Aside from the universal magnet of a Special Victims Unit sex scandal, what does the arrest of International Monetary Fund Managing Director Dominique Strauss-Kahn have to do with Seattle and the Northwest? As a world trade center, we should be concerned about anything that injects instability into the markets. As a region facing Asia, we should take note of what happens with China and the Fund.
China is now one of the top shareholders of the IMF (the U.S. being the largest). The top job at the IMF has historically gone to a European. But pressure has been growing to select a managing director from among the developing world, particularly the BRICS (Brazil, Russia, India, China and South Africa). Strauss-Kahn has already announced he would be leaving the job, and it has been widely anticipated he would run for the French presidency. The allegations of sexual assault in New York, even if Strauss-Kahn is found not guilty, will wreck his career. They do nothing to help the institutional credibility of yet another bulwark of the global economy.
The IMF was founded after World War II as one of the American-conceived institutions to promote currency stability and economic liberalization, avoiding the kind of economic crises that helped give rise to the Nazis. It has money and power — the IMF is one of the critical players in the bailouts of wounded European economies right now. It’s also been criticized for its heavy-handed conditions on poor nations that get in trouble and need an IMF rescue. It’s been successful, sometimes at a heavy cost to average people in developing countries. Too close to Wall Street and free-market dogma? Probably.
Right now, the person in charge is American John Lipsky, a technocrat and trained economist with none of Strauss-Kahn’s charisma (and none of his baggage). But Lipsky is only in temporary charge. When it comes time later this summer to name a new IMF chief, will the world’s second largest economy demand a seat at the head of the table? Probably not. But with Europe in turmoil it’s not inconceivable. And that — or China’s backing of a BRICS managing director — could change the IMF.
Today’s Econ Haiku:
Tunnel to the U
Infrastructure and more jobs
Slow though it may be