By Alan Beattie
Published: May 25 2011 22:19 | Last updated: May 25 2011 22:19
Published: May 25 2011 22:19 | Last updated: May 25 2011 22:19
A candidate from Europe, but not a European candidate. When Christine Lagarde, French finance minister, declared on Wednesday that she would run for the managing directorship of the International Monetary Fund, the distinction she drew between her nationality and her suitability was worthy of Descartes.
While Europeans have held the IMF’s managing directorship since its launch in 1947, Ms Lagarde was quick to reject the idea of a nationality test. “I am not basing my candidacy on the fact that I am European,” she said. “My intimate knowledge of the European community, of the eurozone and its leaders, can help a bit but it should not be a plus on which my candidacy should be based.”
Indeed, the IMF’s involvement in increasingly controversial crisis lending programmes in Greece and Ireland – and now in Portugal – could prove a disadvantage to Ms Lagarde’s candidacy. Though she is the clear favourite to succeed Dominique Strauss-Kahn following his spectacular exit, the question of European dominance of the fund is a substantive rather than symbolic issue for the first time in living memory.
In recent decades, the European obsession with holding the managing directorship has seemed mildly baffling rather than deeply sinister. Despite some incremental recent reform, Europe remains heavily overrepresented on the IMF executive board relative to its economic influence, its nations separately holding nearly a third of the total votes. Yet Europeans have rarely roused themselves to speak with one voice or promote a particularly continental European view of economics or to organise much more than the promotion of yet another among their number to MD.
Europe’s main contribution appears to be its influence on the IMF’s managerial style. “Essentially the fund is a Eurocracy,” says Ken Rogoff, a Harvard academic who served for two years as its chief economist. Ousmène Mandeng, a former senior IMF official now at Ashmore Investment in London, concurs. “The management style of the institution is largely European – hierarchical and bureaucratic,” he says. “The traditional pattern is to recruit PhDs at 30 and then employ them for life.”BORN IN BRETTON WOODS
The International Monetary Fund was born out of international discussions at Bretton Woods, New Hampshire, in 1944, and opened for business in 1947. Its original aim was to lend to governments to smooth balance of payments problems arising under the pegged exchange rates system named after the 1944 conference. With the breakdown of that regime in the early 1970s, the IMF shifted into more general lending to governments, increasingly in emerging markets. It was heavily involved in the Latin American debt crises of the 1980s and the Asian and Russian crises of 1997-98. But its focus has swung back to Europe, where it has assisted governments that have built up huge fiscal deficits or been forced to rescue their troubled banking systems.
Michel Camdessus, a French career bureaucrat, served as IMF managing director between 1987 and 2000. Yet much of the fund’s intellectual direction during the defining crises of the 1990s was set by Stan Fischer, Mr Camdessus’s American first deputy managing director (now governor of the Bank of Israel), and by US Treasury secretaries Robert Rubin and Larry Summers.
“As the biggest single shareholder, the US has exercised a great deal of influence,” Mr Mandeng says. “The power held by the EU has not been translated into the dominant view of the institution.” Europeans have frequently complained that the US Treasury on Washington’s 15th Street – just four blocks from the fund’s 19th Street headquarters – exercises undue influence over IMF policies. Although the US holds only 17 per cent of votes on the board, its greater determination and intellectual confidence has usually prevailed. Continued
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