Tag: IMF

Three Ways to Think about the IMF’s Insistence on Debt Relief for Greece

According to the NY Times, the IMF has refused to participate in any new bailout program for Greece unless Hellas is receiving debt relief. Specifically, says the IMF, this relief must come in one of three ways to be determined by Greece and the Troika: reducing the amount of principal debt to be repaid (“writedowns”), extending the term of the loans (the IMF suggest no payments for 30 years), or interest rate subsidies that would allow Greece to repay its loans at rates substantially below their market value. In practice part of the debt (around€100bn) was already discharged in 2012 via debt swaps that amounted to writedowns. And some of the third and a bit of the second were already being done under the old bailout regime, and both would have been part of the new agreement reached last weekend as well.

But those are less than half-measures in the face of an onrushing avalanche.  Continue reading

Note to Controversial Commencement Speakers — Don’t Quit!

Let’s face it, most commencement speakers aren’t really all that inspiring. Every spring, tens of thousands of graduating seniors, proud parents, faculty, and others sit through seemingly endless speeches filled with those insipid “inspiring life lessons,” those essential “kernels of wisdom that will guide graduates through life’s challenges,” and the hopeful “ten ways this year’s class of graduating seniors will change the world.”

Humor sometimes — but only sometimes — helps.

And, then occasionally the stars align and we get that memorable commencement — with a speaker whose presence and message provokes students to think about their core values, their beliefs, their relationship to the broader world; the speaker who gets the students to reflect on their courses and their intellectual growth over the past four years; someone who gets students and faculty talking, debating, and if we are really lucky engaged, riled up, and even impassioned.

That’s what makes this whole recent dust-up over a number of commencement speakers bailing on their invitations so unfortunate. These are the commencement speakers who need to show up. Continue reading

Power Shift in Global Economic Governance


Has the worm finally turned? Reuters today featured a story on the emerging market economies’ push-back against the status quo of Western-dominated global economic governance. The piece features an explicit demand (and overt exercise of financial leverage) for a power shift in the predominant international financial institutions, specifically in the context of the IMF’s recent request for an additional $600 billion in resources from its member states to help bail out Europe.

Former Saudi intelligence chief Prince Turki al-Faisal is quoted in the story as saying:”What we can be certain of is that large developing nations will not agree to provide additional funds without a greater say in the IMF, and this applies to all global economic governance organizations.”

Interesting, the story also highlights the fact that emerging market economies, while demanding more voice and influence in the IFIs, are also turning away from existing international institutions in favor of regional alternatives, such as the Arab Monetary Fund and Islamic Development Bank in the Middle East and the Chiang Mai initiative in East Asia. This fact is neither new or shocking, but the tone of such a public speech is remarkable.

Ironically (or pathetically, depending how you look at it), there was also a recent news story that revealed that Obama is considering the nomination of Larry Summers as the next World Bank president when Robert Zoellick’s term expires in May 2012 (note: thanks to Martin Edwards for alerting me to this one). This would, oh so predictably: (1) sustain the stubborn Western tradition of keeping an American at helm of the World Bank (and by corollary, a European at the head of the Fund); (2) uphold the image of the Bretton Woods institutions as being first and foremost accountable to the Wall Street-Treasury complex, and (3) continue to alienate the very countries upon whose financial generosity these institutions will increasingly depend in the coming years.

Martin Edwards and I are conspiring on an op-ed on that little tidbit of information and its implications for the legitimacy and relevance of the World Bank, so stay tuned.

En Garde, Lagarde


I happened to be walking up 19th Street in downtown DC today in the early afternoon. Numerous media vans were parked along the road, and the sidewalks between F and H Streets were filled with eager reporters and bemused staff, obviously enjoying a long lunch break. A stranger, clearly new to the area, came up to me and asked, “Do you know where 700 19th Street is?”

Me: “Are you looking for the IMF?”

Lost stranger (from the UN in New York, as it turned out): “Yes, I am,”

Me: “You just missed it. It’s the big gray building with the excited crowd and throng of cameras in front of it.”

Lost Stranger: “Oh, what’s going on?”

Me: “They’re getting ready to announce the new Managing Director.”

Lost Stranger: “Really? You mean that lady? Is that a big deal?”

