Last week our CGD and Peterson Institute colleague Arvind Subramanian called on the IMF to speak truth to power, in an elegant cri de coeur in the Financial Times. The IMF, he notes: “has not provided independent intellectual leadership, most evidently on the eurozone crisis. And it is unprepared to provide stability for the next big global crisis.”
It’s tempting to get on the bandwagon and agree that the IMF has failed and is failing to speak frankly on the eurozone mess, and that Managing Director Christine Lagarde ought to be more visibly pounding the pavement for more resources (See “Mme. Lagarde: Where Are You When the World Needs You?” last November from Arvind, and this blog post of mine also last November with Amar Bhattacharya about the IMF’s lack of sufficient resources for the developing countries if the Eurozone implodes and imposes on the rest of the world the fallout.)
But surely most if not all the blame is not with the bureaucracy and the managing director. Surely it is with the powerful members of the institution, gathered regularly at G20 meetings, and especially with the United States and Europe – which still hold the cards, in quota shares, votes, and influence. Here’s what the FT’s Alan Beattie had to say on the issue (here):
In theory there is a clear organisational differentiation between IMF staff and management – including the managing director, currently Christine Lagarde – on one side, and the fund’s executive board of its shareholder countries on the other. In practice, a culture of consensus often seeps across the divide. Most board votes are unanimous, and management will not propose a course of action without knowing in advance that the board will support it. Thus, consciously or not, the analysis of the entire institution can be pushed towards playing it safe.
Some recommend distinguishing between staff reports and “official” Board-approved reports. But in a consensus-driven system it’s hard to imagine that would work.
And if the bureaucracy can’t be truthful with analysis, should we expect its leader to be able to effectively command more resources?
If you really want to feel down about the IMF and its weak and flailing role in managing the global economy, check out what FRPZ (Frieden, Rodrik, Pettis and Zedillo) have to say about global economic governance in general (here). They set out four reasons to reduce your expectations: dismal track record, limited normative justification (they argue that financial sector regulation can and ought to be largely dealt with by domestic fixes within countries – the notable exception is global climate change); domestic political obstacles, and preference heterogeneity.* That last one is a fancy way of saying China and Brazil might have different perspectives than the United States and Europe.
(The development community should worry in particular about the need for global cooperation to deal with climate change. For one approach see my new paper here proposing a mandate for the World Bank with or without a so-far unfunded Green Climate “Fund”.)
*Thanks to Dennis Whittle for correction.