Saturday, May 21, 2011

Who will succeed DSK?

There is a lot of fuss about who should be the next managing director of the IMF. The French have held the position for more than 30 years, and a European has always been at the helm of the IMF. Thus, the voices of protest for a broader representation, more transparency and a democratic process have been raised. Raghuram Rajan, former chief economist at the IMF, has suggested (subscription required) that we need a technical/market economist rather than a politician running the Fund.

“The fund is designed to push tough policies to straighten out countries that have mismanaged finances, not win a popularity contest. When it colludes with politicians to propose politically palatable programs, the IMF fails in its proper role of reforming a country.”

Interestingly enough the idea is that good policies are painful ones. The sadomasochistic vein in mainstream economics runs deep. Rajan means that the IMF is needed to impose fiscal contraction, and it should be independent from politicians, like central banks (I'll leave that for another post). He then suggests that IMF should:

“set up a selection committee of worthies: Larry Summers, Jean Claude Trichet, Ernesto Zedillo, and so on.”

In other words, the independent guys that deregulated financial markets, imposed brutal contraction in the European periphery and commanded over the Mexican Tequila (Zedillo inherited the crisis from Salinas, to a great extent, but shared the neoliberal principles) respectively (among other things). It would be like having Count Dracula in charge of the Red Cross blood donation program.

Further, Mr. Rajan peddles the need for a non-European to head the IMF and cites the usual names (Armínio Fraga, Trevor Manuel, Montek Ahluwalia, Tharman Shanmugaratnam, only missing Agustín Carstens in the lists of developing country’s economists cited for the position). The common denominator is that all of them would maintain policies that are essentially more of the same, and will not push the IMF to revise their adjustment policies. If these are the candidates they might as well appoint a European to do the dirty job!

The question is not so much whether the selection is done by notables (even though one may want less notorious people than the ones in Rajan’s list) or other lesser beings, or even whether the new managing director will come from the colonies (sorry, the developing countries) or Europe. The question is whether the IMF is going to change its ways and understand that pro-growth and employment generating policies should be painful to capital, not labor. We need capital controls and fiscal expansion, to create jobs.

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