Taking the politics out of politics, and the international relations out of international institutions
Outclude me, please, from the chorus of people who (this happens on a more or less cyclical basis as one or other of the Bretton Woods jobs comes up) are outraged and horrified that the USA gets one and Europe gets the other. Prime example of the genre, Martin Wolf:
[Christine Lagarde, as it happens] is not a perfect candidate: her economics are limited. If she were to become head of the organisation she would have to rely on the advice of those around her. If she were to get the job, it would be essential for whoever replaces John Lipsky, the American first deputy managing director, who is due to depart in August, to be a first-rate economist.
A "first rate economist". Presumably meaning someone with a PhD and possibly even an academic publishing record, from a high-status (which basically means American) university. Hmmmm. Not a fantastic recent track record, those guys, have they? Whatever it was that got us into the current mess, it wasn't a dearth of "first rate economists" Giorgos Papakonstantinou is a first-rate economist.
This is real "too important to be left to generals" territory. A "merit-based" selection process for the IMF top job is effectively assuming that all the issues the IMF faces are technical (not political), and that the problem is to find someone with sufficient technical economic skills to pick the right solution from a mass of confusing alternatives.
In fact, in general the IMF tends to face situations in which there are only about three or four real options, one of which is usually both massively obviously the best idea, and politically very difficult for some powerful constituency or other. That's why it's a political job. And the allocation between the USA and Europe was agreed at the original Bretton Woods conference as part of a very dicey compromise between the only two blocks which can print unlimited hard currency. It's an international institution, and one of the biggest problems in designing such an institution is to persuade the major powers that it is worth their while working through the institutional framework rather than through bilateral diplomacy. That's why the UNSC has permanent members, for example, and it's why France and Germany tend to get first dibs on important Commission posts.
I am no fan at all of the IMF (or of the way in which history is being rewritten to cast them as opponents of pointless austerity). But it does at least kindasorta work as an international institution, which is why I'm in favour of not fixing it. The basic effect of a "merit-based" selection process would be a) one more tax-free job for a mugwump with the right CV, and b) all the important operations currently carried out by the IMF would be stitched up in back room deals, generally featuring either Christine Lagarde or someone who looked very like her.
Lagarde strikes me as a pretty sound candidate - in a chaotic government, she's played a major role in keeping the show on the road in so far as it's on the road. She's competent and not a crazy ideologue.
ReplyDeleteIt will all have some interesting consequences downstream in French politics. Lagarde -> IMF implies someone else to Bercy. Sarkozy already tried to reshuffle Francois Fillon once and found he couldn't get rid of him if Fillon didn't want to go.
Alain Juppé back to his old job is the obvious pick but they don't like each other and AJ still wants to be president. Prediction: instability and zizanie.
I'm interested in the precise definition of "works" here.
ReplyDeleteMy understanding is that the IMF is very good at using the power of the US and Europe to reorganise governments in ways that don't benefit 80% of the people those governments are elected to represent (or who they just happen to represent via some non-democratic means -same thing really) but which do make things easier for quasi-imperial ventures from the global North-West corner. In this sense, since it almost certainly has this as an institutional mission (whether or not any of the primate-shaped components of that institution would admit it to themselves) and it is very good at it, I would say that it does "work", but that the outcomes are significantly non-optimal for most of the people on the planet.
Do you mean "works" in some way detached from a moral consideration of outcomes, or disagree in some respect with that summary of what the IMF does?
It's a very very weak standard of "works", granted, in the sense of "usually appears to be at least trying to make at least non-negative progress toward its stated/assigned aims".
ReplyDeleteMy understanding is that the IMF is like the WTO or even EU: by allowing moderate stichups among all the big players it prevents the destructive fallout of them overtly fighting one another.
ReplyDeleteWhy do technocrats consistently fail to take technocratic account of what technocracy can't do?
ReplyDelete"Why do technocrats consistently fail to take technocratic account of what technocracy can't do?"
ReplyDeleteBecause they tend to believe that if you can measure something, you can control it.
I'm keener on the IMF than the median commentator on here, certainly once it shed the obsessive micromanagement of the Asian crisis era. Turkey and Brazil, for two, would look a lot worse off without the lending programmes in 2000 and 2002 which IMHO played a non-trivial role in preventing defaults that would have hammered their financial systems (most of their debt was held domestically, before people start yowling about bailing out Wall Street). If you think it represents imperialism, reorganising governments, whatever, don't borrow from it. It isn't compulsory.
ReplyDeleteBut anyway, while clearly you need someone with some political nous at the Fund, continually having Europeans actually undermines this function unless you only think it is ever going to lend to Europe. (This, btw, was the original point of having a European MD - the IMF's first loan was to France.)
A lot of Asia still doesn't trust the Fund and want to avoid at all costs relying on it (understandably given what happened in the Asian crisis), which is a contributory factor to their piling up huge fx reserves with all the waste and distortion that implies. Another European, even a really smart and competent one like Lagarde, will only reinforce that.
Hmmmm, I think I am the median commentator here ...
ReplyDeleteTurkey and Brazil, for two, would look a lot worse off without the lending programmes in 2000 and 2002 which IMHO played a non-trivial role in preventing defaults that would have hammered their financial systems
although this is ancient history, to a very large extent the Brazil lending program was largely made necessary by the Argentina screwup!
