IMF Top Post – Why Christine Lagarde is the Best Choice and why India must support her Jun12

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IMF Top Post – Why Christine Lagarde is the Best Choice and why India must support her

IMF’s Director – India must support Christine Lagarde

After Dominique Strauss Kahn’s ignominious exit from the top post at IMF, analysts and policy makers across the globe have debated and speculated on the successor to the top post. Christine Lagarde, the French Finance Minister has emerged as the most prominent contender for the post and has been on a tour across the most powerful nations in the world to drum up support for her bid. Traditionally a European has headed the IMF while an American has headed the World Bank in an unwritten pact since the formation of the two institutions at the legendary Bretton Woods Conference. Recently however the BRICS (Brazil, Russia, India, China and South Africa), a grouping of emerging nations, has spoken out against this practice that fails to recognise the growth poles of the world and have been clamouring to end the domination of Europe and USA at major multi-lateral institutions, a tradition that many view as colonial and out-dated. The Europeans are firmly backing their candidate while the United States has been non-committal so far. The emerging nations, despite their concern have not yet been able to rally together to support a single candidate. Stanley Fischer from Israel and Augustin Carsten from Mexico are other prominent contenders in the race.

I am however of the opinion that India must support Christine Lagarde for her bid. There are several reasons for this. Firstly, India stands to gain very little by supporting a candidate from the BRICS nations. India’s own candidate, Montek Singh Alhuwalia has been deemed to be too old for the job, with the age limit being 65. Few Indians are surprised; our leaders are amongst the oldest in the world with most top posts being occupied by men over the age of 70. The head of governments in both USA and UK are under the age of 50 showing the willingness of the electorate to accept young and energetic leaders. The BRICS nation is a grouping based on growth rates and economic sizes, not similarity in policies. Brazil is a mineral exporting nation; China is a mineral and energy importing and manufactured goods exporting nation; South Africa exports minerals, prominently diamonds while Russia exports crude and defence technologies; while India, the poorest nation of the lot is an energy importer and outsourcing centre. The nations are diverse in terms of size (Russia is around 6 times larger than India), standard of living, political scenario (China is Communist), currency policy, trade deficit and fiscal deficit. India may in fact stand to lose a lot if a Chinese candidate ascends the top post as Chinese currency policies (The Chinese government keeps the renminbi low on purpose to encourage exports) are hurtful to Indian domestic manufacturers. India may however stand to gain significant goodwill with the European world if India remains neutral or goes all out in support for Christine Lagarde. That is the first argument for supporting her. Secondly, the IMF is an institution that is largely irrelevant across most parts of the globe. Presently engaged in European fiscal rescue operations, the IMF is largely relevant to Europe but otherwise useful to only a bunch of fiscally struggling nations spread all across the globe. Thus India must not seek influence at the IMF, it has little to gain. Furthermore, clout at the IMF, the voting system, is based on the amount of capital contributed by member nations. Rather than increase India’s contribution at the IMF to increase our influence at that global body, India, a poverty stricken nation with high inflation would do better off using the money at home in poverty alleviation schemes. Or if India wishes to expand its foreign policy footprint it must directly engage with nations and continents the way it is doing in Afghanistan, Myanmar and Africa with a good degree of success.

The most important argument however is the European Sovereign Debt Crisis. Brought about by years of indiscrete expenditure by a few European governments, encouraged by their integration to the Euro and accentuated by the Global Financial Crisis, the European Sovereign Debt Crisis is the most serious issue that the IMF has been involved in since its inception in 1945. The IMF has extended bi-lateral loans to Greece and Portugal and has promised to extend credit facilities to any other struggling nation in the European Union if requested. The IMF has already broken several of its precedents and by-laws in its charters by lending in this manner to the fiscally struggling European Nations but it is vital to continue doing so. If any one of the PIIGS (Portugal, Italy, Ireland, Greece, Spain), a grouping of European nations that are struggling with their government debt and fiscal deficit, is not able to re-pay its obligations, it will spark off a crisis that would result in multiple bank failures, collapse of banking systems, collapse of the European Central Bank and a recession so ferocious that it would make the Global Financial Crisis look like small change. The emerging nations however share a myopic view of the situation. While Dominique Strauss Kahn, a citizen of EU’s second largest nation (France) had a complete grasp over the situation and a commitment to continue extending support, an emerging nation’s head may not extend full support. Without the full support of the IMF, which has pledged credit upto 220 billion Euros, the European economy would most probably implode setting off a crisis that would affect all prominent economies.

In conclusion I suggest that is better for Christine Lagarde, another French citizen to ascend the position as the French are at the centre of the fiscal rescue efforts and she would have a complete commitment to the cause of bringing Europe to fiscal and financial stability once again.

India: Support Christine Lagarde.