The White Man's IMF Burden (Merkel Edition)

♠ Posted by Emmanuel in ,, at 5/17/2011 12:01:00 AM
As expected, jockeying for the appointment of the next IMF managing director has begun. In an odd twist on the American deficit lubber's argument that medium-term fiscal consolidation is a desirable objective but not one in the near term since the US is just recovering from a deep recession, we have Europeans offering the same. Here, Europeans who still hold voting rights out of proportion with their share of the world economy claim that while medium-term diversity among heads of Bretton Woods institutions is a desirable goal, it shouldn't happen immediately given the pressing woes of peripheral European economies Greece, Ireland, and Portugal.

Again, I must point out my longstanding objection that the IMF is primarily meant to handle balance-of-payments crises, not fiscal ones alike those being experienced by the troubled trio. What is more, I am not alone in sensing fairly blatant favouritism that is hampering IMF reform to reflect the changing global balance of economic activity as well as a simple misallocation funds. Why should poor countries' IMF contributions be used to assist rich countries that don't really qualify for assistance as per the IMF's articles of agreement concerning BOP difficulties? The IMF shouldn't be a pet EU institution. But enough righteous indignation; here are the Europeans on this issue:
Mr Strauss-Kahn’s arrest on sex charges at the weekend prompted some commentators to declare it may be an opportunity for emerging market countries to take charge of the multilateral lender. But European officials on Monday asserted their case for keeping the top job for a European, as is customary, with Angela Merkel, the German chancellor, leading the charge. Ms Merkel told reporters on Monday that finding a replacement for Mr Strauss-Kahn was “not a question for today”, but given the sovereign debt crisis on the eurozone periphery there were “good reasons” to propose a European candidate...

Didier Reynders, the Belgian finance minister, argued on Monday that “it would be preferable if we continued to hold these posts in the future”.
It becomes a question of, first, to what extent will developing countries protest the continuation of the (neocolonial, perhaps) status quo? Second and based on LDC reactions, to what length will Europeans go to preserve the unwritten tradition of appointing a European head? Various commentators have suggested the Europeans will strike a deal with the Americans who've traditionally appointed the World Bank president to keep things as they are--you scratch my back, etc. Either way, I predict a fight on our hands if history repeats itself:
The comments by Ms Merkel and Mr Reynders suggest that Europe will fight to maintain the tradition at the two institutions. The number two job at the IMF, held by an American, will also become vacant soon when John Lipsky, who is running the fund in Mr Strauss-Kahn’s absence, steps down at the end of August.

Emerging market countries argue that it is unacceptable for Europe and America to continue to stitch up the top jobs even as developing nations take a growing share of the global economy.

However, even European countries that were willing to consider an emerging markets candidate for the IMF this time are having second thoughts now that the fund is central to short-term European interests. Ms Merkel said that developing countries had a right to the top jobs in the “midterm”.
Just as you don't cure American debt addicts by continually providing their fix, so you shouldn't expect Europeans to change their ways by embedding outmoded habits even further. The time of Turkey's Kemal Dervis or a similarly qualified LDC candidate is long overdue. Certainly, you can't say developed nations have an automatic right to lead the IMF by virtue of their superior economic management in this day and age.