The Position of IMF Managing Director
Article
The Position of IMF Managing Director
A Challenge for Christine Lagarde
Christine Lagarde is the first woman to head the International Monetary Fund (IMF). Undoubtedly, this is a step forward in the right direction, and would have been difficult to imagine only a few years ago. But at the same time, by the selection of Lagarde, the Europeans and the United States succeeded again in reinforcing the obsolete tradition of dividing the top international positions among themselves: The IMF is reserved for the Europeans; the United States gets the World Bank. The fact that this course was taken in Lagarde's election as well, is admittedly due in part to the emerging and developing countries' inability to agree on a common candidate.
Once again, after the resignation of the "Reform Director" Dominique Strauss-Kahn, the chance of taking a decisive step forward towards reform, and establishing a truly transparent and competitive process for the selection of the Managing Director based solely on the qualifications and merits of the candidates, was missed. What happened in the past few weeks proves that the old power structure still prevails within the IMF. To overcome or at least penetrate it at crucial points is one of the challenges facing the new Managing Director.
In the debate over the Strauss-Kahn succession, the Europeans did not get tired of emphasizing that - given the return of the IMF to Europe - it was only fair that a European man or woman should be heading the Fund. Hardly an argument could be more embarrassing! Was there ever a call for a Latin American or an Asian IMF Managing Director during the Latin American debt crisis or the Asian financial crisis?
It is true that a number of European countries ranging from Latvia to Greece and from Hungary to Portugal now are among the new major clients of the IMF. But the developing countries continue to be the majority of its clients. Among them are dozens of low income countries, who depend on infusions from the Fund. Lagarde's comments before her election certainly indicate that she has a clear vision of the enormity of the task awaiting her. "The fund is confronted with a lot of immediate challenges in view of the fragmented recovery of the world economy, the reappearance of global imbalances, the potentially destabilizing flows of capital, the high level of unemployment, rising inflation and difficult country cases", she said in her job application.
The IMF's new Managing Director will be measured in coming months and years on her ability to continue the reform process begun by her predecessor. This includes first and foremost the ability to finally free the Fund from its role as a disciplining instrument used by creditors towards their mostly southern hemisphere debtors. This kind of self-definition is based on asymmetry.
It is also not a tried and tested means for managing the European debt crisis. In Europe, too, rigid adjustment programs are enforced against the weaker deficit countries, while the stronger surplus countries are let off scot-free. Many people do not know that the most stringent cost-cutting agitation against the euro zone countries in crisis came not from Washington, but from Berlin and Brussels.
One of the toughest jobs for the IMF – as evidenced by the Euro crisis - is the reform of the conditions associated with the Fund's loans. They are being reviewed right now - again. Their reform is still in its infancy. To advance it will be one of the most important challenges for Christine Lagarde.
The relief organization Oxfam International has voiced its concern that the low income countries (Least Income Countries, LICs) in particular remain negatively affected by the politico-economic conditions. Because these countries were forced towards budgetary consolidation after the global financial crisis, their efforts to achieve the Millennium Goals were stopped. They are unable to fight poverty effectively.
The increased flexibility in fighting inflation which the IMF promised last year is not being implemented. The strict conditions force many nations into tighter monetary policies in order to meet the increase in food and fuel prices. At the same time, there is ample proof that in putting the IMF programs into practice, the new limits set for the reduction of social expenditures are not taken seriously.
With regard to the IMF lending policy, there is reason for hope, since Christine Lagarde in her written application concurred with the criticism voiced by the Independent Evaluation Commission of the IMF. That panel recently accused the Fund of ideological bias, "group pressure" and "silo mentality" while examining the fund's activities as the financial crisis was imminent. More open-mindedness with regard to different opinions is certainly a fundamental requirement for a more efficient IMF.
Finally, the reform of the decision-making processes within the IMF remains incomplete. Without it, the Fund will have a hard time regaining its legitimacy as a global institution. Before being elected, Lagarde raised the hopes of the emerging market countries for a more relevant role within the Fund. Now she will have to make good on her promise. But it is questionable whether the completion of the ongoing voting rights reform and subsequent constant adjustment of quotas to the global economic balance of power will suffice to establish the necessary equilibrium between North and South, between rich and poor.
Some proposals go beyond these reforms. Thus, in the future, the IMF might be governed by a regime of double majorities. For each case, where a central decision is required, there would have to be a majority of donor and recipient countries, of debtors and creditors.
Admittedly, this is a visionary idea considering the fact that today the IMF's decisions are still based on the model of "One dollar one vote". But without the will to overcome the old ownership mentality, there will be no reform of the Fund deserving its name.
This article was first published in German: © ZEIT ONLINE
Barbara Unmüßig is Co-President of the Heinrich Böll Foundation.
Rainer Falk is the editor of the newsletter World Economy & Development.