The IMF needs a managing director with equal doses of technocratic and political skills. When Dominique Strauss-Kahn departed in May 2011 because of extra-curricular activities, a feeble attempt was made to open up the appointment to a global contest, but the outcome was a foregone conclusion. A Frenchwoman followed a Frenchman. A French politician with presidential ambitions (sadly thwarted) was followed by another French politician with similar ambitions (always denied, of course). For 38 of the 68 years in which the IMF has had a managing director, a French person has been at the helm.
IMF has just had its spring meeting in Washington. The world economy is in better shape than when Lagarde took over. Losing Strauss-Kahn was a shock. The IMF is now on a more even keel. Its analysis of the world’s experiments with austerity has been criticised, as has been its forecasting record. But that is not new. The IMF has often got its macroeconomics wrong. Normally, it used to get its economics wrong when the problem was with developing countries. Lately, as the UK example has shown, it cannot even get developed economies’ macro right. It was meant to be the guardian of exchange rate stability. But once the USA abandoned the Dollar Exchange Standard in 1971, it has become a forecasting body and not very a good one at that either. Yet it faces challenges, as does the global economy. The US Congress, in its usual erratic manner, is holding up long overdue reforms, including quota rebalancing agreed by the rest of the world. The refusal to vote on funds for reforms is entirely due to the quarrels between President Barack Obama and Congress. Any movement is unlikely before November’s mid-term elections.
The IMF affords a bully-pulpit to address the world’s economic problems. Lagarde is unlikely to give a stiff talking to which the US Congress may heed. She has her presidential ambitions. But US hegemony is over in financial matters as it is in international relations, as Syria, and then, Crimea have shown. The global economy has changed shape during the last twenty years and it is about time IMF reflected this fact .
Whatever the case, the IMF and its friends must begin thinking about the succession. The reasons why the managing directorship should no longer go automatically to a European are even more obvious than three years ago. The emerging economies have traversed the Great Recession in better shape than the developed countries. They had better financial regulation. But they have been subjected to asymmetric shocks due to quantitative easing from the industrialised countries. First QE and now tapering have convulsed the emerging market economies. As Brazil has complained, the trade wars of earlier decades have given way to exchange rate protectionism. Raghuram Rajan, the new governor of the Reserve Bank of India, has urged developed countries’ central banks to take the emerging economies into their confidence to alert them to forthcoming policy shifts. This appears unlikely.
The IMF has not been as alive to the problems of the majority of its members as it should have been. It continues to be a US-Europe club. Let’s hope that, as the horse-trading starts on Lagarde’s successor, there will be other candidates from around the world. The important thing is to begin the global discussion on how the IMF can be better run—and who should run it. Summer 2014 offers the right opportunity. This discussion should start now.
I would like Tharman Shanmugaratnam, the Singapore finance minister, to be a candidate. He is thoughtful, technically competent and well respected—and he would hit the ground running. Shanmugaratnam is an IMF insider, the chairman (since 2011) of the International Monetary and Financial Committee, whose first chair was Gordon Brown, the former UK chancellor of the exchequer and prime minister. Shanmugaratnam is Singapore’s deputy prime minister and a previous chief executive of the Monetary Authority of Singapore (before he entered politics). He’s a member of the prestigious Group of Thirty. You cannot get a better CV than that for the job. In the past, when asked about the possibility that he might go for the position, Shanmugaratnam has shrugged his shoulders or murmured something self-deprecating. But if the possibility came into view, the Singapore government would no doubt take it very seriously.
P.S: Raghuram Rajan would be a good bet as well but may be India needs him more than the IMF. He is young enough and there will always be another succession battle.
The author is a prominent economist and Labour peer