Originally published in THE BOSTON GLOBE
Tuesday, December 7, 1999
Policy before national pride
"IMF must ask tough questions of candidates for top job"
Martin and Kathleen Feldstein
When Michel Camdessus, the long-time managing director of the International Monetary Fund, announced his early retirement a few weeks ago, no time was lost before a worldwide discussion of his successor began. For 50 years, the IMF has been the key arbiter and dispenser of international financial assistance for countries when balance-of-payment problems threaten their financial stability. The managing director is one of the key supranational positions, both in substance and in terms of prestige. It is considered a plum, therefore, for the country whose nominee is chosen.
Unfortunately, the discussion about Camdessus' successor has focused on nationality and "stature," rather than on the substantive policy views of the potential candidates.
The European countries have asserted that the managing director has traditionally been a European, just as the head of the World Bank has traditionally been an American.
The Europeans also quarrel among themselves about their relative merits for the position, based on which countries have already obtained key international jobs - the Italians at the European Commission, the Dutch at the European Central Bank, the British at the Bank for International Settlements, and so forth. The Japanese contend it's time for an Asian and have a candidate of their own.
Beyond nationality, US officials and others who will play a key role in the choice have raised the question of whether the new director should be a former senior civil servant, as Camdessus was, or a central banker, or even a finance minister or other political figure.
We are not convinced by the argument that a political figure is needed to give the position stature. The power of the position immediately endows its holder with great prestige and standing in global economic and political circles.
While these are not totally irrelevant considerations, in our judgment they are secondary in importance to knowing the views any potential managing director holds with respect to the future role of the IMF and to the appropriate policies for the IMF to pursue. With no shortage of candidates with excellent credentials, there is all the more reason to inquire about their policy views.
The managing director wields enormous influence over the direction and substance of IMF policy. Although the United States, as the largest contributor of funds to the IMF plays an important role behind the scenes, most of the member countries, despite formal representation on the IMF board, exert little real control. IMF decisions, recently the subject of much criticism, rest primarily with the managing director and his staff.
With this in mind, we offer some suggestions about the critical questions to ask about a potential managing director.
First, what does the candidate see as the IMF's primary role? Should it focus on its original purpose, of providing advice and moderate financial assistance to countries with balance-of-payment problems, and responding to currency crises by bringing together debtors and creditors to help the crisis country regain access to world credit markets?
Or should the IMF continue with its recent, much broader role of trying to restructure virtually every aspect of emerging-market countries, according to the IMF's interpretation of the best economic practices?
The board could learn a lot about a candidate simply by asking whether he or she agrees with Camdessus that the international financial crisis, which devastated several high-growth countries in Asia, was actually a "blessing in disguise" because it gave the IMF the opportunity to force those countries to revise radically every aspect of their domestic policies, including labor relations, corporate governance, tax structure, and the like.
More specifically, does the candidate favor the IMF using conditional aid packages that link tens of billions of dollars in aid to the adoption of specific policies in areas like trade, banking, and labor relations? Or does that kind of linkage go beyond the IMF's mandate?
On a more technical level, what does the candidate think of the macroeconomic programs - the increases in tax and interest rates - that the IMF has forced on countries experiencing major currency crises?
Many outside critics say these policies have been excessively painful, causing sharp increases in unemployment and in bankruptcies that could have been avoided.
Going back to the fundamental role of the IMF, how does the candidate distinguish between the IMF and the World Bank? Recently, the IMF has become involved in development assistance and in programs to reduce poverty, which had previously been the role of the World Bank. Should that continue?
Finally, what does the candidate think of the proposals for regional mini-IMFs, such as an Asian Monetary Fund or a Latin American Monetary Fund, which would shift responsibility and power from Washington to Tokyo and Rio de Janeiro?
How the new managing director views these issues will have a profound impact on the global economy and thus on global political stability. The United States has a huge stake in the outcome. We hope that, as the bargaining among nations proceeds, someone is asking these important questions.
Martin Feldstein, the former chairman of the Council of Economic Advisers, and his wife, Kathleen, also an economist, write frequently together on economics.