Battle Over IMF Chief: Proxy War Over Power of Banks?

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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.

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34 comments

  1. Psychoanalystus

    Such twisted imperialistic logic! If a European is now needed at the helm of the IMF in order to better sort out the eurozone mess, then what was the reason for having Europeans run it for the past 65 years? And, not just a European, but a French European! We just have to keep that stupid French ego pumped up, now don’t we.

    I concur with the Guardian article – “the Europeans have their heads in the sand”. The whole European house of cards is crumbling down, just like the US house of cards, yet they have the audacity to make demands from the developing world, which is now largely bankrolling western excesses.

    Moreso, bankrupt (morally and financially) nations like France follow the lead of other bankrupt nations like the US, and start imperial wars of aggression in oil-rich Muslim nations. These people just don’t get it that the western sun has already set. Until recently I thought that only the US was following the Roman Empire collapse trajectory, but given recent data I think I better add Western Europe to that list as well.

    Psychoanalystus

      1. Psychoanalystus

        I think we have had purely imperial presidents for at least 10 years now, if not much longer. The republic is over, as is democracy. I think we’re in full collapse now. And the barbarians doing the plundering are the banks and the rest of the oligarchs.

        Ah well, it’s the typical empire trajectory. Nothing new here.

        Psychoanalystus

    1. kares

      what utter nonsense; must not have seen France and its well-developed welfare state.

  2. big cheese

    The solution is obvious. Appoint a Chinese and then do a frame up on him too a la DSK. Then, you can get your Euro gal/guy in there.

    Or better yet, get the banking equivalent of Clarence Thomas; find a person who looks Chinese but thinks like a European banking kleptocrat. Hmmm…where have I seen one of those before?

  3. Psychoanalystus

    This is a great essay by Rebecca Solnit, on TomDispatch:

    When Institutions Rape Nations

  4. readerOfTeaLeaves

    A quick googling of world population stats suggests that Europe and US are whistling in the wind.

    Although I don’t equate pure population numbers with economic clout, it’s simply not realistic to expect that 60% of the world’s population (Asia) will continue to allow 11% (Europe) to call the tune.
    And North America is 5% of world population, which only underscores my own belief that either the US and EU get more pragmatic, or we’ll be left behind by larger demographic and cultural forces.

    1. Cheese Wiz

      I think you’re thinking about this far too democratically. The oligarchs, .001% of the world population are going to control the other 99.999% as slaves. Where does that leave you? If you’re lucky, psychopathic, and fawningly servile to the oligarchs you can be a slave driver.

      1. FatCat

        Oligarchic FatCat here, so listen up, Wiz boy! I like the way you think. I can use more slaves like you in MY oligarchic empire. Here’s a sweet deal, boy: you show ME that you can crack the whip on the backs of MY other slaves, you show ME that you’re willing to sell your own family into slave labor in MY camps, you show ME that you’re ready to put your 5-year old to work 16 hours a day 7 days a week on MY cotton farms, and I will make you chain gang leader in one of MY private prisons in California. Do we have a deal, boy!? Remember: kittens like me don’t take no for an answer. You turn down my offer and I’ll have you fired, foreclose on your house, reposses your car, and have one of MY judges put you in prison for life for that parking ticket you didn’t pay 10 years ago. Is that clear?!!!

        FatCat

  5. jake chase

    “If the Fund wants to maintain its legitimacy, its managing director must be selected after broad consultation with the member countries.”

    I think the guy who said this should be appointed just for his imagination alone. The last time the IMF was legitimate was 1946, for about thirty days.

  6. Viator

    “it might be better if some leadership and authority came from outside of Europe with a fresh set of independent eyes.”

    “If the Growth Eight(Brazil, Russia, India and China (the four BRICs) as well as Korea, Indonesia, Mexico and Turkey) were part of a regional club as is the EU, in my opinion it would seem a straightforward choice that the new IMF leader should come from one of their countries. Perhaps they should try to decide on a jointly preferredcandidate rather than each one promoting their own.”

    Jim O’Neill
    Chairman, Goldman Sachs Asset Management

  7. Steve

    The Europeans are making a big mistake here in pushing hard for Lagarde.

    They are going to need capital from all over the world to re-capitalize the European banks after the inevitable Greek/Irish/Portuguese debt “haircuts”. Excluding the big exporting/sur nations which have reserves to recycle from the process will reduce the IMF’s degrees of freedom in solving the problem.

    This episode highlights the politicians’ need to keep “control” of a situation that is rapidly spiraling out of control. It also makes one wonder about all the side deals that have been struck amongst the leading European politicians.

  8. ex-PFC Chuck

    This is likely a dumb question from someone who is among the more challenged when it comes to knowledge of the financial sphere, but could the “emergents” (Brazil, China, India, Russia, et al) resign from the IMF and set up their own alternative organization? Is it even feasible economically given the trade interrelationships? I suspect there would be huge political obstacles, both from established order as it pulls out all the stops to hang on to the status quo and, if it comes to pass, within the new organization as its founding countries fight among themselves over position, governance, etc. It seems to me that if such a thing were to happen it would have an impact on world affairs that makes the Arab Spring look like a sandbox dust-up by comparison. Just the threat of doing so, if it were plausible, could greatly increase their influence in the world finance institutions that are the legacy of World War II.

  9. XRayD

    “We should say thank you,” said Mr. Diamond [CEO Barclays], who earlier this month defended his bank’s lucrative bonus payments before British lawmakers, “a very heartfelt thank you.”

    With him on stage, the French Finance Minister Christine Lagarde was not impressed: “The best way the banking sector can say thank you is with good financing for the economy, sensible compensation packages and reinforcement of their capital.”

