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Saturday, February 29, 2020
WASHINGTON, Jun 24 2011 (IPS) - In a small park situated between the headquarters of the International Monetary Fund (IMF) and the United States Department of the Treasury in Washington, French Finance Minister Christine Lagarde was crowned head of the world’s most powerful monetary institution on Thursday.
Taking place just outside the Fund’s headquarters – where the real Lagarde was interviewed Thursday by the executive board for the recently vacated post of managing director – the media stunt was jointly organised by a coalition of civil society groups including Oxfam International and the Bretton Woods Project to draw attention to what they say is a colonial-style selection process currently underway.
In her remarks to the Fund’s executive board on Thursday, Lagarde stressed that the IMF must maintain its “recently-regained pivotal role with respect to global economic and financial cooperation”, reaffirm its legitimacy and embrace “diversity and teamwork”.
Referring to the controversy over her candidacy, Lagarde said, “I truly believe in a transparent and merit-based selection process”, adding that her nationality should be “neither an advantage nor a handicap”.
However, some observers argue that her words could not be further from reality.
Economists and observers had hoped that Strauss-Khan’s fall from grace – coupled with catastrophic financial meltdowns in Ireland, Greece and Poland – would end Europe’s 67-year-long uninterrupted run in the driver’s seat. But hopes of a representative from the developing world finally occupying the Fund’s top spot were short- lived.
Speaking on behalf of a coalition that has been pushing hard for open elections, Oxfam spokesperson Sarah Wynn-Williams told IPS, “We [believe] that the IMF’s process is deeply flawed. Despite promising an open democratic process, they’ve effectively coronated Lagarde without any regard for democratic principles.”
“This was a done deal even before the candidates were announced,” Wynn-Williams added. “Europe made quite clear that it would retain the role of managing director as it has done since the Fund’s inception in 1944, and the rest of the world was shut out.”
A predetermined outcome notwithstanding, Mexico’s central bank governor and Lagarde’s stiffest competitor, Agustin Carstens, continues to pursue his campaign under the rubric that absent a voice from the emerging market economies, the IMF stands to lose all legitimacy in a rapidly evolving global and economic order.
“Less than three years ago, when the financial crisis exploded, the world economy slid to the edge of an abyss,” Carstens wrote in the Financial Times last week.
“We have now stepped back from the precipice, but should the world require another rescue, we must not forget that global collaboration requires trust among partners, with legitimate institutions at its core.
“Countries as varied as Indonesia and South Africa, the BRICs [Brazil, Russia, China and India] and Mexico have proved to be reliable partners and deserve to be treated as such,” he added.
However, Carsten’s message to the developing world seems unlikely to turn the tide, since the vote for the IMF chief won’t be cast by the 163 dues-paying members but rather by those countries that comprise the board of executive directors.
The Fund is essentially divided into 19 “constituencies”, each of which vote according to the allegiances of its representative – essentially stripping member states of their individual voting power.
Currently, Europe collectively holds over 30 percent of the vote, followed closely by the U.S.’s 17 percent share.
The chief economics analyst of the Financial Times, Martin Wolf, noted last week that as of April 2011, a full 79.5 percent of IMF credit outstanding was to Europe alone, indicating that far from playing a leading role, the Eurozone should take a step back.
Though Europe has borne the bulk of critique, economists from across the ideological spectrum have united also in their criticism of against the U.S., whose influence over the Fund is arguably supreme.
“For most of the last 65 years the U.S. has been overwhelmingly the dominant voice via the Treasury Department,” Mark Weisbrot, co- director of the Washington-based Center for Economic and Policy Research (CEPR), told IPS, adding that even an open electoral process would do nothing to change the inherent tendencies of an institution dominated by Chicago-school style economic policies.
According to Alan Beattie, the international economy editor of the Financial Times, the IMF owes its lending-programme philosophy solely to the U.S.
“The U.S. is the biggest single shareholder,” Beattie said. “So the positions of power held by Europe have never translated into the dominant view of the institution itself.”
And many argue that U.S. economic policies have proved time and again to be a failure.
“For at least two decades, the U.S. has been unable to provide monetary stability, financial regulation, or fiscal rectitude,” said Jeffrey Sachs, director of the Earth Institute at Columbia University.
“Now we need to find the architecture for a globally interconnected economy. Regional groups must strengthen cooperation and assume greater responsibility for producing the public goods needed to underpin strong regional currencies.
“The IMF managing director [must] have the vision to support these regional alliances,” he said, adding that the evolving economies of the Middle East and North Africa, as well as China, Korea and Japan are well placed to assume “regional approaches that go above and beyond U.S.-backed solutions”.
Even with a diminished role for Europe and the U.S., there would still be “plenty to do at the IMF headquarters,” Sachs said.
“The world economy is rife with lawlessness and recklessness, with tax-havens and regulation-free zones catering to the avarice of globally mobile capital. The Fund’s head should be given the task of systematically shutting these venues down and, with global cooperation, to reverse the race to the bottom in tax and regulatory policies that threatens the world economy,” he said.
“To argue that we need a European to handle the European crisis gets everything backwards […] We need a global citizen who understands the priority of building a new global system, not somebody selected to patch the old one,” Sachs concluded.
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