Thursday, April 18, 2024
News and Views from the Global South
Lagarde Takes Helm of IMF Amidst Multiple Crises
- Two days ahead of a formal vote scheduled for Jun. 30, former French finance minister Christine Lagarde became the first woman to be appointed managing director of the International Monetary Fund (IMF), headquartered in Washington, Tuesday.
Replacing former IMF chief Dominique Strauss-Kahn, who vacated the post in disgrace last month following sexual assault charges, Lagarde today surpassed her lone competitor – Mexico’s central bank governor Agustin Carstens – to take control of the Fund’s executive board, which oversees operation of the 187-member institution.
Though Lagarde’s appointment has been a fiercely contested foregone conclusion for several weeks, Tuesday’s 24-member board meeting opened with ostensible uncertainty about the allegiances of key players like the United States, which is responsible for 17 percent of the Fund’s 320-billion-dollar resource pool and has thus far remained silent for fear of backlash in a thorny debate of European dominance versus emerging market economies.
The curtain of largely symbolic suspense was lifted earlier today when U.S. Treasury Secretary Timothy Geithner threw his weight behind Lagarde, who had also secured assurances from the governor of the People’s Bank of China on Monday.
Even before the meeting convened, Lagarde had clinched support from states representing a full 40 percent of the Fund’s voting power.
While the debate over the IMF transition has been framed largely in terms of "first world vs. third world" representation, a handful of experts and economists have used the opportunity to shed light on the IMF as an institution in urgent need of sweeping reforms at the ideological – not just the managerial – level.
"[Even] Agustin Carstens would have been a poor choice to lead the IMF," Kevin Gallagher, professor of international relations at Boston University, told IPS.
"He subscribes to the same 'free for all' financial globalisation that caused the financial crisis," Gallagher said, adding that Carstens' track record as Managing Director of the Fund during its darkest hours between 2003-2006 painted a bleak picture.
"Carstens has not been able to learn from the crisis and has stuck to the outdated thinking – or as the IMF said "incomplete analytical approaches" – that caused the crisis," Gallagher wrote earlier this month. "Despite the fact that Mexico was among the developing countries hardest hit by the crisis, on Carstens' watch, Mexico received one of the feeblest stimulus packages and most uneven recoveries from the crisis in the western hemisphere."
Robin Broad, a professor of international development at the School of International Service at the American University, told IPS that the debate over maintaining legitimacy of the Fund by referring to candidates like Carstens as 'a representative of the global south' was laughable.
"In terms of lessening the power of market fundamentalism as well as of the U.S. and E.U., it might actually be better for poorer countries to have surplus countries, such as China, keep their money out of the IMF and instead strengthen regional institutions as potential competitors to the IMF," Broad added.
“At the same time, I hope that under Lagarde’s direction, the IMF will make meaningful progress in strengthening the governance of the institution, so as to assure its legitimacy, cohesiveness, and ultimately, its effectiveness,” he added.
Carstens’ mild statement of support belies the storm of debate, critique and, at times, open hostility that has surrounded the selection process over the last few weeks, during which economists and organisations from across the ideological spectrum united in their objection to continued European leadership.
“The Obama administration could have stepped up and welcomed emerging powers taking a leadership role in the IMF [but] it chose instead to be quiet about the disenfranchisement of emerging markets and developing countries in this process and jump on the European bandwagon at the very last minute,” Raymond Offenheiser, president of Oxfam America, said in a statement following Lagarde’s appointment.
Caroline Hooper-Box,acting head of Office and Essential Services Media Lead at Oxfam International, added in a press release Tuesday, “This farcical appointment process has damaged the IMF’s credibility.”
“The IMF is badly in need of reform. To protect the institution’s credibility, Lagarde will have to act to loosen Europe’s stranglehold of the IMF Board, and give others more of a voice.”
“She’ll also have to decide what to do with the three billion dollars the IMF got from selling its gold reserves last year,” Hooper-Box added. “This money must be directed to poor and vulnerable citizens in developing countries – the same people who are excluded from IMF decision making.”
Lagarde’s appointment coincides with a 48-hour general strike in Greece that today led to riots and clashes with the police as protestors raged against the government’s proposed ‘austerity measures’, which will be voted on in Parliament Wednesday.
In order for Greece to secure a 17-billion-dollar loan from the IMF – which it desperately needs to pay off a chunk of last year’s 142- billion-dollar bailout debt – the government is under pressure to increase taxes and cut state spending, moves that will hit hardest on minimum-wage and low-income families’ pocketbooks.
However, the fighting on the streets of Athens encapsulates some critics’ claims that a European in the driver’s seat of the world’s most powerful financial institution is the last thing a shattered global economy needs.
Kenneth Rogoff, an economist at Harvard University, last week referred to the IMF as the “commander on the frontlines of the crisis” in Greece, adding to the growing public outcry against Lagarde stepping in as saviour of a crisis that he said her own country helped orchestrate.
According to Howard Schneider, an economics correspondent for the Washington Post, the Greek rescue has ‘unraveled’ in the past months, leading to a deeper-than-expected recession and possibly necessitating billions more than the 150 billion dollars already provided under the three-year emergency plan last year.
“Did anyone think to themselves that the head of the IMF should be an Asian during the Asian financial crisis of 1991-1998, or a Latin American during the crisis in the 1980s and 1990s?” Martine Wolf, the chief economics commentator at the Financial Times, wrote last week.
“The Eurozone is a very special and, in my view, very dangerous construction,” he said, adding that according to the IMF’s most recent data, the EU’s share of global output at purchasing power parity will shrink from 25 percent in 2000 to 18 percent in 2015, an “astonishingly rapid” rate of decline.
Meanwhile, World Bank estimates for China’s growth in 2011 have shot up from 8.5 to nine percent – leading experts to speculate that Europe can no longer afford its patronizing dismissal of the rest of the world.
Offenheiser added, “If the U.S. and E.U. continue to hold on to power through structures that reflect an obsolete economic and political world order of years past, the rising powers will inevitably turn away from the organisation and toward institutions where they do have a voice.”
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