The brahmins of the global economic order are not known to go around the developing world desperately canvassing support to get elected as head of multilateral institutions like the International Monetary Fund (IMF) or World Bank. For the Western powers were pre-ordained to run these institutions. Traditionally, it was taken for granted that a European candidate would head the IMF and the World Bank president would be an American. This was a neat power arrangement no one ever questioned in the past. So it was somewhat odd to see French Finance Minister Christine Lagarde sweating it out in Delhi earlier this week as she lobbied hard with Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee for her candidature for the IMF top post in the wake of the unceremonious exit of Dominique Strauss-Kahn. Lagarde said she was determined to press for her candidature with other BRIC nations like China and Brazil too. One thing now seems clear — the West has stopped taking their past privileges for granted. Surely, that is a sign of welcome change.
Indeed, it was fascinating to see how Lagarde was pitching her candidature in the backdrop of several other names being thrown up from the developing world. BRIC nations had formally declared it was time the IMF was led by someone from the developing world. Competent candidates from Singapore, Indonesia, South Africa and Mexico are being mentioned as alternatives. However, Lagarde cleverly projected herself not as a candidate from the powerful European Union but as one who understands the need to make the “minorities feel included” in any global multilateral institutional process. “I understand the needs of the minorities because as a woman I have felt like a minority all my life,” she said in New Delhi. It was a clever way of distancing herself from the patriarchal power systems in the Western world and instead locating oneself as being on the same side as the developing world! In various interviews she made the right noises about working towards giving greater power representation to the emerging world if she became the IMF managing director. Her logic too was impeccable: “Today the United States, Europe and Japan form the bulk of the world output. In another few decades this would be reversed. So it will naturally reflect in the power-sharing arrangement in multilateral institutions.”
It is most likely that Lagarde will get elected as the head of the IMF with the support of the US. The vote share of the US and the EU put together is a little over 50 per cent within the IMF. All she needs is the support of US President Barack Obama, which she might eventually get. Besides, the developing world has not moved fast enough to put up a consensus candidate behind whom everyone could rally. Pranab Mukherjee, while making no specific commitment to Lagarde, conceded that there was no consensus yet on a candidate from the non-OECD world. Prime Minister Singh too has made a somewhat non-committal statement that the choice should be merit-based.
In a sense, it is still possible for a candidate from the developing world to seriously challenge Lagarde. Among the Asian prospects are Singapore’s Finance Minister and Deputy Prime Minister Tharman M. Shanmugaratnam and the former finance minister of Indonesia, Sri Mulyani Indravati. Reasonably good candidates have also been thrown up from countries like Mexico and South Africa. In fact, Mexican central bank chief Agustin Carstens arrived in India on Friday for his campaign.
Even if the vote share in the IMF system is currently stacked against the developing world, it may be worth pushing the envelope by putting up a credible candidate from the developing world and see if the US can be persuaded to make a break from the past tradition of supporting only a European candidate for the top job. If nothing else, the developing world must test Obama’s stated position that the multilateral institutions must decentralise power much more to reflect the new realities of the rapidly changing world economic order.
As per the IMF’s own measurement of output on a purchase power parity (PPP) basis, the share of the US, Japan, Germany, France, the United Kingdom and Italy is just about 40 per cent of world GDP. In fact, China, India and other emerging economies have a share of over 50 per cent of GDP on a PPP basis. It is this reality which makes the French finance minister canvass for support so vigorously.
However, this reality is not finding expression within the IMF’s functioning today because the institution remains largely Euro-Atlantic in nature. After the 2008 global economic crisis, the pressure has mounted on the US and Europe to see the writing on the wall.
In the last two years, India and other BRIC nations have, for the first time, formally made their views clear to the IMF board that the organisation cannot have two standards — one for the West and another for the rest. India and China have subtly protested about the way the world governments, who contribute to the IMF kitty, are having to bail out several perennially ailing economies in Europe on very easy terms. Asians still have bitter memories of the manner in which the IMF had drastically reduced the size of bank balance sheets and indeed shrunk the Asian economies as a remedial measure after the severe financial crisis in East Asia in 1997. Today, the IMF follows exactly the opposite policy in Europe and America. Last week, Mark Mobius, the well-regarded financial expert and investor on Wall Street, asserted that bank balance sheets in the Western world are bigger and more bloated with derivative products today than they were just before the 2008 crisis.
