Economist Simon Johnson says "no."
The most likely candidate to run the IMF (of which Johnson was once chief economist) is Christine LaGarde, the very smart, articulate French finance minister. LaGarde is doing a tour de monde at the moment, trying to guarantee her elevation to the managing directorship of the IMF.
Bad choice, says Johnson. Not so much LaGarde personally as LaGarde as representative of a nation which, among other European nations to use IMF funds to cover their own, um, political liabilities. The US, which is a major contributor of funds to the IMF would once against find itself putting American taxpayers' money into an iffy use of those funds.
Think of the IMF as -- this is how Johnson describes it --" essentially a credit union owned by 187 countries – with voting based on ownership shares that reflect relative economic size."
The European Union “owns” about 30 percent of IMF, so 70 percent of any money at risk belongs to other countries: about 17 percent US, 7 percent Japan, 35 percent emerging markets, plus some more mixed sets of countries. The managing director of the IMF is the impresario of any bailout. The big decisions must be negotiated with all significant stakeholders but this still leaves enormous scope for discretion.
If Ms. Lagarde becomes managing director she can directly influence the terms of IMF involvement – and based on her negotiating position to date within the eurozone, we can presume she will lean towards more money, easier terms, and above all no losses for the banks that made foolish loans.
Right now, France (and other European countries) want to put Greece back on an even keel. But they don't want to risk the political consequences if they're forced to make their own taxpayers pay for it. How much nicer to have LaGarde in the IMF to "guide" a decision to make American taxpayers -- along with other non-Euro countries -- pay the tab.
The French want to sway decision-making at the IMF in order to use US, Japanese, and poorer countries’ money to conceal from their own electorate that the eurozone structure has led all its members into serious fiscal jeopardy – some borrowed heavily, while others let their banks lend irresponsibly and thus created a large contingent liability.
The best way to hide the true cost is to have other people’s taxpayers foot the bill, preferably with the least possible transparency. There is a lot at stake for eurozone politicians. Ms. Lagarde will run the IMF.
Simon Johnson was interviewed about this today on NPR. He also writes about it in his blog. "Baseline Scenario."
