and more generally, a big push is on to have a European take the reins. The logic is that with the eurozone mess far and away the biggest priority, the new IMF chief needs to have credibility with the major actors, and that argues for a European choice.
The contrary camp is the “the countries formerly known as emerging” who point out that it is their turn to have an IMF head from one of their countries. The IMF has been led by a European since its inception. Even though votes have been rejiggered to give younger economies more weight, the mature ones still are in control of the outcome.
But what is intriguing are the arguments that follow, which reveal what the real stakes are. Crudely speaking, the advanced economies are far more bank friendly than their “emerging” counterparts. China is actively hostile to neoclassical economics and unfettered capital markets. Efforts to make China safe for investment bankers have been rebuffed. India sailed though the global financial crisis relatively well by having capital controls and heavily regulated banks. Pretty much any country that has taken IMF medicine (such as the countries caught in the Asian crisis, like Indonesia, South Korea, and Thailand) also sees the IMF as an enforcer for major capital market firms and international banks. Japan, as a military protectorate of the US, has limited degrees of freedom. Even so, during the Asian crisis, it pushed for a bailout within the region (ie, outside the IMF) and that idea was quickly slapped down by the US.
While the US and Europe have the voted to determine who gets the nod at the IMF, consider the open hostility to Western banks in (hat tip RN):
….in a letter to the G20 group of the world’s largest economies Brazil’s finance minister, Guido Mantega, said: “If the Fund wants to maintain its legitimacy, its managing director must be selected after broad consultation with the member countries.”…
There are equally trenchant opinions among IMF insiders. One former senior official said: “The big danger here is if the Europeans just try to put their person in. For example, Christine Lagarde [France’s finance minister]. That would be a disaster. The Europeans have their heads in the sand again and if they do it, there will be bad fallout.”
“Christine Lagarde stands for protecting big banks. I know people like what she said to Jamie Dimon [chief executive of JP Morgan Chase] at Davos but she’s the most pro-bank bailout of the lot.
“The Americans are going to try and put in [White House adviser] David Lipton as number two. Lipton is Mr Bank Bailout. He worked for Citigroup. If they put in Lagarde and Lipton, what does that say? We are going with the total bank protection plan. That would be a disaster.”….
Beijing, like Brasilia, appears keen for someone from an emerging economy to run the IMF this time. Jiang Yu, a spokeswoman for the Chinese foreign minister, said on Thursday that the IMF’s top executives should be appointed on the basis of “impartiality” and “merit”. This came after the state-run China Daily newspaper reported Guo Tianyong, a leading Chinese economist, predicting that “Europe’s history of chairing the IMF may be broken”
The open question is at what cost will the advanced economies incur in installing yet another European. The IMF has been tasked to play a bigger role in global surveillance, particularly in prodding countries to rebalance their economies and change other risk-creating practices. If both top and the number two posts at the IMF goes to Westerners, it’s likely to produce simmering resentment and undermine cooperation on crisis prevention initiatives. The efforts to continue to make the world safe for big banks is coming at higher and higher cost, but no one in charge seems terribly concerned about the intermediate term, much the less the long term.