Welcome to the post-crisis era, International Monetary Fund.
The IMF’s chief, Dominique Strauss-Kahn of France, was arraigned and jailed Monday in New York on charges he tried to rape a hotel maid. He is expected to resign soon. Guys who can’t get bail aren’t much use when it comes to bailing out others, after all, and propping up debt-soaked states like Greece, Ireland and Portugal is what the IMF does nowadays.
That said, if you’re waiting for Strauss-Kahn’s fall to throw a wrench into Europe’s extend-and-pretend machine, you’re probably going to be waiting a long time.
Bailout decisions “are ultimately a European political question,” says Jacob Funk Kirkegaard of the Peterson Institute for International Economics. “The working relationship between those countries and the IMF is so entrenched at this point that it’s hard to imagine this causing much more than a hiccup.”
The bigger impact of Saturday’s alleged incident lies in the shift of economic leadership from the debt-soaked West to the emerging East – an accelerating trend that is almost certain to manifest itself in who gets chosen to pick up the pieces left by Strauss-Kahn.
The head of the IMF traditionally comes from Europe, just as the head of the World Bank has hailed from the United States. But the developing countries whose expansion now accounts for the lion’s share of economic growth have been chafed by their exclusion from those roles — and this weekend’s events are going to make upholding those traditions, such as they are, that much more difficult.
“Only a truly exceptional European candidate can have the credibility to replace Strauss-Kahn,” says Kirkegaard. “The changes in the world economy mean the IMF needs to be truly global, and that has implications for who takes over next.”
He views the sole plausible European candidate as Christine Lagarde, the French finance minister. She has “unique qualifications,” including potentially being the first woman in an office that up till now has been held only by men.
But developing countries led by China, India and Brazil now have an opportunity, if they can settle on a suitable nominee, to wrest leadership from the West.
Kirkegaard says the top IMF candidates from the developing world include Tharman Shanmugaratnam, who is Singapore’s finance minister, Kemal Dervis, a Turk who is at the Brookings Institution, and Augustin Carstens, who runs the Bank of Mexico.
“Of course, you have the question if a candidate backed by China would ever be acceptable toIndia, and vice versa,” says Kirkegaard. “The onus is on them to find someone they can unite behind.”
The IMF chief’s job isn’t the only one that’s going to be open. The No. 2 post at the fund, currently held by American John Lipsky, will be up for grabs in August, after Lipsky departs, and the World Bank chairmanship held now by American Robert Zoellick will soon open up as well.
The internationalization of international finance institutions is inevitable, of course. If Westerners are expecting Brazil and China to pick up the slack for our weak economies, we will have to give up something in return.
Now the question is whether the emerging countries handle this opportunity better than they dealt with the commodity price surge that started last fall. Brazil and especially China had a huge role in that affair – yet they unsportingly chose to point the finger at Ben Bernanke.
That sounds more like the nonsense you hear out of Congress than the actions of leaders ready to take a whirl at the helm of the global economy. With any luck they will do better this time.