The Dominique Strauss-Kahn debacle has brought significant attention to the International Monetary Fund (IMF) and who might head it as next managing director. The discussion is a vast improvement over the past, when the Europeans could simply pick their own head of the IMF, with US approval. That said, the debate has become “who is better than Christine Lagarde?” the French Finance minister. A handful of names have popped up, which is welcome. Columbia University’s Joe Stiglitz has said we should just go with Lagarde, Paul Krugman has endorsed Stanley Fischer, the former MIT economist and current head of the Israeli central bank.
What is shockingly missing from these and other commentaries is a discussion regarding what a new IMF needs to do and then who is up to that task. We know that the IMF is knee-deep in the European debt crisis with billions in commitments (whether that was the right thing to do is hardly questioned), so why don’t Stiglitz and others discuss the fact that Lagarde has been at the center of the botched bailouts there?
The IMF has made some significant steps toward reform as of late. One key development has been their recognition that the free flow of capital is not always beneficial in terms of financial stability. So it comes as a bit of a shock that someone like Paul Krugman would endorse Stanley Fischer. Fischer was behind the capital account liberalization push at the IMF in the 1990s that brought down Asian governments.
The debate has brought up the valid idea that the IMF top job shouldn’t go to someone in the West given that the West it largely responsibile for the financial crisis. The leading emerging market candidate is Augustin Carstens from Mexico. In the following piece I argue he would be just as bad or worse than many of the advanced country picks. His economics and record have been right out of the Fischer et al., playbook.