Lagarde is no laggard

It looks like Ms. Lagarde will win a second term as the President of the International Monetary Fund. That is a pity. Her reappointment would be a setback to the promise of changes to the governance of international institutions that was promised in the aftermath of the global financial crisis of 2008. She was chosen on 28th June 2011 for a five-year term. At the time of her appointment, it was argued that an European (as per convention) was needed as a IMF President since Europe was in crisis. Of course, the argument could have been made that, to avoid conflict of interest and to take an unbiased view, a non-European would have fitted the bill better.

The most notable achievements in her five-year term – as far as I can recall – are to call up on the Federal Reserve not to raise interest rates from 0.0% to 0.225% and to anoint the Chinese yuan as one of the currencies in the SDR basket somewhat prematurely.

I do not think that the Fund distinguished itself in its handling of Greece.

So, it is quite disappointing to read that European nations have closed ranks behind her reappointment and endorse her for a reappointment.

Of course, it must be added that emerging nations – including China and India – have lost much of their moral rights post-crisis. They have fared no better. They have allowed their economies to suffer the worst side-effects of the global stimulus efforts without much independent economic thinking. Nor have they made their own countries better governed and better insulated from the vagaries of global finance. Their private sector has gorged on foreign currency debt without much thought for foreign currency risk. Productivity has contracted. Economic growth is a big question mark in China and Brazil. In India, it is stagnant at best. Russia is not in the reckoning thanks to West’s congenital suspicion of Putin. South Africa and Turkey seem to have whimsical Presidents, to put it mildly. Their economic management appears to be  in need of considerable improvement too.

So, in fairness, in the years between 2011 and 2016, emerging nations have not bolstered their case. Their case has become weaker. So, in short, in the eyes of the Western world, nothing needs to change in international governance architecture.

Indeed, post-2009, much of the efforts of the Western world seems to have been geared towards ensuring that the global balance of economic power did not shift towards emerging economies. It has to be admitted that they have succeeded to a considerable extent.

Let us see who remains standing after the next financial crisis that has probably already started to unfold.

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