Friday, May 27, 2011

Recruiting the right MD for the IMF

The recruitment of the IMF MD has turned into quite a controversy. For an interesting set of views, see this page on the website of The Economist. In a remarkable development, the EDs of India, China, Russia, Brazil and South Africa came out with a clear joint statement on the silliness that is afoot.

There are four perspectives on this question which are worth noting:
  1. There is an obvious gap between the power structure at the IMF, which reflects the structure of the world economy after the Second World War, as compared with the present reality. As an example, at present, the Netherlands has 2.08% of the votes while India has 2.35%. But Indian GDP is now $1.6 trillion while Netherlands is at half that.
  2. The world would benefit from a competent and capable IMF. The best man (or woman) for the job will not be obtained by having any restrictions on nationality. As an example, in today's world, a name that leaps out to me is Stan Fischer. But he's not European, and hence was never even considered for the top job in the last decade. (As with Montek, he is now over age 65 and is hence not eligible for the job today). Given that a large fraction of the top economists of the world are not European, this rule yields a less capable IMF.
  3. A quota system where the IMF MD must now be from an emerging market is as bad as a quota system where the IMF MD is only recruited from a European country. The key is to get away from all these restrictions, and to only recruit the best person for the job. The emphasis should be on technical capability. As an example, see how in the UK, they recruited an American into their Monetary Policy Committee.
  4. In the standard narrative, one hears the idea that in this crisis in Europe, the Europeans are gaining from their control of the IMF. I disagree. In the Asian crisis, it was good for Asia that the IMF was not conflicted by considerations of domestic Asian politics. Similarly, the IMF program in India in 1981 and 1991 was uncontaminated by domestic Indian political considerations. This helped produce technically sound programs, which helped in jumpstarting India's growth. It is not accidental that we see structural breaks in India's GDP growth around these two dates.
    What Europe needs most is a tough IMF, which will be a stern taskmaster, which will force difficult political choices so as to heal the economy. Economic policy in Europe today needs to be cruel to be kind. Instead, by placing a string of career politicians from France into the IMF MD's job, the valuable role which the IMF could have played in solving the European Crisis is being negated. This damages Europe. The wise thing for Europe today is to say: Give us a tough and competent taskmaster, recruited through global search, where European politicans are not allowed to apply. The biggest loser from the present arrangement is Europe.

4 comments:

  1. I also wonder if emerging economies are increasing their funding of the IMF. It wouldn't be right to demand more involvement and/or complain about oecd dominance if funds come predominantly from oecd countries.

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  2. I do not know whether IMF policy decisions are moulded by a powerful CEO as in the corporate world. Its inception was largely a product of economic as much political considerations and its role in the future will contiue to reflect both diamensions. Just look at what is happening with the Greek debt problem! With so many "economic technocrats" inside and outside Greece, how in the world is it difficult to resolve an economic hot potato of a tiny country? Please do not oversell the role of technical economists, whose importance has been seriously called into question, at least since the onset and in the aftermath of the current global recession.

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  3. choosing a CEO without boundary restrictions are good. But in a real world, this does not happen. World Leaders try to push for a person who they can call "thier own" to satisfy two goals - 1. gain popularity by promoting regional head. 2. Assuming they would be listened to, or even better, they would be able to command. Whether it is in sport, economics or health - regionalism is the truth. Another welcome change, but wouldn't happen very soon.

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  4. I disagree with the point that that the IMF leader should be the 'Best Person' for the job. It just so happens that a bias occurs when the Best Person is defined.

    The general definition of Best Person would almost always encapsulate someone from a stellar educational background, magnificent rise in the 'known' international organizations, and is exceptionally visible in the world. As there is a bias as to what the best education is and what the best international organizations are, the best person is probably not going to be from the emerging market. Even though the list of worthy people from he third world is increasing, it is still fairly small.

    I agree that this should not be a trap to place someone from emerging markets at the helm just because he is from a relatively impoverished region (compared to the west).

    When such a bias exists, maybe instead of debating the nationality, one should debate the achievements of someone who's efforts have rescued an economy/ies. In the last 3 decades, as the third world's economies have just been rising, there is very little rescuing required. Rescuing would imply improving the economy to a previous height already attained. Which would leave you to the west again.

    I think the 'Worth' of a candidate can be overstretched because of lack of foresight. Maybe in the next decade or so that distinction would reduce, but till then going along logical 'racist' paths may not be completely wrong.

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