ANALYSIS/OPINION:
Whatever the outcome of the bizarre fall from grace of Dominique Strauss-Kahn, the controversial role of the International Monetary Fund itself has been thrown into sharper focus.
Had Mr. Strauss-Kahn departed voluntarily for loftier climes as French president, he would have been instrumental in choosing his IMF successor. The tradition of a European IMF chief, chosen by country of origin rather than as an individual and balanced against an American at the helm of the World Bank, would have been maintained.
(In the interests of full disclosure, it should be mentioned here that the writer was deputy chief of mission for the World Bank in Tokyo in the early 1970s.)
Now the Europeans, led by German Chancellor Angela Merkel as head of the Continents leading economy, will have to scramble to retain the “European” sinecure. Growing squawks come from “the developing world” led by the two fastest-growing economies, China and India, for more say.
French Finance Minister Christine Lagarde, with a stint at a top Chicago law firm on her CV, is the logical choice to “de-testosterone” the IMF’s Washington headquarters — even though questions hover over her intervention in a Paris tax scandal — after both the World Bank and IMF heads have been dumped for improper liaisons. In the end, Afro-Asia probably will be assuaged by rejiggering the IMF’s complicated voting rights formula, perhaps at the expense of Washington’s 17 percent voting stake. And the IMF will take on a new persona.
Whatever John Maynard Milord Keynes envisioned in his reorganization of post-World War II global economy, the IMF — Keynes said it should have been called a bank — transmogrified into the international financial “enforcer.” When economies stumbled, the IMF raced to the rescue with temporary financing. But in the good old days — insulated from the bevy of largely corrupt and useless U.N. “specialized agencies” — the IMF played the role of a Dutch uncle, spooning out bitter medicine with tough love.
Coincidentally, the IMF eased the onus on Washington as the world’s overwhelming aid giver — and therefore as the recipient of the sticks and stones that benefactors usually get. Still, attacks came from both the left and right, from the remnant “dirigistes” — believers in government intervention if not increasingly discredited Soviet planning — as well as from American supply-siders who argued that IMF strictures smothered long-term growth.
But just as its twin, the World Bank, increasingly became little more than a soft touch for corrupt Third World regimes and a purveyor of questionable research, the IMF’s reputation, too, eroded over time. It took a nose dive under Mr. Strauss-Kahn, even if he positioned himself on the far right of French socialism (including his well-publicized splendiferous lifestyle and his wifes huge personal fortune). Contrary to IMF tradition, he voiced forgiveness for sins of economic governance by member states.
In a sense, the IMF followed the World Bank’s example — particularly the long Robert S. McNamara presidency from 1968 to 1981. McNamara, in expiation for his perceived Vietnam War role, shanghaied the World Bank from its original mission of financing long-term infrastructure projects into “soft” balance-of-payments lending — a former IMF monopoly — and support of ephemeral “social” goals. Both the World Bank and IMF bureaucracies, as was said of 19th-century Hawaiian missionaries, increasingly came to Washington to do good and stayed to do well — an overpaid, untaxed, highly ideological, self-anointed “priesthood.”
In any case, in a world of megabillion-dollar investment lending through all sorts of new combines — at least before the 2007-08 meltdown — the World Bank grew increasingly irrelevant.
That was not true of the IMF — as the euro crisis has proved. European politicians initially rebuffed IMF participation, fearing it would bring America directly into their family fracas, despite Washington’s own economic problems at the time. And they suspected Mr. Strauss-Kahn would try to mitigate northern European pressure on the southern European profligates to straighten up and fly right. In the end, with the hodgepodge of Band-Aid solutions requiring constant renegotiation for myriad internal European political reasons, Mr. Strauss-Kahn would play a major role. And he publicly did call for more slack when Greek politicians were endangered by austerity measures that many in northern Europe already thought were too little and too late.
Selecting a new IMF director is likely to be more than usually messy in the always sordid selection processes of multilateral organizations. As if the world’s financial policymakers needed one more problem, laffaire Strauss-Kahn has injected new uncertainty into the long goodbye to the European Unions common currency, postponing getting on with the closely related — and perhaps even more threatening — problem of massive currency imbalances in East Asia.
• Sol Sanders, veteran foreign correspondent and analyst, writes weekly on the convergence of politics, business and economics. He can be reached at sol.sanders@cox.net. He also blogs at https://yeoldecrabb.wordpress.com.
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