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This article was first published 14 years ago  » Business » India, US could agree on reinventing IMF

India, US could agree on reinventing IMF

By Sanjaya Baru
April 07, 2010 10:06 IST
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Meeting of minds is needed and possible between India and the US, says Sanjaya Baru.

This photograph, of an imperious Michel Camdessus, former managing director of the IMF, standing hands folded like a schoolmaster, peering over a bent President Suharto of Indonesia, signing up for an IMF bailout and policy advice, is etched deep in the psyche of every south-east Asian.

It is the one visual, the one moment, that will forever mark the turning point in the global standing of the Fund.

The Fund's handling of the financial crisis in South Korea, Thailand and Indonesia in 1997-98 has made it deeply unpopular across east and south-east Asia. It has helped revive, under Chinese aegis, an earlier Japanese proposal for the creation of an Asian Monetary Fund (AMF).

The gathering pace of this idea and Europe's own woes and a loss of self-confidence have prompted the idea of a European Monetary Fund.

Fighting this regional sentiment and seeking renewed credibility the IMF has taken several measures, including softening up its hard conditionality windows of lending. Yet, few countries around the world feel comfortable knocking on the Fund's door for help, despite the help from the G-20 in garnering resources.

India's finance minister Pranab Mukherjee wears even now his return of the last tranche of an IMF loan in 1984 as a badge of political honour.

Nothing short of a major restructuring of the management of the organisation and a proper recanting for past sins of omission and commission of the so-called "Washington Consensus" will re-legitimise the Fund in the eyes of many across the world.

Some see a change in ownership and management as a way out, but this is easier said than done.  Others, like economist Barry Eichengreen, see the 'professionalisation' of the Fund as the answer. Dr Eichengreen wants the next managing director of the Fund to be chosen on the basis of merit rather than nationality or race.

It is the kind of argument Indians are familiar with in discussions at home on reservations and affirmative action.

No one knows this better than incumbent IMF managing director Dominic Strauss-Kahn and his many European predecessors. None of them fancy themselves with the thought that they got the job on merit.

They had to lobby hard and, more often than not, their governments lobbied hard to get the job. Often a rival at home would help to get the person sent across the Atlantic! Mr Nicholas Sarkozy, we are told, dreads the idea of Mr Strauss-Kahn returning home, much like incumbent civil servants in Delhi dreading the return of a potential rival serving abroad!

Dr Eichengreen does not spell out on what basis the 'merits' of a potential candidate will be decided, and who will do this. He talks of 'ideas' - but the crisis staring the IMF is nothing but a clash of ideas.

Who will define what is a 'good' idea? If, at the end of the day, the final decision is based on the wisdom of major shareholders then it is their prejudices that will define the qualifications. The coat will be cut according to the cloth.

The debate on succession at the IMF recalls to mind the original debate between John Maynard Keynes and Harry Dexter White - the twin architects of the Fund. Keynes' biographer Robert Skidelsky tells us (in J M Keynes: Vol 3- Fighting for Britain, 1937-1946, Macmillan 2000) that Keynes in fact wanted a 'professional' IMF, not a 'governmental' institution.
Keynes, says Skidelsky, felt "all governments liked to have positions available where they could pension off people past their prime, but it would not make the institution efficient to have these people hanging around." (p.466)

Seeking to "protect the Fund from preponderant US political control" Keynes saw "the managing director as analogous to the governor of a central bank, ultimately accountable to his board, but not under its day-to-day control". By contrast, says Skidelsky, "American conception of the Fund was hegemonic."

Skidelsky's account of Keynes' last days in and around Bretton Woods present the picture of a man saddened by the turn of events. Keynes wanted to create a professional organisation, Mr White and his colleagues at the US Treasury wanted to create a multilateral organisation that they could control and through which they could manage the global economy.

Keynes went to Bretton Woods with economists and bankers, White arrived with lawyers and government officials. Keynes lost the battle and died in the trenches, so to speak.

So, it is amusing to see an American rediscover the virtues of Keynes' original idea of a professionally managed IMF. But much water has flowed down the Potomac, the Yangtze and the Ganga.

When Japan wanted Toyoo Gyohten, the then chairman of the Bank of Tokyo, to succeed Mr Camdessus as IMF managing director in 1995, at the Fund's famous 50th anniversary annual meetings in Madrid, the trans-Atlantic powers conspired to keep an Asian out and gave Mr Camdessus an extension.

This prompted Japan to float the idea of an AMF and the US ensured, with China's help, that it was still-born.

Today, it is China that wants an AMF. It may well settle for less if it gets a bigger voice at the Fund. Faced with internal disarray, Europe is talking about an EMF. These proposals are not just about new power equations but about new ideas too. Some even talk of a 'Beijing Consensus' in economic management.

India is not particularly enamoured by the AMF idea and would much rather see the Fund revitalised and reinvented as a multilateral institution. Indeed, there could be a meeting of minds between India and the US on the IMF's future.

It is certainly a subject that can engage the attention of the visiting US treasury secretary Timothy Geithner and his Indian interlocutors.

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Sanjaya Baru
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