Sooner than expected, the IMF will have a new managing director. For more than a decade, I have criticized the fund’s governance, symbolized by the way its leader is chosen. By gentlemen’s agreement among the majority shareholders — the G8 — the managing director is to be a European, with Americans in the No. 2 post and at the head of the World Bank.
The Europeans typically picked their nominee behind the scenes, as did the Americans, after only cursory consultation with developing countries. The outcome, however, was often not good for the IMF, the World Bank or the world.
Most notorious was the appointment of Paul Wolfowitz, one of the main architects of the Iraq War, to lead the World Bank. His judgments there were no better than those that got the US involved in that disastrous adventure. Having placed fighting corruption at the top of the bank’s agenda, he left in the middle of his term, accused of favoritism.
Finally, as a new order seemed to emerge in the aftermath of the US-made Great Recession, the G20 agreed (or so it was thought) that the next IMF head would be chosen in an open and transparent manner. The presumption was that the outcome of such a process almost surely would be a managing director from an -emerging-market country. After all, the IMF’s main responsibility is to fight crises, most of which have been in developing countries — more than 100 since the disastrous policies of financial deregulation and liberalization began about 30 years ago. There were many heroes of these battles in the emerging markets.
Crises need to be carefully managed. In 1997, the mismanagement of the East Asia crisis by the IMF and the US Treasury transformed downturns into recessions, and recessions into depressions. The world cannot afford to repeat that performance.
Today, the imminent crisis is in Europe, where the European Central Bank (ECB) seems to be putting its own balance sheet and those of European banks — loaded with debt from Ireland, Greece and Portugal — above the well-being of these countries’ citizens. This debt almost surely needs to be restructured, but, having allowed the banks to leverage themselves beyond any level of prudence and load up on toxic derivatives, the ECB is now warning against any sort of restructuring or write-down.
However, it is a bit late for the ECB to describe debt restructuring as “unthinkable.” The ECB should have done some thinking before it let this state of affairs arise. Indeed, more than thinking, it should have done some regulating to prevent Europe’s banks from becoming so vulnerable.
Now the ECB needs to think about how to help everyone, not just the bankers who bought the bonds. The new thinking should put people first, and banks’ shareholders and bondholders second. Even if the shareholders and bondholders lose everything, with the right restructuring, we can still save the banks and protect taxpayers and workers.
AUSTERITY
Where the IMF’s next managing director will come down on this issue — and on whether fiscal salvation is to be achieved through austerity, with costs borne by ordinary citizens, even as bankers get only a mild slap on the wrist — is critically important, but hard to predict. Despite the failure of the IMF’s strategy in East Asia, Latin America and elsewhere, it still has adherents, even within the emerging markets.
The leadership contest has turned out differently from what many had expected. Some of the most qualified candidates (in both developed and developing countries) have not received the support of their own governments that the political process seems to require. Other qualified people from emerging markets have been reluctant to put their hats into the ring — it is a brutal job, with a travel schedule that requires physical stamina to match wisdom and experience.
Much as I would like to see someone from the emerging markets and the developing world head the IMF, the first priority is to choose a leader with the requisite skills, commitments and understandings in an open and transparent process, someone who will continue along the reform path on which the fund has embarked.
Realpolitik might mean that there will be senior people from both China and the US in the top management team, but the presumption that the No. 2 position should be filled by an American also has to go.
Whatever the outcome, the IMF, the World Bank and the international community need to reaffirm their commitment to an open and transparent process — and ask how that process can be improved. For example, rather than nominations from governments, which often are reluctant to support excellent candidates from opposition parties, an international nominating committee could put forward names. Similarly, changes in voting procedures (public voting by countries, rather than through constituencies, or a requirement that candidates win the support of a majority of developing and emerging countries) could persuade more emerging-market officials to put their names forward.
OPEN CAMPAIGN
What we are seeing now — open campaigning, as opposed to selection behind closed doors — seems to be a move in the right direction. However, one hopes that campaign promises won’t tie the new leader’s hands, as so often happens in electoral politics. Simplistic ideologies got the world into the mess in which it now finds itself, and simplistic prescriptions (even of the “tough-love austerity” form) will only compound the problems.
One of the leading candidates to be the IMF’s next managing director has turned out to be a Frenchwoman, Christine Lagarde, who, as France’s finance minister, helped lead her country through the Great Recession. She has been an outspoken advocate of -financial-sector reforms and has won the respect of all of those with whom she has worked.
Politics is not always kind to good candidates. The world should be thankful that there is at least one. Where she was born should not be an impediment to her prospects.
Joseph Stiglitz is University Professor at Columbia University and a Nobel laureate in economics.
COPYRIGHT: PROJECT SYNDICATE
In the first year of his second term, US President Donald Trump continued to shake the foundations of the liberal international order to realize his “America first” policy. However, amid an atmosphere of uncertainty and unpredictability, the Trump administration brought some clarity to its policy toward Taiwan. As expected, bilateral trade emerged as a major priority for the new Trump administration. To secure a favorable trade deal with Taiwan, it adopted a two-pronged strategy: First, Trump accused Taiwan of “stealing” chip business from the US, indicating that if Taipei did not address Washington’s concerns in this strategic sector, it could revisit its Taiwan
The stocks of rare earth companies soared on Monday following news that the Trump administration had taken a 10 percent stake in Oklahoma mining and magnet company USA Rare Earth Inc. Such is the visible benefit enjoyed by the growing number of firms that count Uncle Sam as a shareholder. Yet recent events surrounding perhaps what is the most well-known state-picked champion, Intel Corp, exposed a major unseen cost of the federal government’s unprecedented intervention in private business: the distortion of capital markets that have underpinned US growth and innovation since its founding. Prior to Intel’s Jan. 22 call with analysts
The Chinese Communist Party (CCP) challenges and ignores the international rules-based order by violating Taiwanese airspace using a high-flying drone: This incident is a multi-layered challenge, including a lawfare challenge against the First Island Chain, the US, and the world. The People’s Liberation Army (PLA) defines lawfare as “controlling the enemy through the law or using the law to constrain the enemy.” Chen Yu-cheng (陳育正), an associate professor at the Graduate Institute of China Military Affairs Studies, at Taiwan’s Fu Hsing Kang College (National Defense University), argues the PLA uses lawfare to create a precedent and a new de facto legal
International debate on Taiwan is obsessed with “invasion countdowns,” framing the cross-strait crisis as a matter of military timetables and political opportunity. However, the seismic political tremors surrounding Central Military Commission (CMC) vice chairman Zhang Youxia (張又俠) suggested that Washington and Taipei are watching the wrong clock. Beijing is constrained not by a lack of capability, but by an acute fear of regime-threatening military failure. The reported sidelining of Zhang — a combat veteran in a largely unbloodied force and long-time loyalist of Chinese President Xi Jinping (習近平) — followed a year of purges within the Chinese People’s Liberation Army (PLA)
RSS