Me: “Yes, that lady – Christine Lagarde. And it is a big deal.”

My answer actually surprised me. I had taken it as a foregone conclusion during the last several weeks that Christine Lagarde would be the next IMF Managing Director. Over the past two days, this became even more evident as Lagarde won endorsements first from China and then the US. It thus wasn’t a shock when the Executive Board chose Lagarde today over her competitor, Mexican economist Agustin Carstens. So what’s the big deal?

The big deal is that, despite her French roots, Christine Lagarde does represent a real change at the IMF. Putting a women at the helm of any international organization today is a noteworthy achievement. Quick – how many female IO leaders can you name off the top of your head?

Putting a women in charge of the IMF is even more remarkable. The IMF, as many have noted, is a very masculine, hierarchical organization with a marine-like culture. Yet there are women who work for the IMF (I have met many of them, and they are amazing). There are even women who have reached the near-top of the managerial ranks, such as former Deputy Managing Director Anne Krueger and current Deputy Managing Director Nemat Shafik (who, after only a few weeks on the job, was sent to represent the IMF in an important European trip shortly after Strauss-Kahn’s arrest in New York in May). Certainly, being a women in charge of such a male-dominated organization will be difficult, but it is not an insurmountable obstacle.

So gender will not be Lagarde’s biggest challenge in leading the Fund. Instead, here are a few thoughts on the bigger hurdles that Madame MD will face in the coming months:

First, Lagarde is going to have to prove that she can be unbiased in leading the IMF in the ongoing bailout of Europe. Many have questioned the appropriateness (perhaps even an explicit conflict of interest) of putting a French finance minister in charge of the IMF at this time. Lagarde will assume the post of Managing Director next Tuesday, and her first task will be to drive home the joint rescue package for Greece, which is bound to attract criticism no matter how austere or lax the bailout turns out to be. Will she be able to deliver the tough love and stand her ground against her former European colleagues?

Second, Lagarde will need to demonstrate that merit – not nationality – should indeed be the basis of leadership selection at the IMF. In her own speech before the Board last week, she reminded the Executive Directors that when she was on the Board of Governors at the IMF, she went on the record in support of an open leadership selection process. There will be pressure for her to put some muscle behind this statement, perhaps by appointing a non-American to replace John Lipsky as First Deputy Managing Director. [On this, see Mohamed El-Erian’s op-ed in today’s Financial Times. See also Stephen Richter’s suggestion that Carstens receive a consolation prize in the form of Lipsky’s number two spot, although it is not at all clear that Carstens would want this].

Third, Lagarde will have to win over the IMF staff. This is especially important when major change within the Fund is needed to address serious weaknesses in the organization’s relevance and effectiveness in critical areas such as its surveillance functions and financial sector expertise. There is no doubt that Lagarde has superb managerial skills and is by all accounts extremely charming. This will be an asset in her role as political figure in high level negotiations and in representing the IMF in the public arena. But inside the IMF, it may be a different story. One of Lagarde’s biggest deficits, as Martin Wolf recently argued, is that she is not actually an economist. She is a lawyer. And in an organization dominated by highly trained economists, her inability to debate the finer details of academic theories and models may make it very difficult for her to earn street cred and push for change within the walls of 700 19th Street.

(KW note: thanks to CP for today’s blog title)

IMF: plus ça change, plus c’est la même chose?

I find myself impressed with the obvious talents of Christine Lagarde, the current French Finance Minister and lead candidate for Dominique Strauss-Kahn’s replacement at the IMF (just endorsed by the G8 today ). I am admittedly drawn to the idea of appointing the first women to ever head the Fund, a testosterone-driven organization if there ever was one. Yet the fawning news coverage of the stylish Lagarde (see Maureen Dowd’s op-ed in the New York Times today) also leaves me with a sinking feeling. The crisis at the helm of the Fund should present an opportunity for change, permitting for the first time in the institution’s history a serious consideration of non-Western candidates for Managing Director. And while ultimately merit should take precedent over nationality, the appointment of a non-Western Managing Director would give a serious boost to the external legitimacy of the Fund and could even be the spark to incite much-needed change in its hierarchical, orthodox culture.

