It?s payback time at the International Monetary Fund. On July 12, early in her second week as IMF managing director, the former French finance minister Christine Lagarde announced senior management jobs for the US and China as a reward for their support for her candidacy over that of Mexican central bank governor Agustin Carstens.
Lagarde appointed David Lipton, a former adviser to President Barack Obama, as her number two and elevated Zhu Min, a former People?s Bank of China deputy governor, to a newly-created fourth deputy managing director position.
Emerging market countries, including India and the other BRICs, had been calling for an end to the traditional stitch-up where a European got the top job and an American was second-in-command. The forced resignation of Dominique Strauss-Kahn as IMF managing director following his arrest on allegations of sexual abuse of a maid in a New York hotel in May provided the BRICs an ideal opportunity to push for change and assert their new position as rising powers.
The timing could not have been more opportune. The biggest threat to the world economy came from Europe in the form of the Greek crisis and not from emerging markets as in the past. And Europe was intent on digging itself into an ever-deeper hole by pretending that a Greek debt default could be perpetually postponed. But it wasn?t meant to be. The BRICs threw their support behind Lagarde, ending na?ve hopes of a brave new era of BRIC-led reform of global economic governance.
That the BRICs did not push harder for their own candidate or for Carstens reflects realpolitik. The US, the IMFs largest shareholder, was not ready for change and Europe was very strongly behind Lagarde. Better than making what would be at best a symbolic stand, the political calculus favoured a compromise in which the major emerging markets sought to leverage their clout to negotiate a quid pro quo.
And that is exactly what China did, and what India, it seems, did not.
Zhu?s promotion to deputy managing director was the result of a successful power play by China to boost its standing in the Fund and in international economic governance more broadly. Instead of waiting to see where the consensus lay, China was very positive towards Lagarde when she visited Beijing a day after her trip to New Delhi, after she publicly responded to Chinese demand for better representation by affirming China?s right to have an official in the IMFs top leadership. Beijing also likely received some assurances that the Fund would be even-handed in its approach to global imbalances as well as give support for the internationalisation of the renminbi.
Significantly for China, Zhu joins Japan?s Naoyuki Shinohara as the Fund?s second Asian deputy managing director, better reflecting China?s status as Asia?s biggest economy. Xinhua news agency spun the news of Zhu?s elevation as a victory for all developing countries, thereby claiming the mantle of leadership of emerging markets for China, saying that it represented ?progress in the democratisation of international economic governance and an increasing global influence that emerging economies are exerting?.
In contrast to China?s sure-footed and decisive approach, India seemed to waffle through the very end, stating only that it sought to join the consensus that developed, and only conceding that it had supported Lagarde after the IMF board had taken its decision on May 28. Indeed, finance minister Pranab Mukherjee seemed to go out of his way to deny that India got anything out of backing Lagarde, going so far as to tell Reuters that Lagarde did not even assure him of greater representation or reforms on behalf of emerging markets?a promise she made Brazil and other emerging market countries?insisting ?we didn?t discuss any such thing when she met with us because it was not a quid pro quo?. One wonders then just what they did discuss. Unless there was some sort of secret deal?highly unlikely?it would seem that India sought nothing and received nothing.
How can we explain India?s passivity and diffidence, its reluctance to project itself in a tangible way on the world stage? To be sure, India is not an economic power comparable to China no matter what the shining India cheerleaders say. But that does not mean it should quit the field. One possible explanation is that India was waiting for the US lead before committing itself. Another is that domestic priorities, especially dealing with proliferating political crises, trump international ones. Then there is the lack of capacity needed to follow through on external initiatives. The reality is likely a combination of these. In consequence, India will continue to talk the talk, but not walk the walk. Investors have woken up to this fact, and are learning to discount optimistic chatter from the government?s economic spokesmen.
The bottom line is that China has an instinctive understanding of how to project power. India does not. Until it learns to do so, India will continue to talk about being an emerging superpower while China acts like one.
The author is global markets director of the research service, Trusted Sources http://www.trustedsources.co.uk