The International Monetary Fund is a truly global institution - but until now, its managing directors have always been European. Will that change with the impending replacement of Christine Lagarde?
The International Monetary Fund was established after World War II to avert global financial crises before they happened. The idea was to monitor its members in order to avoid the sort of problems which had caused German hyperinflation in the 1920s and the Great Depression in the 1930s - or as the IMF itself rather more loftily puts it, “to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world”.
Initially the IMF had 29 member states; currently it has 189, covering the vast majority of the planet. (Exceptions include Cuba, North Korea, Andorra, Liechtenstein and Monaco.) By closely monitoring its members’ financial health, and publishing its findings in regular reports like the World Economic Outlook, the Fiscal Monitor and the Global Financial Stability Report, the IMF can identify risks and spot trends before they become a huge problem, for individual members or the global economy. Or so goes the theory.
For all the high ideals, the IMF is best known as the lender of last resort for countries in financial crisis. During the 21st century, major borrowers have included Argentina, Uruguay and Greece, but other recipients include Portugal, the Republic of Ireland and Romania - indeed, any member country with a financial problem can apply for a loan.
However, it’s not a blank cheque with no questions asked. As a condition of lending the IMF tends to impose economic reforms like market deregulation and the privatisation of public services which can horrify left-wing observers, while right-wing commentators fear the IMF’s safety-net loans merely help promote fiscal irresponsibility.
Understandably, then, the IMF leader needs to be not just a banker but a diplomat. The last four managing directors all had a background in politics; the ability to shake hands, soothe fears and sell a deal is as important as economic knowhow.
Current head Christine Lagarde is a trained lawyer who moved into politics as France’s Trade Minister in 2005, and in 2007 took over the country’s economic policy. In 2011 she moved to head up the IMF.
But on 12 September 2019, with Lagarde moving to succeed Mario Draghi as President of the European Central Bank, one of the world’s largest financial organisations will need a new leader - and there are certain restrictions.
Firstly, there is an age bar: new heads cannot be over 65, which would exclude Draghi (71). More exclusively, until now the IMF’s chief has always been a European. This is a hangover from the politicking at the end of World War II, “balanced” to some extent by there always being an American in charge of the World Bank - a complementary global institution which concentrates on developing countries (who must first sign up to the IMF’s fiscal oversight).
It remains to be seen whether the IMF will maintain this Eurocentrism or make a global statement by breaking the tradition. Whoever is appointed, their past will matter less than their immediate future: maintaining the global financial equilibrium.
Originally written for CGTN Europe, 26 Sep 2019
