Policy Alert #10 | June 29, 2011
Following the resignation of Dominique Strauss-Kahn, the IMF’s June 30 deadline for choosing a new managing director is rapidly approaching. The only two candidates are France’s Finance Minister, Christine Lagarde, and Mexico’s Central Bank governor, Agustín Carsten. In this Policy Alert, we examine the domestic viewpoints of China, India, Japan and Russia on the upcoming selection.
CHINA
In China, commentators vigorously called for an open and competitive process for the new IMF head’s selection, with greater representation amongst emerging markets and developing members.
- Foreign Ministry spokeswoman Jiang Yu stated that the chief of the IMF should be chosen through “democratic consultation with a merit-based and transparent selection process.” Jiang said China has noticed that some countries have named their candidates, but she did not talk about China’s preference toward the candidates.
- Editorials discredited the age-old convention of a European IMF managing director and an American World Bank president:
- The notion that a European IMF chief would be best suited to deal with the European crisis because he/she would understand the region better is a double-standard, argues Xinhua. “When East Asian countries suffered a debt crisis from 1997 to 1999 and the IMF’s main clients became Thailand, Indonesia and South Korea, no one argued that the IMF should be led by an Asian because he/she could understand the region’s problems more deeply.”
- “Europe should pass the IMF baton to Asia,” runs a China Daily headline. The IMF “should no longer function in a way that gives one continent such potent power over its functioning,” since such tactics are “zero-sum” and harmful to the entire world. “The rest of the world needs to tell the EU that its members will have to swallow the same bitter pills that people in Asia, Africa and South America have been subjected to for so long, rather than be accommodated and mollycoddled while the rest of the world is denied of its rights.”
- The China Daily noted that the recent joint statement made by the BRICS countries’ IMF executive directors is a much-needed example of coordination among emerging markets. “To properly reflect the growing role of developing countries, which are still under-represented in this [the IMF] and many other major international institutions, the BRICS countries should be more confident in asserting their common position, even if that may annoy others.”
- The Global Times argued that an increased Chinese presence at the senior management level will “reinforce the attention of the IMF to the emerging economies as well as improve the economic and trading relationship between developing and developed countries.”
INDIA
India appears resigned to the idea of Europe continuing its hold on the managing-director position, but has joined other emerging countries in criticizing the selection process.
- The Economic Times noted that as a rising superpower, “India is in a far better position to understand the compulsions of borrowers and ground realities of countries under fiscal stress.”
- The Hindu reports that French candidate Christine Lagarde received no assurance from the Indian leadership during a June 7 visit seeking support for her candidacy. Finance Minister Pranab Mukherjee confirmed this, adding that “the selection of the managing director…should be on the basis of merit, competence, and (be made) in a transparent manner.” Following Mexican candidate Agustín Carsten’s visit a few days later, Mukherjee stated that he is in touch with his counterparts and that they will announce their decision at “an appropriate time.”
• Multiple observers point to the increasing role of the BRICS in multilateral institutions:
- The India Express noted that regardless of the vote outcome, Lagarde’s lobbying in BRIC nations shows that “the West has stopped taking their past privileges for granted.” This is a welcome sign of change since, “the Brahmins of the global economic order are not known to go around the developing world desperately canvassing support to get elected.”
- Regarding the First Deputy Managing Director position which will become vacant following the incumbent John Lipsky’s retirement in August, one commentator remarked that “since conventionally the IMF’s No. 2 position has always gone to an American, the first target should be this position. Once this is achieved, the prize positions will fall in no time.”
- “Rework the fundamentals,” urged The Hindustan Times. “For a pertinent approach to the crises of the future, the IMF can only gain by infusing new blood…Asia’s export-led strategy, built on artificially low exchange rates, gives it an inordinately big voice in currency talks. Any impression that it is being denied entry into global institutions can exert a perverse pressure to dig deeper into entrenched positions on exchange and interest rates, to the detriment of world trade.”
JAPAN
- The press appears preoccupied with Japan’s domestic politics, with little coverage on how it regards the vacant IMF position or who should fill it.
- Dubbing Japan “The Silent IMF Partner,” the Japan Times noted the absence of response to the upcoming vote, despite the fact that Japan is still the number 2 shareholder in the IMF with 6.25 percent of the vote after the United States with 16.8 percent.
RUSSIA
Commentators warn that Russia needs to understand the changes underway in contemporary Europe in order to assess the opportunities and risks occasioned by a new reality.
• Russian leadership appears divided on what stance the Kremlin should take in the selection:
- Vladimir Putin expressed strong support for Lagarde’s bid, saying that he considers her candidacy “quite acceptable” and that “the French candidate is undoubtedly very serious.”
- Meanwhile, speaking on the opening day of the G8 summit, President Dmitry Medvedev said that the BRICS deserve better representation in the IMF’s top tiers, emphasizing that “new regulations for the functioning of the world economy should be drawn up by the widest possible international representation.”
- “Better a Technocrat at the IMF,” declared one commentary in The Moscow Times, noting that the three politicians occupying the IMF’s top position in the past decade “have proved a disappointment.” The commentary also observes that “Medvedev, representing a historic European power, stands with one foot in the European camp and the other with his BRICS partners.”
- Noting that “Europe’s privileges are diminishing as the world’s political and economic reality shifts away from the institutional design of the past century,” Fyodor Lukyanov, editor-in-chief of the Russia in Global Affairs journal warns that “although the guarantees on the Bretton Woods system are not as strong…the Old World is not going to give up without a fight.” He also suggests that “the idea of preserving the status quo at all costs is being fueled by external factors- from economic rivalry and migration pressure to the erosion of cultural identity. Politically, this has been reflected not only in an upsurge of right-wing populists but rather in a subtle paradigm shift wherein the entire mainstream has moved to the right.”