Mobius said the Western world might be staring at another big financial crisis in the near future. European banks still have hidden toxic assets worth hundreds of billion of dollars. Very soon, the IMF may have to be formally rechristened European Monetary Fund! It will require vision of a rarer kind to transform the IMF into a truly global financial institution reflecting the new economic paradigm of this century.
Indeed, it was fascinating to see how Lagarde was pitching her candidature in the backdrop of several other names being thrown up from the developing world. BRIC nations had formally declared it was time the IMF was led by someone from the developing world. Competent candidates from Singapore, Indonesia, South Africa and Mexico are being mentioned as alternatives. However, Lagarde cleverly projected herself not as a candidate from the powerful European Union but as one who understands the need to make the “minorities feel included” in any global multilateral institutional process. “I understand the needs of the minorities because as a woman I have felt like a minority all my life,” she said in New Delhi. It was a clever way of distancing herself from the patriarchal power systems in the Western world and instead locating oneself as being on the same side as the developing world! In various interviews she made the right noises about working towards giving greater power representation to the emerging world if she became the IMF managing director. Her logic too was impeccable: “Today the United States, Europe and Japan form the bulk of the world output. In another few decades this would be reversed. So it will naturally reflect in the power-sharing arrangement in multilateral institutions.”
It is most likely that Lagarde will get elected as the head of the IMF with the support of the US. The vote share of the US and the EU put together is a little over 50 per cent within the IMF. All she needs is the support of US President Barack Obama, which she might eventually get. Besides, the developing world has not moved fast enough to put up a consensus candidate behind whom everyone could rally. Pranab Mukherjee, while making no specific commitment to Lagarde, conceded that there was no consensus yet on a candidate from the non-OECD world. Prime Minister Singh too has made a somewhat non-committal statement that the choice should be merit-based.
In a sense, it is still possible for a candidate from the developing world to seriously challenge Lagarde. Among the Asian prospects are Singapore’s Finance Minister and Deputy Prime Minister Tharman M. Shanmugaratnam and the former finance minister of Indonesia, Sri Mulyani Indravati. Reasonably good candidates have also been thrown up from countries like Mexico and South Africa. In fact, Mexican central bank chief Agustin Carstens arrived in India on Friday for his campaign.
Even if the vote share in the IMF system is currently stacked against the developing world, it may be worth pushing the envelope by putting up a credible candidate from the developing world and see if the US can be persuaded to make a break from the past tradition of supporting only a European candidate for the top job. If nothing else, the developing world must test Obama’s stated position that the multilateral institutions must decentralise power much more to reflect the new realities of the rapidly changing world economic order.
As per the IMF’s own measurement of output on a purchase power parity (PPP) basis, the share of the US, Japan, Germany, France, the United Kingdom and Italy is just about 40 per cent of world GDP. In fact, China, India and other emerging economies have a share of over 50 per cent of GDP on a PPP basis. It is this reality which makes the French finance minister canvass for support so vigorously.
However, this reality is not finding expression within the IMF’s functioning today because the institution remains largely Euro-Atlantic in nature. After the 2008 global economic crisis, the pressure has mounted on the US and Europe to see the writing on the wall.
In the last two years, India and other BRIC nations have, for the first time, formally made their views clear to the IMF board that the organisation cannot have two standards — one for the West and another for the rest. India and China have subtly protested about the way the world governments, who contribute to the IMF kitty, are having to bail out several perennially ailing economies in Europe on very easy terms. Asians still have bitter memories of the manner in which the IMF had drastically reduced the size of bank balance sheets and indeed shrunk the Asian economies as a remedial measure after the severe financial crisis in East Asia in 1997. Today, the IMF follows exactly the opposite policy in Europe and America. Last week, Mark Mobius, the well-regarded financial expert and investor on Wall Street, asserted that bank balance sheets in the Western world are bigger and more bloated with derivative products today than they were just before the 2008 crisis.
Mobius said the Western world might be staring at another big financial crisis in the near future. European banks still have hidden toxic assets worth hundreds of billion of dollars. Very soon, the IMF may have to be formally rechristened European Monetary Fund! It will require vision of a rarer kind to transform the IMF into a truly global financial institution reflecting the new economic paradigm of this century.
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