By Robert E. Kelly
It is not surprising that Dominique Strauss-Kahn was compelled to resign. Even if he is found not guilty, the images of him in handcuffs, being pulled off a plane, standing sullenly in a court make it hard to keep him. Paul Wolfowitz too was forced out of the World Bank presidency several years back for a similar, less egregious, personal affair.
The managing director of the International Monetary Fund (IMF) must command a certain global prestige and reputation in order to help push recalcitrant borrowers to mend their ways. Done badly, this can lead to deep rifts, as evidenced by Asia’s estrangement from the Fund for nearly a decade following the Asian financial crisis.
Asia’s practice of “self-insurance” ― stockpiling huge dollar reserves in order to avoid recourse to the Fund in a crisis ― has undercut the Fund, as has the Chiang Mai initiative. Asian stockpiling also made U.S. over-borrowing easier in the last decade. A reputable, politically neutral Fund giving unvarnished advice is the ideal.
The issue of his replacement brings up a long-standing dispute over the leadership of the Bank and Fund. Precedent says the Europeans pick the IMF chief, and the U.S. picks the World Bank president. This logic was based on the, previously reasonably accurate, claim that the North Atlantic represented the core of the world economy. Of course, it was more than this; prestige has always played a huge role, particularly for the Europeans. Having the IMF sinecure helped buttress Europe’s self-image as central to global governance.
But you hardly need to be an economist to know that Europe’s role, relative to that of the U.S. and Asia, has been in decline for a while. Decolonization generally reduced Europe’s global footprint. Decades of slow growth and declining military spending has vaulted the U.S. past the EU in the transatlantic partnership. The seemingly endless inability of the Europeans to put the EU into good working order ― the euro mess, the constitutional-institutional Rube Goldberg structure of the EU itself, the continuing inability of outsiders to know who “speaks” for Europe ― cripples an EU global role.
Just about everyone outside Europe thinks that the EU should have one EU seat on the U.N. Security Council, not two for Britain and France. Henry Kissinger famously quipped that he did not know whom to call if he wanted to talk to Europe, and that question is still unresolved. And of course, the rise of Asia has relatively squeezed the EU more than the U.S. I was at a conference last year where I made this point, and the EU speaker could at best only respond that the EU was a “foreign aid superpower.” If that is all you got, it is time to step aside and allow the “New Core,” Asia, to have a crack at the top table of world politics. And last year, when I was at an IMF conference in Daejeon, Asian questioners did in fact ask Strauss-Kahn this, and his response was, yes, the managing director after him should be an Asian.
Everyone knows that Asia’s weight in the global economy has grown dramatically in the last several decades. The IMF’s own voting quotas have been re-ordered to reflect this. Chinese, Japanese, and Indians have already been pretty high up in the managerial order in both the Bank and the Fund.
My own sense is that a Japanese banker would be an excellent choice. Japan is the most open and mature of the Asian economies. The Bank of Japan (BOJ) has been downright heroic in its battle against deflation for years now; it is vastly more serious about Japan’s economic problems that its politicians. The BOJ has tremendous skills on issues that dog IMF debtors, like government debt, the money supply, or slow growth. A Chinese might be a more controversial choice, one the U.S. and EU might veto, because China is highly interventionist and still a formally communist country. If China would object to a Japanese, likely out of sheer nationalist resentment, then what about a Korean, Indian or Singaporean?
In short, Asia’s time to run one of the two Bretton Woods Institutions has arrived. Europe’s economic claim to that leadership role is now much-reduced. The euro is a mess; EU economies are carrying huge debt burdens; the EU remains unable to find a common voice despite decades of waiting and endless speculation; and the last few Europeans to run the IMF have been pretty meager ― Rodrigo De Rato lasted just three years (2004-07) and used the position to jockey for political position at home in Spain; before him, Horst Koehler (2000-04) did the same.
In fact, the only argument to keep a European one more time, from German Chancellor Merkel, is based on Europe’s weakness, not its strength; that is, because the IMF’s most important work in the next few years will be in Europe, it should have a European. But this strikes me as too clever-by-half and yet another gimmick to keep Asia from its clearly-earned place to run these institutions occasionally.
By any reasonable criteria, Asia is qualified ― probably more qualified actually given Europe’s parlous economic state today ― to take the IMF leadership. The inevitable arguments to be heard in the next few weeks about Europe’s “weight” in the global economy will be just to mask the real, tribal and prestige-driven desire to hang onto the last shreds of influence in an increasingly “post-Atlantic” world.
Robert E. Kelly is an assistant professor of international relations in the department of political science and diplomacy at Pusan National University. More of his work may be found at his website, AsianSecurityBlog.wordpress.com.