The wrong choice to head the IMF
By Sebastian Mallaby,
In the run-up to the Bretton Woods conference of 1944, John Maynard Keynes harrumphed that a gathering of 44 governments would amount to “the most monstrous monkey-house.” The Roosevelt administration pressed on with the conference anyway, and the result was the creation of the International Monetary Fund and the World Bank, the world’s most successful international economic institutions. Today, the sudden vacancy at the IMF’s helm has created a comparable moment. But the Obama administration appears to lack Franklin Roosevelt’s stomach for sidelining arrogant Europeans.
This is a tragedy, because the IMF matters. Its army of international economists has been at the center of the world’s response to acute crises (in emerging markets in the 1990s, in Europe now) as well as chronic tensions (the imbalances created by China’s currency manipulation, the fight over whether countries should use capital controls). Yet while the IMF is indispensable, it still struggles to balance the legitimacy it needs to advise governments and the independence it needs to keep that advice honest. It must be on good terms with national leaders but ready to speak truth to them. It must have access to the club but not be of it.
Both sides of this balance — the legitimacy and the independence — are in danger; and Christine Lagarde, the French finance minister who is the front-runner to be the IMF’s next managing director, is the wrong choice on both counts. If President Obama were Roosevelt — if he were serious about nurturing weighty international institutions — he would block Lagarde’s appointment. But the European shareholders at the IMF want to protect the neocolonial custom by which they control the fund’s top position. They don’t like sharing with the monkeys. Obama seems set to go along.
Why is this so mistaken? Just as it would have been preposterous to launch an international institution without an international conference, so the IMF cannot maintain its legitimacy unless it allows candidates from the world’s most dynamic economies a fair shot at the top job. It may be old news that, especially since the financial crisis, most of the world’s growth has come from emerging economies; but it is less well appreciated that this is likely to continue for some time. On the deep drivers of growth — demographics, debt burdens, literacy, longevity, and even measures of political and economic freedom — the emerging economies either have formidable advantages over the mature ones or have narrowed the gap dramatically. If they are not allowed to lead existing global institutions, they will eventually set up their own. An American president eager to sustain the post-World War II system that reflects U.S. values and interests surely must not want that.
If another French managing director is the wrong choice in terms of the IMF’s legitimacy, it would also damage the institution’s independence. Over the past year, the IMF has compromised itself in Europe, supporting bailouts in Greece and Ireland that are not going to work. Perhaps because its last leader, Dominique Strauss-Kahn, aspired to become president of France, it was too willing to abet the German and French governments as they fudged the big choice before them: Either the European countries in crisis must wipe out unpayable debts by defaulting or they must receive far more generous bailouts. The IMF’s next managing director needs to explain this dilemma without flinching, even if Europe’s establishment does not want to hear it. But as France’s finance minister, Lagarde has been at the center of Europe’s failed handling of the crisis. She is the last person one would turn to for fresh and independent advice.
Finally, it is not helpful that Lagarde is a lawyer. She is an accomplished one, certainly, as well as a fluent English speaker and impressive politician. But to convincingly speak truth to power, you need a firm grip on the research on which that truth is based. Ideally, the IMF should be led by a heavyweight economist — somebody such as Stanley Fischer, the experienced and respected former MIT professor who runs Israel’s central bank and who sought the top IMF job in 2000. Failing that, the IMF should be run by a financial official who understands the treacherous interplay of policy and markets — someone such as Switzerland’s central bank chief, Philipp Hildebrand, who previously worked for a hedge fund. Agustin Carstens, Lagarde’s Mexican challenger, ticks these boxes more than she does.
The smart money, however, says that all of this is moot. Europe has closed ranks behind its candidate, and the United States isn’t going to stop her. Oh, for another Roosevelt.
Sebastian Mallaby, a former Post columnist and editorial writer, is a senior fellow at the Council on Foreign Relations. His most recent book is “More Money Than God.”