Soap opera, funds and economic decision-making



            {In the interests of transparency: the writer was deputy chief of mission for the World Bank, Tokyo, 1970-72.]

Whatever the outcome of the bizarre fall from grace of Dominique Strauss-Kahn, the International Monetary Fund’s controversial role has been thrown into sharper focus.

Had Mr. Strauss-Kahn departed voluntarily for loftier climes as French president, he would have been instrumental in choosing a successor. The tradition of a European, chosen by country rather than as an individual, balanced against an American at the International Bank for Reconstruction and Recovery [the World Bank] — often a used politician or bureaucrat put on the shelf — would have been maintained.

Now the Europeans, led by Chancellor Angela Merkel heading that continent’s leading economy, will have to scrabble to retain the “European” sinecure. Growing squawks come from “the developing world” led by the two fastest growing economies, China and India, for more say. Sharp-tongued French Finance Minister Christine Lagarde, with even Chicago law practice in her c.v., is the logical choice to “de-testerone” the Washington headquarters — even though a scandal hovers over her intervention in a Paris tax scandal — after both Bank and Fund  heads have recently been dumped for improper liaisons. In the end, Afro-Asia will probably be assuaged with rejuggling the complicated voting rights, perhaps at U.S. expense with its unencumbered 17%. And the Fund will take on a new persona.

Whatever John Maynard Milord Keynes envisioned in his reorganization of post-World War II world economy, the Fund — he said it should have been called a bank – transmogrified into the international “enforcer”. When regimes, even more successful economies, stumbled, the Fund raced to the rescue with temporary financing. But in the good old days — insulated from the bevy of largely corrupt and useless UN “specialized agencies” – it was a Dutch uncle spooning out bitter medicine with tough love. Coincidentally, the Fund kept Washington from taking on still more onus as overwhelming aid-giver, and therefore recipient of sticks and stones benefactors usually get. Still, attacks came from both left and right, from the remnant “dirigistes” – believers in government intervention if not increasingly discredited Soviet “planning” – and American supply-siders who saw Fund strictures smothering long-term growth.

But just as its twin, the World Bank, increasingly became little more than a soft touch for corrupt third world regimes and purveyor of often questionable research [for example, on China], the Fund’s reputation, too, eroded. It took a nosedive under Mr. Strauss-Kahn, even if he positioned himself on the far right of French socialism [including his well publicized splendiferous lifestyle and his wife’s huge personal fortune]. Contrary to Fund tradition, he voiced more forgiveness for sins of economic governance.

In a sense, the Fund followed the Bank – particularly with the Robert S. McNamara [1968-81] presidency. McNamara, in expiation for his perceived Vietnam War role, shanghaied it from its original financing of long-term infrastructure into “soft” balance of payments lending [a former Fund monopoly] and ephemeral “social” goals. Both bureaucracies, as used to be said of 19th century Hawaiian missionaries, increasingly came to Washington to do good and did well — an overpaid, tax free, highly ideological, self-annointed “priesthood”.

In any case, in a new world of megabillion investment lending through all sorts of new combines – at least before the 1007-8 meltdown – the Bank grew increasingly irrelevant. That was not true of the Fund — as the Euro crisis has proved. European politicians, initially rebuffed Fund participation. They feared, despite Washington’s own problems, it would bring America directly into their family fracas. And they suspected Mr. Strauss-Kahn would try to mitigate North European pressure on their Southern European profligates to straighten up and fly right. In the end, with the hodgepodge of band-aid solutions requiring constant renegotiation for all the myriad European political reasons, Mr. Strauss-Kahn would play a major role. And he publicly did call for more slack when Greek politicians were endangered by austerity many in northern Europe already thought too little and too late.

Selecting a new IMF director is likely to be more than usually messy in always sordid multilateral organization leadership selection. As though the world financial policymakers needed one more problem, l’affaire Strauss-Kahn has injected new indecision into the long goodbye to the European Union’s common currency, postponing getting on with the closely related but perhaps more threatening problem of massive East Asian currency imbalances.

sws-05-20-11

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