markets countries getting together with Japan and the U.S., and agreeing and naming an alternative candidate for Lagarde to be stopped.
The IMF’s predilection for secrecy continues. Under the new, supposedly fairer rules of the contest, the nomination of candidates — who “will have a distinguished record in economic policy-making at senior levels … will have an outstanding professional background, will have demonstrated the managerial and diplomatic skills needed to lead a global institution” — continues until June 10.
Nominees’ names will be revealed to the 24-member IMF executive board, which will draw up a shortlist of three, and only then will the shortlist be published. The executive board will meet the short-listed candidates and then go into its private huddle to decide, preferably by consensus. In other words, back-room dealing still rules.
European Union members and Switzerland have eight of the 24 seats, and have 34.28 percent of the votes. With U.S. support, the Europeans would have 53 percent if it came to a formal vote.
Leading think-tanks and bloggers have demanded the end of the European monopoly and suggested a raft of good non-European candidates. Nancy Birdsall at the Center for Global Development had the bright idea of sending an e-mail survey to all members allowing them to list the strengths and weaknesses and rank suggested candidates and even write in their own candidates. The Economist compiled a list of candidates, in which Lagarde lagged in 10th place with odds of 14 to one.
They were all too slow. Lagarde’s steamroller was on its way. German chancellor Angela Merkel called Lagarde “distinguished” and “very experienced”; Italy’s Silvio Berlusconi said she was a “great choice”; and after other Europeans had chipped in with their support, George Osborne, the U.K. chancellor of the exchequer, over the weekend claimed that Lagarde was “outstanding” and “Britain will back her.”
Sadly, the international financial media are playing the European game like glove puppets. Columnist Wolfgang Munchau in the Financial Times led calls for continued European succession, with the bogus claim that since the biggest issues confronting the IMF are European, then the chief executive must be European. On this argument, during the 1997 financial crisis, the French head of the IMF should have resigned to let an Asian to take over.
The International Herald Tribune, the global edition of the New York Times, added its contribution with a front-page paean of praise to Lagarde, and not one but two pictures of her, one extending across four columns. No other potential candidate got such coverage
Wolfgang Schaeuble, Germany’s finance minister, defended the deal in which the U.S. chooses the World Bank president and the Europeans, the IMF CEO. He more or less told non-Europeans to get lost with the argument that “After all, the U.S. and Europe pay far the biggest share of the contributions. It’s like in a publicly traded company: those who hold the majority of shares will also get to name the chairman.”
To accept Schaeuble’s logic, why shouldn’t the U.S., as the biggest shareholder of the IMF and World Bank, control both? If the fund and bank were mere corporate entities, China would surely be prepared to use some of its $3 trillion reserves to buy a bigger slice and make a takeover bid for both. But they are not supposed to be national playthings, but global institutions helping to promote a better world, dealing, respectively, with the finance and economic development issues of the global economy
Whoever takes over from Strauss-Kahn has to deal with a host of immense issues, which make the European debt crisis seem parochial. They include: global imbalances, including the potential for trade and currency wars; high unemployment levels; regulation of complex financial instruments to prevent future shocks and instability; economic development issues, especially financial liberalization, fiscal austerity and privatization; and governance and reform of the IMF itself.
That is why it is disappointing that the supposedly more open IMF rules don’t allow open manifestoes or questioning of candidates on how they would deal with the hot issues, and how they would handle the demands of the big shareholders.
Nobel laureate Robert Mundell told me that for all the attention paid to the European managing director, more damage had been done to the IMF and to those countries unfortunate enough to have to borrow because of interference from the U.S. treasury, either through the U.S. first deputy managing director or directly, in demanding stiff conditionality. It is time for a rule prohibiting the top shareholders of the IMF from supplying either the CEO or the deputy.
The shareholders get their chance to make their views known at government and board meetings of the IMF. The managing director and her or his team should be free to formulate their policies professionally and without day-to-day government interference.
The one thing favoring a European as IMF head is that there is no European view on any of the burning issues.
Even among the French, Strauss-Kahn and Lagarde are very different: he with socialist concern about threats from widespread unemployment and rising inequality and the damage of neoliberalism; she, from the center-right and clearly of sterner stuff, has little patience with French penchant for philosophizing and declared that everyone needed “to roll up our shirt sleeves and get to work.”
Lagarde, called a “rock star” of the financial world by Harvard professor and former IMF chief economist Kenneth Rogoff, does not drink alcohol, smoke or eat meat. She speaks fluent, lightly accented English from her 24 years in the U.S. culminating as head of law firm Baker and McKenzie. She has said that men, left to themselves, will usually make a mess of things, and that the financial crisis can partly be blamed on hairy-chested, testosterone-fueled trading rooms. On her office wall, she had a satirical cartoon of herself dressed in leather and cracking a whip to tame wayward bankers.
What does Japan think of this? Does anyone care?
Kevin Rafferty, a veteran journalist, was managing editor at the World Bank, the IMF’s sister organization.