The IMF Needs Less Lagarde

International Monetary Find (IMF) Managing Director Christine Lagarde speaks during an event hosted by the Council of the Ame
International Monetary Find (IMF) Managing Director Christine Lagarde speaks during an event hosted by the Council of the Americas in Washington, Wednesday, Sept. 30, 2015. Lagarde said global growth will likely be weaker this year as the world economy confronts a host of problems, including a refugee crisis in Europe, an economic slowdown in China and a pending rise in U.S. interest rates. (AP Photo/Evan Vucci)

Christine Lagarde has said she is open to serving another five-year term as Managing Director of the International Monetary Fund. She should not get it.

The case in her favor, exemplified by Ian Bremmer yesterday, itself points to the decisive counter-arguments.

So, indeed, upon arrival, she inherited an institution in crisis. But not because the world was in crisis--that was and is still typically seen as having rescued the IMF from irrelevance--but because of the gross failures of her three predecessors, all of whom had been appointed on the same basis as she was.

And, indeed, she has far better personal qualities than them--an engaging tone with outsiders, an insistent one with IMF staff, the right balance. But the prominence of this matter in the case for her reappointment serves only to highlight their personal inadequacies and her professional disqualification for the job. She leads a group of querulous over-heated economists but completely lacks the technical wherewithal to adjudicate sense from nonsense as they debate each other. They know and love this.

And, indeed, she has made "tough calls". But that is only to say what happens at the IMF. The point is that her record on those is, to put it kindly, not unqualified. She approved the second Greek program which, reflecting its many other design failures, saw the largest arrears to the IMF ever, with the staff position on debt reversing from "sustainable" to "unsustainable but we won't say how badly unsustainable or much about what to do about it". Against (strong anecdotal evidence suggests) staff advice, she approved the across-the-board write down of Cypriot bank deposits in 2013, all-but reigniting the Euro crisis before being scuttled. Her strong backing for monetary austerity for the Euro and against its fiscal manifestation in the UK in 2011 and 2013 respectively both had to be unceremoniously withdrawn within a year. And she approved consecutive loans to Ukraine, the second only because the first collapsed, with the second having to be as thoroughly rejigged as the first because the macro frameworks for both proved hopelessly optimistic. Even now, her second program there hangs by a thread. These are not "things that happened" while she was in charge; they are serial poor calls on core concerns.

When the case for her reappointment pivots to emphasis on new-found IMF creativity and compassion on her watch, it is clear that we are close to the bottom of the barrel. The IMF program work on refugees and ebola, good as it was, is standard fare for members facing exogenous crises, not her initiative. And while work on women, inequality, and technology is all to the good, the IMF was founded, and is generously funded and empowered, to prevent another Great Depression. That her contribution--good or bad--on that core mandate does not even get mentioned, even in the wake of Lehman's, the Euro Crisis, and China, and nor does risk that extramural IMF activity might distract from those core tasks, says much about nature of the case in her favor.

Finally, whatever the merits of the recent US Congress-approved IMF governance reforms and her role in their adoption, they do not increase IMF "firepower", they merely change the particular form of its funding. And the decision to include the RMB in the SDR basket manages both to be substantially irrelevant and--with China-cum-global stresses mounting daily--already something of an embarrassment.

In any other context, this state of play would motivate review of the procedure for the appointment of the Managing Director, rather than the bald assertion that, without any further ado, the incumbent is somehow self-evidently "the best candidate for the job".

Yet that review will not happen by itself; the dominant shareholders like things as they are. That is for the worse. The IMF rightly advises others that commercial banks should not lend to their own shareholders because such "connected lending" skews loan reviews and so causes bank and possibly systemic collapse. But this elementary common sense is not applied to the IMF itself. Its dominant shareholders, the Euro Europeans, are its biggest borrowers. And, like any borrower, they want sway over what their creditor does. Is it any wonder that they want to keep a Euro politician in charge, even if that is at the expense of the integrity of IMF activity in Europe and thereby at the expense of the entire world.

And Christine Lagarde herself cannot escape culpability for this. In accepting the job and making herself available for reappointment, she implicitly accepts this compromised appointment procedure with all the attendant global consequences. If she really wants, as Mr. Bremmer suggests, to fit the IMF for the 21st Century, she should stand down and so force an immediate review of the selection process for IMF Managing Director. With the Euro Area still top IMF debtor and major global fault-line, there is no case for this matter to be postponed for a further half-decade, and then perhaps corrected and perhaps not.

The IMF needs less Lagarde.

References.

The IMF needs more Lagarde. Ian Bremmer. https://www.project-syndicate.org/commentary/imf-lagarde-strong-leadership-by-ian-bremmer-2016-01

Global Early-Warning and the IMF. Peter Doyle. https://ptdy2014.files.wordpress.com/2014/09/global-early-warning-and-the-imf3.pdf

IMF debt sustainability assessments of Greece (and others). Peter Doyle http://on.ft.com/1Snd3Uo