Why the IMF needs a non-European head

June 1st, 2011

In wake of the resignation of “le seducteur extraordinaire” Dominique Strass-Kahn, we are in desperate need for some fresh thinking on Europe’s sovereign debt crisis.

Yet the EU is determined to impose the French finance minister and former corporate lawyer Christine Lagarde as the IMF’s next boss (and she has been touring BRICs countries in a bid to woo support). In the eyes of Europe, Lagarde is well-equipped for the job since she understands the niceties of Europe’s debt crisis (given her part in recent talks) as well as the complex political sensitivities involved in trying to sort out the euromess.

But in a powerful tirade, The Economist has rubbished the unwritten rule that whoever leads the Fund must be from the old continent. It labelled this arrangement a “disgrace” and said it is essential that whoever takes over from the disgraced philanderer DSK has proper “distance” from the EU and eurozone. It would much prefer someone from the BRICs countries or another emerging economy take the helm.

Otherwise the person is likely to to fall prey to petty European vested interests, just as DSK did, will be scared of knocking heads together, and will probably be doomed to pursue the same Band-Aid style solutions advocated by DSK and myopic European political leaders such as Lagarde.

In a leader, The Economist said:

“The case against appointing a euro-zone finance minister as head of the IMF now is overwhelming. The main issue facing the fund is the euro zone. The fund is supposed to be an impartial arbiter of good economic policy. It is the only organisation likely to force a rethink of the euro zone’s failed strategy towards Greece, Ireland and Portugal. There were already fears that Mr Strauss-Kahn’s presidential ambitions led the fund to be too soft on Europe. Ms Lagarde has played a central role in forming the euro zone’s response to its debt crisis, and whatever her private views, she has a public record of defending the indefensible. Staggeringly, some Europeans have tried to argue that only one of their own can understand their continent’s complex politics; imagine the laughter if somebody had made the same argument for Argentina’s finance minister in the 1980s or Thailand’s in 1997.

I’m not holding out too much hope that the IMF will see sense  on this issue and appoint a non-European to the role. Just in case the fund is thinking along these lines (and I accept the current unfair voting system, another legacy of Bretton Woods, is a significant barrier), the leading non-European candidates for the IMF top job are as follows:

  • Montek Singh Ahluwalia – Indian civil servant
  • Agustin Carstens – Mexican central banker
  • Mark Carney – Canadian central banker
  • Kemal Dervis – Turkish economist
  • Stanley Fisher – Israeli central banker
  • Arminio Fraga – Brazilian economist
  • Tharman Shanmugaratnam – Singaporean finance minister

This full version of this article was published in QFINANCE on June 1st, 2011


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