Reply #95: Why Christine Lagarde should never be head of the IMF

[Demeter]

http://www.telegraph.co.uk/finance/comment/liamhalligan/8543964/Why-Christine-Lagarde-should-never-be-head-of-the-IMF.html

..I have previously argued it would be "a historic mistake" if the new IMF boss was a European. I robustly maintain that view. After all, the emerging markets now account for four-fifths of the world's population and almost half of global GDP. Since 2008, they have also commanded a higher share of world trade than the West. After years of economic out-performance, these countries now have around three-quarters of the world's currency reserves and, in stark contrast to debt-mired Western countries, generally boast healthy sovereign balance sheets.

The IMF specializes in fiscal bail-outs. Putting fairness and morality aside, it should be heavily influenced, and regularly run, by well-qualified nationals of the countries with the most fiscal strength. However much we deny it, and whatever the extent to which our ratings agencies are cowed by politicians, that seriously undermines the case for a Western candidate. When the IMF began, the West perhaps had much to teach the rest of the world about running a capitalist society – and the fiscal muscle and moral authority to impose our will. Those days have gone. Several of the big Western nations are now bankrupt in all but name, their sovereign debt markets reliant on printed money. Commercially, we are losing ground and our moral authority is depleted. We are showing the world how NOT to run a capitalist society. Yet our leaders sail on, oblivious to such realities, claiming the top jobs almost as their birthright.

This week I want to stress that the next IMF boss, while not hailing from the West, also shouldn't be a politician. Many argue that the case for a politician, especially a European politician like Lagarde, is currently very strong. For the first time ever, much of the IMF's lending is in Europe – given the continent's disgraceful sovereign debt crisis. So, we are told, the new Fund boss must understand and pay due deference to the nuances of European politics, in order to defuse the EU's fiscal time-bomb – a bomb that could easily explode, sending shockwaves across the world. Such reasoning is the basis of claims that Strauss-Kahn, impeccably connected across Europe and a political animal manqué, was a "superb" IMF boss. Yet such reasoning is absurd. The IMF works properly not when it is loved by the countries it is lending to, but when it is banging political heads together to get myopic, economically illiterate politicians to face up to fiscal realities. Unless the IMF is seen as tough – even unreasonably tough – then it isn't doing its job.

An IMF that colludes with the political classes isn't enacting reform. It is simply helping the politicians bury their mistakes and kick any problems into the long grass where they will fester. The IMF should be respected – even feared. It is for the politicians to stand up and face the political music – explaining to their electorates why harsh actions are needed and why nations can't go on living beyond their means...Perhaps the most dangerous type of politician to run the Fund is a politician still hankering after high office. Strauss-Kahn, of course, was using the post and the influence it bestowed over trillions of dollars of bail-out cash, as a platform for a French presidential bid. As such, he turned the IMF into a soft-credit society for the eurozone's periphery nations, holding the single-currency together for the benefit of his Franco-German friends. Strauss-Kahn's continued insistence on "just one more bail-out", rather than forcing Greece, Portugal and the rest to face up to genuine debt-restructuring, also made sure that the losses stayed with plebian taxpayers, rather than being shifted on to Europe's banks. He could have called in the favour, no doubt, when the need came to finance his campaign for the ultimate prize....MORE