D+C Newsletter

Dear visitors,

do You know our newsletter? It’ll keep you briefed on what we publish. Please register, and you will get it every month.

Thanks and best wishes,
the editorial team



A less than perfect candidate

by Hans Dembowski


Strauss-Kahn and Lagarde in Washington in April

Strauss-Kahn and Lagarde in Washington in April

Once again, a citizen of France has become IMF managing director. Things could have been different if the emerging-market nations had agreed on a convincing candidate of their own. By Hans Dembowski

The Euro is the currency of 17 sove­reign nations, including some of the largest economies on Earth. The Euro­pean Monetary Union is thus a rather special institution – and, for the time being, a fragile one. It will not hurt to have a European politician at the helm of the International Monetary Fund now that the Euro zone is in danger of breaking apart with devastating global consequences. The IMF has a role to play in solving this financial crisis, after all, and European affairs are indeed bewilderingly complex.

That said, Christine Lagarde was not the perfect candidate. She is a lawyer, not an economist. She does not have the education one would normally expect the world’s most important manager of ­ma­croeconomics to have. She is from France, just like her disgraced predecessor Dominique Strauss-Kahn, who resigned after being accused of rape in New York City, and like Michel Camedessus, who ran the IMF from 1987 to 2000. There is no reason why a single nation should have such a lasting grip on this important office. Making matters worse, investigations were underway in France in June that may yet lead to Lagarde standing ­trial for a decision she took as finance minister. To her benefit it must be stated, however, that nobody accuses her of personally benefiting from that decision.

In view of these shortcomings, it was overblown for European leaders to insist on Lagarde as Strauss-Kahn’s successor soon after he resigned. Their stance was insulting to all nations that had to rely on IMF assistance in the past. Of course, Indonesia, Argentina or Mexico did not get citizens of their countries to run the IMF when they needed IMF funding. On the contrary, the argument at the time was that it was healthy for them to deal with an IMF management that was not entangled in their financial disasters.

For years, the official consensus has been that no country or world region is entitled to provide the leader of the IMF. It was repeated again and again that the next managing director of the IMF would be picked on the basis of merit in an open contest. Accordingly, observers from emerging-market nations have recently expressed unhappiness about a Frenchwoman replacing a Frenchman.

They have no reason to sulk, however. Their governments had the chance to come up with a convincing candidate of their own, but they failed to do so. Policymaking is about more than knowing what one does not want – it is about brokering compromise. The recent squabble over the top IMF appointment showed once more that our planet’s emerging giants do not have much common ground apart from resenting the old powers’ dominance, which is obviously fading.

Agustin Carstens from Mexico was not a convincing candidate. He is a conservative economist who studied at the University of Chicago, a stronghold of monetarist orthodoxy. It is inconceivable that he would have continued Strauss-Kahn’s unorthodox approach to macroeconomics. Most observers, however, agree that this approach helped to tackle the global financial crisis and avoid a global depression. Mexico’s government, moreover, is so close an ally to the USA that Carstens must have looked like just another western candidate to Asia’s emerging super powers.

Kemal Dervi, the former UNDP administrator, would have been an interesting candidate. He has a deep understanding of financial crises and development. He was Turkey’s finance minister when his country depended on IMF funding in 2001. He pushed through a tough structural adjustment programme that resulted in fast economic recovery and impressive growth rates for years on end. However, he was not officially nominated for the IMF top job. His chances would probably not have been good anyway. It is unlikely that China, India and others would have supported a candidate from a NATO country that aspires to join the EU.

There is, however, another way of reading Lagarde’s appointment. It may have resulted from emerging-market ­governments’ tacit acknowledgement that the Euro crisis is indeed dangerous – and that those who got themselves into the mess are best placed to sort things out.