FRANCE TAKES CONTROL OF IMF, AGAIN, BUT WILL IT BRING THIS TIME CHANGES DEVLOPING NATIONS SO MUCH NEEDED? By Keffyalew Gebremedhin
It may be a little disappointing for developing countries, especially the small club of emerging economies, to learn that the 24-member IMF Executive Board has made official the name of the new occupant of the post of the Fund’s managing director for the next five years. It is France’s Finance Minister Christine Lagarde.
While for most of the time the post has traditionally been une chasse gardée pour les Français (French preserve), the only difference this time is that the in-coming chairman of the Executive Board and chief of the 2,700 strong operating staff is a woman. This is a welcome step and the first one, coming as it does after six and-a-half decade long waiting for women. It also comes at a time of grave concerns around the world about the problems in the global economy.
A woman at the helm for the first time
Ms. Lagarde’s success at the IMF would surely contribute to the shattering of the glass ceilings in national governments and mammoth corporations and their boardrooms as well. As far as the IMF is concerned, observers anticipate some reforms to follow to improve the operational environment for women employees in the hugely white male-dominated IMF, not to think of at this stage gender parity as a matter of right!
One reason for the failure of developing countries to find a candidate they all could agree on may be a reflection as much of the prevalent mistrust between them and the subtle and polite competition for leadership, especially amongst the key members of that elite group—Brazil, China, India, Russia and South Africa—their rise to international prominence and influence their economies have brought along.
Even for its national prestige, South Africa could not present the candidacy of its long-serving former Finance Minister Trevor Manuel, whose name used to be mentioned on every page for that post and for a long time. Whatever his disincentive, he politely told journalists in Johannesburg on 10 June, “I decided not to avail myself. Today is the closing date and I certainly haven’t put my hat in the ring” (The Telegraph).
Therefore, Mexico’s Central Bank Governor Agustín Carstens was the other official contender to the post. Unfortunately, he could neither mobilize the support of developing countries nor convince all the 24 members of IMF’s executive Board that he was better qualified for the job than Ms. Lagarde. His supporters within and without the Executive Board, I presume, must have felt sympathetic to “his 30-year career in global economics” and rich experience—a thing or two he used as the central platform of his campaign against Mme Lagarde. The Executive Board selects its chairman by consensus.
In announcing US support for Christine Lagarde less than 24 hours before decision by the Executive Board, US treasury Secretary Timothy Geithner lauded the French Finance Minister’s “exceptional talent and broad experience” as indispensible asset at such “a critical time for the global economy.” He also commended “my friend, Agustin Carstens, on his strong and very credible candidacy.”
One can read from the whole selection process, Greece has been the moment’s concern for everyone, notwithstanding that Europe continues to act shy to call the crisis by its real name—problem of solvency as opposed to liquidity, as many keep on pointing out. Mr Carstens’s claim that he was a safe and neutral hand to address effectively the impending disaster than a European has not proved his forte, even with the warning that without neutrality possibility of a Greek tragedy and its morbid might ghost destroy many things. For now at least, Mr Papandreou has won majority vote in the Greek parliament, as I was writing this article, members supporting his austerity plan that now seems to have opened the pipeline for billions of euros to begin flowing.
Great expectation in the air
Clearly, there are now huge expectations on Mme Lagarde from both the developed and developing countries, not to speak of the IMF staff. In the past few years, Dominique Strauss-Kahn had made the financial crises godsend for IMF. He effectively transformed that humongous crisis into strength for the institution by stepping in boldly to show that it could burrow out of its irrelevance into becoming the medicine man to treat the symptoms though, to enjoy the accolade and international influence it brought him. So puzzlingly tragic of enormous proportions that he should…
During his time the IMF dabbled with some reforms, not far reaching though but sufficient for the Fund to revitalize its enormous authority. Sadly, that authority is still being used no differently from in the usual alchemy, instead of arming itself with the real tools to diagnose the economic problems and the political environment that has bearings on it. This failure allowed governments that say one thing and do another to keep on destroying societies, with no consequences.
Frankly speaking without some seriousness in what the IMF does, we have seen it in countries such as Ethiopia, Uganda, etc., where growth opportunities are kept by the door their politicking and corruption denying them prospects of macroeconomic stability, longer than a few short cycles. This view is justified by the fact that the claim of seven years of ‘sustained growth’ has proved less than deserved in Ethiopia in terms of impacts on the lives of ordinary people.
