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Tuesday, July 05, 2011
Emerging clout at IMF
Knock, knock, knocking on the IMF's door. Developing countries, call them emerging economies if you like, have been doing just that at the world lender's.
The move started with Agustin Carstens. Hats off to him. Mexico's central bank governor knew from the onset that he was fighting a losing cause. But he still fought anyway. And as predicted, he was soundly beaten by French Finance Minister Christine Lagarde in the race for the top job at the International Monetary Fund last Tuesday.
The Carstens-Lagarde fight was a mismatch, a boring one in fact. The only excitement coming out of the race was the position of the United States regarding this pick. Washington had already made the decision for some time but kept the choice to itself until the very last day, to try to make the competition worth watching. Washington's choice was obvious.
Given the debt crisis in the euro zone, particularly in financially miserable Greece, the IMF needs tough talkers like Ms Lagarde to confront and tackle the problem head on. Let the Europeans cure Europe's financial ills, hopefully containing it before it spreads to other European Union members. Ms Lagarde is the first woman taking the helm as managing director of the IMF in its six decades-plus history. But that's not the point. The key message comes from Mr Carstens' participation in the race. The developing world wants to end the gentleman's agreement which sees Europe governing the IMF and the US running its partner, the World Bank. That tradition, or the monopoly of power, is still intact today. But it might not be that way any more in the future.
Developing countries powered by Brazil, China and India are on the rise. Economic prosperity is moving away from those two continents to Asia and South America. The Big Three's economies make up of more than one-third of the global economy and this figure could easily be added up if other countries with strong economic performances are included. Their collective record is enough to justify that the Europeans-only tradition at the IMF should come to an end. Let the up-and-coming countries have more say and a bigger role to play, like what they have at the World Trade Organisation.
Remember Supachai Panitchpakdi? He was the first non-Westerner to become WTO chief in 2002. It took almost four decades dating back to its predecessor GATT _ the General Agreement on Tariffs and Trade _ for developing countries to fulfil a desire to have their representative run the Geneva-based organisation, despite resistance from many Western countries.
This time, Mr Carstens couldn't garner full backing from the developing world in the 187-member IMF. Countries like Argentina, Brazil, China and India didn't support him. The Mexican candidate could manage to get support only from minnow members. But the next contest for the IMF's top job could be a whole new ball game. The future European candidate will face a tough fight if developing countries can present a strong candidate and pledge to seriously rally behind their unified representative, like they did for Mr Supachai, who is now chief of the United Nations Conference on Trade and Development.
Another target for change at the IMF, for the non-American, non-European countries, is voting power which is now dominated by the US and Europe. The US controls almost one-fifth of the votes and Europe holds one-third. So the two alliances can easily dictate to the institution while other members can only watch in despair.
The IMF's credibility has eroded since the Asian financial crisis in 1997. Its demand for currency devaluations and tight budgets as part of the conditions in exchange for rescue packages at the time was questionable, after Malaysia shrugged off help from the fund and went the other way. At the end of the day, Malaysian premier Mahathir Mohammad rode out the economic storm impressively and stunned those bigwigs taking care of the fund.
Its image hasn't been that good either, among the Indonesians. What Indonesians remember clearly about the IMF was in 1998, when fund chief Michel Camdessus stood behind Suharto with his arms folded across his chest, watching the Indonesian president ink the letter of intent in exchange for financial aid. For Indonesians, that was an embarrassment as the fund chief apparently showed no respect for their head of government and acted like Indonesia had been conquered by the IMF.
For now, developing countries can only wait for their turn to end their frustration with the European monopoly at the IMF. But the warning signs have been sent out.
Published in the Bangkok Post on July 4