A VERY RISKY – AND RISQUE –
BUSINESS … IMF STYLE
Powerful global bureaucracy loses
its director, and a bit of sheen
We need to have a clear
understanding about what is happening with the International Monetary
Fund. Do not for a minute believe the current scandal is just one of those
more or less happening things. It may not be the total end of the world
for the IMF, but if the world’s largest money-granting bureaucracy doesn’t
straighten its act out soon, the beginning of the end of its primacy may
be at hand.
The current reassessment comes
about in the wake of the embarrassed resignation amid sordid sex-assault
scandal of Dominique Strauss-Kahn, the once-Olympian IMF director, and the
consequent scramble to anoint a successor to the powerful position of
global bailout banker-in-chief.
Although not that widely known,
the IMF plays a key part in world affairs and is easily in the same league
of importance as the United Nations. Much of the time the IMF worries
about un-thinkables --- such as world financial catastrophe. Most normal
people, we would agree, do not fret much about global financial stability.
They assume they will always be able to make a visit to an ATM and emerge
liquid; send out personal checks that do not bounce; and get institutions
to add cash to their businesses with long-term loans.
Normal people do not live in a
world in which one could imagine that the long-term economic outlook was
so volatile that long-term loans would be unimaginably scarce and almost
everything would be up for grabs – though we did have a bitter taste of
exactly that with the 2008 recession.
But IMF staffers are not normal
people and they live in just such a world of fear. Their worst-case
scenarios prudently make the assumption that the world may come to chaos
and ruination at any time, presumably triggered by a country or countries
whose finances are so bad that its only next logical step is default on
its overwhelming sovereign debt. The theory being that one country’s
default will lead to another’s and before you know it the world is staring
at a cascade of fallen dominos. This is called financial contagion.
So we do need the IMF, with its
many banked billions at the ready to bail out some troubled country from
defaulting and threatening to push other sectors of the global financial
system off the cliff. Stability is what the IMF’s balancing-acts are all
But in this regard the
sometimes-effective IMF has also proven a sometimes-nightmare to deal
with. Just ask Asia. During the frightening Asian Financial Crisis in the
late nineties, the IMF seemed the proverbial wicked witch, cackling with
glee as it effectively blackmailed governments into adopting budgets and
reforms that were political suicide as well as obvious formulas for
short-term economic convulsion. The rare Asian leader who said ‘no’ to the
IMP, such as Malaysia’s Mahathir Mohamad, became an overnight living
That is the rueful memory of the
IMF among many millions of good people in Thailand, Indonesia and South
Korea. To them the European-U.S. dominated bailout bureaucracy exhibited
neo-colonial behavior in its arrogant response to the Asian crisis. Its
draconian reforms, required as conditions for the billion-dollar loans,
led to unnecessary pain, from social disorder, unemployment, and even
outbreaks of suicides. In its own candid post-mortem, the IMF admitted its
programmatic inflexibility had added to the severity of that crisis. That
was to understate the matter.
Since then, however, how the
times have changed! Asia has emerged from those dark days stronger than
ever and potentially in the driver’s seat of the world economy for decades
to come. Taken all together it already accounts for well more than half of
the world’s population and economy.
But Asia still doesn’t get much
respect from Washington, where the IMF has its headquarters. Driven by the
resurrection of China from its near-death experience of Mao, and a rising
India, Asia is now demanding to be permitted to sit at the head table, not
on the IMF back porch begging for scraps from the rich white boys’ club.
But here is the problem: As the
IMF power elite proceeds apace to select a successor to risque-business
Strauss-Kahn, accused of a sex assault on a New York hotel employee last
week, there is almost no chance at all the job will go to an Asian.
Basically the boys want to keep it within the Euro-American club.
Outsiders need not apply.
But it is in that field of
outsiders, especially from Asia, that one finds some of the very best
successor prospects. Consider that Asia’s two economic giants offer
genuine brainiacs such as Montek Singh Ahluwalia, Palaniappan Chidambaram
and Sri Mulyani Indrawati from India; and then you have Andrew Sheng and
Zhou Xiaochuan from China. These are serious players to whom attention
must be paid.
Another significant prospect,
Tharman Shanmugaratnam – from the small Asian economic power, Singapore –
has just been named the country’s deputy prime minister and is thus viewed
as now unavailable. But the very respected Tharman, who is also the IMF’s
chair of the International Monetary and Financial Committee, had wise
words for the IMF power elite this weekend. He urged that the selection
process be “open, transparent and merit-based, so as to ensure the
selection of a highly capable candidate, with the qualities needed to
engage with a broad group of stakeholders internationally, and sustain the
Fund's active and effective role in global economic management.”
Translation: Think imaginatively,
Selection Committee. You have got to get this one right. And that would be
a towering understatement.