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Most Americans had barely heard of the International Monetary Fund before the arrest of its managing director, Dominique Strauss-Kahn, for sexually assaulting a hotel housekeeper. Yet the race to replace him offers a chance to rethink everything about what the real American interest is in the IMF–including whether its continued existence is beneficial.
The top contenders for Strauss-Kahn’s job are French Finance Minister Christine Lagarde and Bank of Mexico Governor Agustin Carstens. Europeans have headed the IMF since its founding, as Americans have led the World Bank — prerogatives that Third World countries increasingly resent as vestiges of colonialism. Carstens’ candidacy is the most visible manifestation of this rising discontent.
Until now, America has reflexively supported the IMF candidate chosen by Europe, in a tacit deal whereby the Europeans always backed Washington’s selection of an American to head the World Bank. Needless to say, the Third Worlders don’t like that deal at all.
(Stanley Fischer, a former IMF deputy managing director, now head of Israel’s central bank, also announced his candidacy, but he was quickly rebuffed, ostensibly because he was two years over the IMF’s retirement age. The real reason was that he is an Israeli who also holds US citizenship, two politically fatal negatives in the world of international organizations.)
Europe is eager to keep the top IMF job not simply because of geographical chauvinism but because continued IMF assistance is critical to European Union efforts to bail out the fractured economic and fiscal system in Greece and several other EU countries. Lurking behind the bailout crisis is the EU’s growing panic over the viability of its currency, the euro. Having a sympathetic ear at the IMF’s pinnacle seems absolutely critical to protect Europe’s parochial interests.
What of America’s interests? We should have long ago resisted throwing our scarce resources, through the IMF or otherwise, into the sinkhole of defending the euro. The currency was always conceived to be as much a political statement as an economic policy: Its European proponents believed the euro would enhance Europe’s strength as an alternative and perhaps rival to America.
If the United States and a few other developed countries like Japan decide to break with Europe over this vote, the IMF’s voting system, based on world-wide economic strength, makes defeating Lagarde a real possibility.
Today’s IMF does little or nothing for US national interests, especially when we face enormous domestic economic challenges. Why should Washington not support Carstens, break the EU hold on the IMF and stop IMF support for the euro? An added irony: Many Europeans criticize Carstens for his University of Chicago education, when economics perspective is exactly what the IMF (indeed, Europe itself) needs.
In fact, it is again time to ask why the IMF continues to exist at all. In 1998, former Treasury Secretaries George Shultz and William Simon and former Citicorp Chairman Walter Wriston argued that the IMF should be abolished. Writing amid the Asian financial crisis, they criticized country bailout efforts — warning that, “further bailouts, unprecedented in scope, will follow.” Finding the IMF “ineffective, unnecessary and obsolete,” they argued that Congress should give it no further funds.
Shultz later observed that “major governments have used the [World] Bank and the IMF to sponsor activities favored by government officials whose own taxpayers would not foot the bill.” Exactly the point today.
Yes, abandoning the Europeans at the IMF will inevitably weaken America’s monopoly on the World Bank presidency; so be it. Holding the top Bank job is now a dubious distinction. Serious scholars of foreign aid like Nick Eberstadt long ago called for it to be privatized. Why continue to give subsidized loans to rapidly developing nations like China and India? And a privatized World Bank would no longer require US government support, reducing our own (soaring) budget deficits.
John Bolton is a senior fellow at AEI.
Today’s IMF does little or nothing for US national interests, especially when we face enormous domestic economic challenges. Why should Washington not support Agustin Carstens, break the EU hold on the IMF and stop IMF support for the euro?
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