I also don't really agree that the Asian fx reserves are all that wasteful or a bad idea - they're the consequence of export driven growth and high domestic savings, and they seem to be working. In principle it might be a better idea to have more balanced growth, but in practice that seems to be the kind of technical advice that a merit-based appointment would give.
In general, places shouldn't trust the IMF - not an aspersion on the institution or it's people, it's just not the sort of thing anyone should rely on. I would certainly think that you should have a senior job for an Asian if Asia was an important currency area, but while it's still part of the dollar bloc not so much.
There is a general perception in Ireland that (a) The IMF was way more practical and less inflexible than the ECB during the late unpleasantness (b) we are in bigger trouble now because Lagarde won't take the same line as DSK. Any thoughts?
ReplyDelete(btw my own layman's view on tax breaks in Ireland is that in the long term they need to be done away with but right now that would torpedo the few bits of the economy that are not contracting.)
As you know, I disagree with that one, because I don't think the IMF's proposal was remotely practical. Basically, the IMF wanted to default on the bank debt, but this would have involved the ECB taking on the entire financing of the Irish banking system, something that it's not remotely set up to do, particularly if anyone was anticipating further writedowns. In so far as the IMF was effectively suggesting a massive >EUR200bn loan from the ECB to the Irish banks, it could be considered more "Ireland-friendly", but it was just pie in the sky. It's also true that (for dull reasons relating to its articles), the IMF money is priced more cheaply than the EFSF money, but Lagarde wouldn't change that.
ReplyDelete@dd I don't think Brazil's problems were largely caused by the Argentine default. (God knows I am no fan of the IMF's handling of Argentina, though the standard critique - which I am not assuming that you personally adhere to - that the nasty old IMF imposed vicious neoliberal policies on Argentina and abandoned it when they failed to work has it precisely backwards.)
ReplyDeleteBrazilian spreads remained manageably low for months after the Arg default in Dec 01 and then reacted to the likely election of Lula, whom, investors wrongly assumed, would loosen fiscal policy. See chart on page 50 - http://www.aup.edu/pdf/wpseries/AUP_wp12-Santiso.pdf. It was a classic liquidity problem such as the IMF was set up to solve, and it did so admirably. When I'm being provocative, I argue that the IMF saved social democracy in south America.
I agree that self-insurance isn't the only or even main reason for the Asian reserves, but it plays a role. The fact that the Fed had to scramble to extend dollar swap lines during the GFC and only to a select group of emerging markets was not an optimal way to deal with a widespread liquidity problem. It would be better off with a multilateral solution through the Fund.
My critique of the IMF in Argentina is not exactly that one (it's wrong!) but a related one; that Argentina shows exactly how warped the IMF's priorities had become by that point. They had got so obsessed with "neoliberalism" in the sense of "union-bashing and privatisation" that they were prepared to overlook all manner of wildly and absurdly heterodox policies on the actual capital account and currency issues that were their job, while making Argentina a poster child (and they did) because it was so strong on "structural reform".
ReplyDeleteI totally disagree re the Fed swap lines, although the argument's a bit too involved for comments boxes and skirts the fringes of the dreaded modern monetary theory. But basically, the Fed has to be the entity extending dollar liquidity, because it's the only entity that can print dollars. Having a basically fiscal fund trying to do the job of a monetary authority is a very bad idea (and it still gives me a lot of trouble that the EFSF is what I've just described).
Most people I have read that are outraged, or at least critical, to the arrangement where the head of one of the institutions is European and the other US-American (what about possible Canadian candidates?) want the new IMF chief to be neither, but rather come from a developing country aka growth economies. Several candidates from such countries have been proposed. Or what about Japan, Australia etc? Americans heading both the World Band and the IMF won't do much for the legitimacy of the institutions.
ReplyDelete@dd Agree on Argentine structural change, though that's tangential to the main qu here of whether the Arg default contributed much to Brazil's problems in 2002 (no) and whether the IMF programme helped Brazil (yes, IMHO).
ReplyDeleteThe much under-rated Horst Kohler did a lot to reverse the obsessive structural micromanagement when he became IMF MD in 2000, not least because 1. he had been involved in the German reunification effort and knew how hard structural change was even outside a crisis and with political goodwill 2. he was sent to Indonesia in 1998 by Helmut Kohl to work out what the hell the IMF was up to in that most absurd of programmes, and was appalled by it.
On dollar swaps, the Fed isn't going to extend them to any country outside a small charmed circle of OECD or borderline OECD emerging markets - it's politically impossible. So the qu is do you just abandon everyone else or do you try to create at least some easy-access short-term liquidity facilities through the IMF?
Yes that was the original purpose of the IMF "as you know Bob". But the IMF as it is today is an institution that mainly provides *long* term facilities, plus it never really made sense IMO to have the provision of current account liquidity support tied to an economic consultancy - the policy role of the IMF is the really toxic bit, and of course it's why everyone cares about the leadership of what ought to be a dull small bank run out of a couple of small offices.
ReplyDeleteGiven that, I think self-insurance and small regional solidarity blocs is actually the best way to solve the problem in the modern world. My preferred solution for both the IMF and WB would probably be to recognise that the world has moved on and shut them down. But if you're going to have the Bretton Woods institutions, you need to staff them in a way that reflects the Bretton Woods political compromise, and pretending that they're technocratic jobs seems to me to be the sort of thing that's fraught with danger.
NorwegianGuy: the thing is, let's call a spade a spade here, having a "representative of emerging markets" as MD is de facto a policy of complete US control of the thing.