Yet that opportunity seems to be passing by. Over the last week, we have seen most of the viable candidates from the developing world drop out of the race. In turn, we have been deluged with arguments in favor of keeping with tradition, replacing DSK with another European (French again, no less). Worse may be the reason proffered for this – the idea that we need a European at the helm of the Fund at a moment when the institution’s main business happens to be the resolution of Europe’s cascading debt crises. Yet, as my friend and colleague Jacquie Best persuasively argued in this May 28 op-ed in the Ottawa Citizen :

“This argument would be more persuasive if the Europeans hadn’t said precisely the opposite in the past: They had no compunction in taking the helm of the IMF when it was Asia, Latin America or Africa in the grip of economic or financial crisis. In those cases, the fact that the IMF managing director was not from an affected region was seen as irrelevant.”

I find it nearly as shocking that much of the media coverage of Lagarde seems to justify this choice by arguing that Lagarde really isn’t as French as we might think. In fact, she spent nearly two decades living and working in the US. In France, Lagarde is disparagingly referred to as “l’Americaine”, fluent in English and boldly dismissive of French intellectual elitism. But are Lagarde’s American attributes really supposed to make us feel better in this post-crisis era?

As a sidenote, for those concerned about DSK’s welfare : the Fund is apparently providing him with a separation payment of $250,000. This should cover about five months rent in his lavish Tribeca apartment, where he is currently under house arrest.

The IMF Horse Race

The Western powers are in a rush to quickly confirm Christine Lagarde as the next MD, but there are some very good alternative choices outside of Europe who should be carefully considered. It may also be in the interest of the institution to at least appear more inclusive to the non-European parts of the world.  Here is a very rushed list of candidates whom I think would be viable in the eyes of the major stakeholders at the Fund (although each one has some flaws):

1. Tharman Shanmugaratnam: I remember several years ago attending this Singaporean MP’s meeting with local constituents. The meeting went late into the night as he and his volunteers attempted to sort out the various bureaucratic and some petty and not-so-petty social problems of the residents in the district.  I was surprised to see a senior official (at the time he was the Education Minister, he is currently the Finance Minister and Deputy Prime Minister) in what is essentially a one party dominated state spend so much personal time working with his constituents.  He is smart, tireless, and compassionate. Of course, the main drawback of Singaporean politicians is inexperience in dealing with strong public dissent.

2. Eisuke Sakakibara: Known as “Mr. Yen” and the man who coined the phrase “market fundamentalism” to describe neoliberal economic policies, Sakakibara is a well respected Japanese technocrat and intellectual who is not afraid to speak his mind. Sakakibara was Japan’s nomination for the MD position 11 years ago. His tenure might signal a shift away from economic neoliberalism at the Fund.

3. Ashraf Ghani Ahmadzai: The incorruptible former Finance Minister of Afghanistan under Hamid Karzai has extensive experience in the challenges faced when rebuilding shattered economies. In addition, he worked for a decade in the World Bank and understands the Bretton Woods institutions very well. His drawback is that he can be gruff and does not tolerate fools — which is partly why  he was forced out of office in Afghanistan.

4. Anne Osborn Kreuger: Admittedly, a Westerner, but still quite worthy of consideration. An American economics professor who was the First Deputy Managing Director of the IMF from 2001 to 2006 and a former chief economist at the World Bank. She made a concerted effort to address the pressing issue of sovereign debt restructuring in her time at the IMF.

5. Montek Singh Ahluwalia: A whip smart economist who headed the IMF’s Independent Evaluation Office. He was also part of the team of economists, along with Manmohan Singh, who helped to engineer India’s liberalization policies in the nineties. Montek has said he is not putting his name forward for the position, but I think he could be talked into it. He is a figure who is accustomed to controversy, but at the very least his work at the IEO would make him aware of the many failures of the IMF in recent decades.