    The opposition will be the same as against Elizabeth Warren and protecting consumers against anyone who thinks it is time to put the vampire squid on a diet. It is bad for the world of Goldman et al. and Central Bankers doing God’s work:

    “The most important commandment is not to inflict harm on others. Although it isn’t stated quite that way in the Ten Commandments, it follows from them.”

    Jean-Claude Juncker, the prime minister of Luxembourg and president of the Euro Group, who argues that Athens isn’t bankrupt and that is is still possible for Greece to emerge from the crisis via “privatization”.

  10. If Lagarde wins it’ll be confirmed as a Sarkozy-made coup. A coup successful in all fronts.

    This together with the advance of the right and even the far right in elections through Europe, USA, etc. forecasts very bad years to follow.

  11. Brad Hansen

    In “Inside Job”, didn’t Christine Lagarde say, “Banks are a service industry, and they need to service the public, before the service themselves.” That was a sound bite I loved. And I liked everything else she has to say in that film. Was that just posing for the camera?

  12. frances snoot

    “Fee Fie Foe Fum
    I smell the blood of an Englishman
    Be he alive
    Or be he dead
    I’ll grind his bones
    To make my bread.”

    Stories, stories,stories: aren’t they fun? Did they kill all the giants?

    Everyone knows the IMF is defunct. This is a filler story between Act 1, Act 2 and the red glove service.

  13. frances snoot

    Whence is that knocking?
    How is’t with me, when every noise appals me?
    What hands are here? ha! they pluck out mine eyes.
    Will all great Neptune’s ocean wash this blood
    Clean from my hand? No, this my hand will rather
    The multitudinous seas in incarnadine,
    Making the green one red. (Macbeth-Act 2)

    1. JasonRines

      Shakespear is most appropriate. You are a spiritual person Frances with wisdom. I would not attempt to explain all the correlations and ironies here as it relates to mankind and God on a financial board as I would be labeled a crackpot I sure. “Beware the Ides of March”.

  14. Hugh

    Important to keep in mind that this is about competing visions of kleptocracy. It is about power, and of course money, not reform. In this case, it just happens to be that the Euro and Anglo-Saxon versions of kleptocracy are aligned against the BRIC version.

    I don’t think that the BRIC seriously think they can push through their own nominee. I’m not sure they could even agree on one. This looks more like laying down a marker and a leverage play, possibly a greater say on current IMF policy and staffing or on the selection of future IMF heads.

    Remember no one is holding a gun to the head of the BRIC countries to stay in the IMF. If they were really serious about this, they could go off and start an IMF-like entity of their own.

    1. frances snoot

      There really isn’t an opt-out option to the global regulation of exchange, Hugh, by the hegemon. And those who treat nature as other have opted out of life altogether. It’s complete hypocrisy to claim entitlement when the only harmony one seeks with nature is a default termed death.

      Because the Euro/Anglo stance is always apart seeking whole.

    2. ScottS

      I was going to say above that they can’t do anything without the US, as the USD is the global reserve currency.

      But then again… doesn’t China have a few trillion US dollars kicking around with nothing better to do than dump ’em into Treasuries? I think we will see China start investing USD in south-east Asian countries, and probably Africa if the US (sorry, UN) invasion of Libya hasn’t scared them off.

      It makes a kind of technical sense. Dollars and Yuan are just playthings in China. The real action is in population control. Can China outsource its production throughout south-east Asia to increase labor competition locally and therefore decrease inflationary pressures at home, keeping sweat-shop workers “in their place”?

    3. Susan Truxes

      just a wishful thought: what if banks and the IMF and first, second and third world financiers were, in fact, reasonably honorable…. what if controlling out-of-control “capitalism” and “free trade” and controlling the language about all the empty descriptions of our present situation were an honorable effort to rebalance the planet… what if our present crisis found a solution in ecologically sound banking and commerce… crisis is opportunity… what would ecologically sound banking look like…

      1. F. Beard

        what would ecologically sound banking look like… Susan Truxes

        That’s a non-starter. All banking is based on theft of purchasing power from all money holders including and especially the poor. Furthermore, usury itself is problematic since it requires exponential growth to pay the interest.

        What we need to do is remove ALL government privilege for the banks and usury. To privilege the banks and usury is to privilege oppression and environmental destruction.

        1. Susan Truxes

          how about this: we humans have health insurance to insure our well being… insurance is a form of finance…. why can’t we do an IMF that insures healthy ecology… and why wouldn’t this be good banking

          1. Susan Truxes

            hi susan, I just wanted to ask you: who should the trustees of this new ecology trust be – I would strongly advise against the current bank officers

      2. Allow me to counter your “what if” with one of my own…

        What if the IMF, the World Bank, the Federal Reserve, and the ECB were not dominated by fascists, but rather were run exclusively by proponents of a Hamiltonian credit system financing the build out of state-of-the-art, modular, high temperature, gas-cooled nuclear breeder reactors whose fuel source is estimated to last 400,000 years and whose CO2 pollution is zero? This among other investments geared toward elevating mankind’s command over limited natural resources through scientific advances propelling our capacity to get more using less (per capita), such as has been the general trend throughout Western society since the Golden Renaissance.

  15. william

    it’s true that Christine Lagarde is pro banks–if they happen to be French. She dislikes all the other banks and nobody in the banking community thinks she is pro banks.

  16. The question is not who will replace DSK, or which nation this person will hail from. Rather it is how soon will Bernanke and Geithner be taken down in similar, bloody fashion, that the global financial system then might be reorganized in bankruptcy. The game of “extend and pretend” has met its first formidable resistance in a chambermaid who could not be bought off…

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