Christine Lagarde will be giving an acceptance speech of sorts today. She has a lot to cover. First and foremost she will have to show that she has fully taken off her French Finance Minister hat and put on a global financial institution hat. She no longer represents French banks and citizens. She will have to strike a delicate balance that on the one hand shows she is serious about the Eurozone crisis but on the other shows that she recognizes that there are many other global challenges to be concerned with.
On the Greek crisis she should call for a fresh approach that puts all possible tools on the table, including a negotiated debt restructuring. She should then quickly recognize that there are other key problems that need to be addressed globally, such as the massive surge in “hot money” to East Asia and Latin America, and the need for a diverse set of tools (that includes capital controls) to address that problem as well. Furthermore, she should call on the need to address the problem of odious debt in Africa and beyond. And of course, she should also note the debt ceiling debate in the United States and send a signal to the US of the disastrous consequences of not raising the ceiling.
She should also pledge to make the internal workings of the IMF more ethical and balanced. She should revamp policies for sexual harassment and put in place a rigorous plan to have more women at higher positions at the IMF. She will also need to re-organize the economists and economic advisors at the Fund. The IMF’s own assessment of their role in the crisis showed that the IMF suffers from a ‘groupthink’:
“The IMF’s ability to correctly identify the mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and incomplete analytical approaches.”
There are too many economists from mainstream universities at the Fund. As Paul Davidson showed in an earlier post on this blog, virtually all of those economists—whether of the efficient market or New Keynes variety, subscribe to now discredited modes of economic thought. She will need to appoint economists from across the globe and those that have a diverse set of theoretical and methodological perspectives.