Last week, Peter Doyle, an International Monetary Fund (IMF) economist quit his position in a huff. Short of saying that IMF was incompetent, this veteran of 20 years at the fund raised questions about the legitimacy of the manner in which the organization’s top leaders are selected.
The International Monetary Fund (IMF) was established in a very different world—in terms of economic ideas and realities and also in political terms. The world was “closed” and if countries got into economic trouble, it was usually due to imbalanced exchange rates and balance of payments (BoP) problems.
In the last two decades, there has been a sea change in the world. Economies that often got into trouble (India, Brazil and South-East Asian countries among others) are global powerhouses. Erstwhile low-risk countries are today the new trouble zones. Greece, Spain and Italy are obvious examples.
In his resignation letter, Doyle made a less than flattering reference to the current IMF managing director Christine Lagarde: “Even the current incumbent is tainted, as neither her gender, integrity, or elan can make up for the fundamental illegitimacy of the selection process.” This should not be read as the animus of a discontented employee but as a hint at the inability of a multilateral organization to understand and appreciate the problems of a changed world. In the Greek, Spanish and Italian cases, for example, there are no exchange rates and BoP problems. Instead, the banking and financial systems of these countries are in a crisis because of the lax political conditions that prevailed there.
This calls for an IMF chief with formidable skills at coordinating political and economic matters in these and other countries. But because Lagarde is from the continent where these troubled economies are located, the chances of political conflicts of interest in lending and her ability to wield the whip freely—as the IMF did in the case of developing countries in the past—are in doubt. The basic issue, however, is the IMF’s “legitimacy deficit.” The chief of IMF continues to be a European come what may. This “division of spoils” between the US and Europe at the World Bank and IMF makes them suspect in the eyes of many countries.
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