I’d be interested to hear other names from my fellow Ducks and our readers…

Revolution, Revolution until Victory

‎”… Yet the crowds were not placated, and they spent the next hour in the courtyard repeating the classic songs of the uprising, “thowra thowra huta nasr” (revolution, revolution until victory).” –Al Jazeera (4/25/2011)

The revolution which overthrew Hosni Mubarak is in danger. While Western media outlets have given primacy in their coverage of events to speculative discussions about the historic, current, and future role of the Muslim Brotherhood as well as the pivotal role of the Egyptian military, it is the organizations representing the rights of factory workers and allied leftist youth that actually did the heavy lifting from an organizational perspective before and during the revolution (see for example the April 6th Youth Movement). Thus, it is these same groups (whose demands include nationalizing textile factories, improving safety conditions, increasing wages for workers, and a maximum wage for the owners of capital) which will need to be addressed alongside more established political organizations if enduring stability is to be achieved.

But the demands of the workers are scarcely likely to be met given the severe economic challenges which lie ahead for Egypt and the broader global economic context in which this revolution is unfolding. The government has already turned to the IMF for $10-12 billion in financial assistance and $2.2 billion from the World Bank, citing a dramatic decline in revenue from the vital but perennially endangered tourism industry and a wave of worker strikes in recent months. Given the neo-liberal economic ideology and decisionist (Schmittian) political outlook toward developing countries that is prevalent among the Western governments that dominate the Executive Boards of the Bretton Woods institutions, as well as with military leaders and comprador economic elites in deveoping countries, the Egyptian state will undoubtedly face external pressure to repress worker demands. In fact, foreign pressure will most likely be used as a welcome opportunity by comprador elites to pursue preferred policies while placing the blame for repression on an external bogeyman.

As with many other developing countries, Egypt has a complex and politicized history of relations with the IMF (not to mention an even longer and more sordid history of sovereign debt to Western creditors prior to WWII). At times the historical narrative about Egypt-IMF relations has focused almost exclusively on the 1977 food riots that followed an attempt at structural adjustment during the Sadat regime. This narrative has usually been oversimplified by left leaning academics who have all too willingly bought into the military regime’s account of the structural adjustment program as a moral lesson in the political shortsightedness of the mandarins at the Fund and the inhumanity of a ruthless and disembedded neoliberal economic ideology. (In point of fact and as we now know, it was the military regime which proposed cutting food subsidies when the Fund had recommended slashing the unsustainable military budget). An overemphasis on that moment risks ignoring all of the efforts since then to implement neoliberal strategies of privatization, liberalization, and integration — half-hearted, illusory, and lackluster though they may have been.

If we look beyond the kabuki theater of the state’s relations with the Fund and neoliberalism more broadly, we can see that prospects for meeting the workers’ demands and reviving the textile industry, which constitutes about a quarter of both industrial employment and industrial production, are unlikely to emerge through neoliberal strategies. The current challenge to Egypt’s textile industry goes back to the phase out of the GATT/WTO textile quota regime in 2004 and the beginning of genuine global competition. Egypt’s textile industry which is characterized by low productivity simply could not compete against Chinese textile firms. Egypt was able to gain some breathing room by signing on to a tri-lateral preferential trade agreement (the QIZ) with Israel and the US, but the political climate in Gaza and the West Bank has hardly made this a robust alternative for Egypt.

If Egypt hopes to compete against China, it will need to study China’s reform of its own textile sector in the nineties which laid the ground work for its return to profitability in 2000.  The short version of the story is that China cut 2.7 million employees out of 7 million, closed 600 state-owned firms (1/5th of the total), suffered billions in losses while it restructured and updated equipment (Lardy 2002, 23). The real question is what enabled the state and society to endure this restructuring? The answer is far more complex than can be covered here, but at the very least it seems apparent that a set of economic strategies designed to winnow the state is the wrong path to take. To the contrary, the East Asian “model” generally points to the importance of strengthening state capacity in order to compete in the global marketplace. However, while such strategies are often anchored by nationalist ideology, they are rarely kind to the interests and radicalized demands of workers.

The resurrection

Nothing like a global financial crisis to make the IMF relevant again.

In all seriousness, though, after the 1997 East Asian financial crisis it seemed that the IMF was in danger of irrelevance. Very few countries were willing to accept the conditions required by the IMF for loans. But with the world only a few steps back from the brink, that appears to be changing. And with the outcome of the Ukraine-IMF negotiations pending, we may soon get a sense of how much the IMF is willing to require in exchange for cash infusions.

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