That is because as much the IMF has been preoccupied with political correctness, characterized by see no evil talk no evil approach. When the problems worsen it often chooses to throw tranches of foreign exchange to ensure the country affords two or three months of imports. The source of this problem needs to be exposed in countries such as Ethiopia so that the country could embark onto better processes of growth and development. So far, the nation has been fed consistently news of growth daily drummed at high decibels. This has only allowed the nouveau riche in the process of crystallization misusing resources and endangering the better prospects of the country, as has happened to many developing countries.
Because of that, Ethiopia has grown to need more grants and aid, as the needs of the country are immense and are not being addressed in a sensible manner. Therefore, these aid monies are now needed—not for actual projects and programs—but year after year to write the annual national budgets for which the economy could not provide the revenues. Where it did the corruption and wastages have been immense, as the auditor a tale of unauthorized expenditure horrors and millions of ETB without evidences.
Two months before the end of the current fiscal year the national budget is now 57 percent short of its anticipated grant and aid targets level for the nation’s 2012 budget (http://www.thereporterethiopia.com/News/ government-acquires-only-43-percent-of-budget-assistance-from-foreign-sources.html). So declared the country’s long-term minister of finance, on the eve of the start of second year of the ambitious five-year Growth and Transformation Plan (GTP).
The much vaunted sustained double-digit growth and the increasing export incomes the country is reported to have experienced for seven years in a row do not now seem to either help by increasing revenues or decreasing the country’s increasing dependence on foreign largesse.
Certainly, I would be hard put not to give my ears to any assertion that IMF’s repeated laudatory testimonies about the great economic performances of Ethiopia are a genuine narrative of professional economic assessments, not political statements. This is not acceptable and, therefore, is a task awaiting a closer look by the new Managing Director!
Latest evaluation report raises important issues
Finally, I put the following just as a reminder about the importance of evaluation reports and the need for some transparency regarding the IMF itself. I understand from press release No. 11/237 of 21 June that the management and staff have welcomed the May 2011 Independent Evaluation Report, released by the Office (IEO) on evaluation of research at the IMF (http://ieo-imf.org/eval/complete/eval_06212011.html). The press release does not even acknowledge that staff have serious concerns about some IMF research approaches.
In their response to the evaluation report, staff have some issues expressed in the note they submitted which states:
“We have concerns about some aspects, notably on the targeting, neutrality, and coordination of research. The report could have been stronger if it better accounted in its analysis for the different purposes and audiences for various Fund research products and could have delved more deeply into how to avoid message-driven research. Also, while it is important to avoid any unnecessary duplication, the IEO recommendation to coordinate IMF research could result in the stifling of individual research efforts.”
I am not a staff member of the Fund, nor do I have any connection. Therefore what I write here is not intended to be advocacy for the interests of the staff. However, I find it of great interest and relevance to reforms that need to be undertaken. However, the press release gives the impression that both staff and management are all happy, which is inaccurate in some important ways, especially on matters that affect developing countries directly.
The evaluation report rightly indicates, “To be relevant, research must address important topics and be adequately informed about country context and institutional setup.” That actually is at the heart of my criticisms of the Fund’s contributions and existing approaches, as I did also in my last article in early June (Jockeying for IMF’S top post: Ethiopia’s interests in the Fund?). We are used to seeing that reports are produced, usually as an academic exercise, with no relevance to the realities. That leads to reproduction mostly of the same dry humdrum reports, with differing emphasis, changed language and formats.
Giving short and long-term prognoses and recommendations that simply do not talk to the reality has not been helping. After a small respite, our country finds itself in endless cycles of macroeconomic instability, which robs away every gain. Because of this, one gets the sense that the country is only jogging to find itself in the same position, if not sliding backwards.
There is the problem of transparency on both ends—the country concerned and the IMF! The good thing about the evaluation report is that, as authors of the report have established during their consultations with national authorities and external researchers, there was a strong feeling “IMF research did not achieve its potential effectiveness.”
The reason, as the report states is: “the analytical framework was not suited to the realities of the country” whose national development in general and economic growth in particular the IMF has been trying to assist. This is an important grip on one of the problems, which hopefully the new managing director would give the reform needed the appropriate spirit, flesh and blood.
Finally, I say with all earnestness that by the end of her five-year mandate at the IMF, Christine Lagarde will have seen to it that the Fund is in the real business of first equipping itself well to address effectively the problems confronted by all countries including small and big developing countries that do not have:
• Honest political processes;
• Accountable institutions; and,
• Sensible economic research and data processing capacities!
Secondly, it would be ready to prevent economic problems before they become a tsunami, irrespective of the origin or the region.