Lagarde’s conviction shows why IMF needs sort of reform it demands from others
Posted on December 20th, 2016

Ambrose Evans-Pritchard  Courtesy The Sudney Morning Herald

The International Monetary Fund seems cursed. One managing-director embroiled in scandal is perhaps unlucky: to suffer three in a row starts to look serious.

First it was the Spaniard Rodrigo Rato, now awaiting trial for embezzlement for allegedly running a “corrupt system” at the helm of Bankia. Then it was France’s Dominique Strauss-Kahn, accused of louche conduct in a New York hotel room.

Now it is the turn of Christine Lagarde, inheritor of the French IMF fief and yesterday convicted of criminal negligence by a top French court. The guilty verdict certainly calls into question her full fitness to lead a financial superpower with resources of $US668 billion ($921 billion), and vice-regal dominion over whole countries and societies.

All three are European, the only race able to compete for the post under the Bretton Woods carve-up after the Second World War. The fact that this has led to trouble is not accidental. “European politics has become very corrupt. It is almost inevitable that the European system will throw up people who have done something that will later be construed as having crossed the line, and who are therefore tainted,” said Ashoka Mody, IMF former deputy director for Europe.

This European stranglehold over the fund is now over. Whether Mrs Lagarde finishes her second term – an open question – it is inconceivable that the next IMF chief will be chosen in the old cosy way. The Asian powers will not tolerate it any longer. If nothing is done, they will walk away and create their own structures, probably revolving around China.

The fund mishandled the East Asia crisis in 1998, imposing fiscal retrenchment that went far beyond the therapeutic dose, and dished out the same medicine to countries as starkly different as Korea and Indonesia. It was bad economic science. Asia’s rising powers concluded the IMF system was stacked against them.

The Class of 1998 turned instead to “self-insurance” by building up such vast foreign reserves that they would never again be at the mercy of the fund. This accumulation of excess savings led to the pre-Lehman capital glut and is a key reason why the world economy has been so far out of kilter for 15 years, ending in a global liquidity trap.

When the European crisis blew up, the fund was suddenly all too willing to bail out countries – and on terms that were not available for the Asians, or the Latin Americans before them. Between 2011 and 2014 a series of rescues used up 80 per cent of its total lending.

The IMF remains vital to the global financial system but it has clearly lost its way. Cleansing must begin from the top down. This could start with the appointment of former Indian central bank governor Raghuram Rajan, or the Korean chief economist of the Bank for International Settlements, Hyun Song Shin. George Osborne need not apply.

To be fair to Mrs Lagarde, the case against her is bizarre. There was no allegation of personal gain. It would not be a criminal matter in the US or the UK. The controversy dates back 2008 when she was French finance minister, and has nothing to do with the IMF.

It appears a harsh ruling. There was no evidence – at least so far – that she bowed to pressure from then president Nicolas Sarkozy’s political machine.

In a larger sense the details of the case hardly matter. Her travails crystallise a feeling that the IMF has been in the wrong political hands for a long time. It needs exactly the sort of reform that it demands so clinically from the hapless countries that fall under its tutelage.

The Daily Telegraph, London

One Response to “Lagarde’s conviction shows why IMF needs sort of reform it demands from others”

  1. Kumari Says:

    Christene Lagarde is a favoured person, just like Hillary. They are serving the NWO (New World Order).

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