The Economist - USA (2019-07-13)

TheEconomistJuly 13th 2019 67

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or thepurposes of decision-making,

the imf’s 189 member countries are di-

vided into 24 constituencies of peculiar

shapes and sizes. Ghana, for example, be-

longs to the same group as Afghanistan. Ec-

uador sits with East Timor. But in choosing

the next boss after Christine Lagarde

moves to the European Central Bank in Oc-

tober, the most decisive constituency may

be a different group entirely: the “New

Hanseatic League”. This includes eight

small, northern members of the European

Union (eu) with bad weather and good

credit ratings. They lost out in the fight for

big eu jobs earlier this month. In compen-

sation they may have a large say in Europe’s

pick to lead the fund.

That could be good news for Mark Car-

ney, the charismatic and credentialled boss

of the Bank of England. As well as Canadian

and British citizenship, he holds a passport

from Ireland, one of the new Hanseatics. If

Ireland champions his cause in the league,

and the league backs him within the union,

he would be hard to resist within the fund.

By convention the imf is led by whichever

European candidate the Americans can live

with. And the Americans are unlikely to ob-

ject to him, especially after the Europeans

dutifully supported Washington’s choice

to run the World Bank earlier this year.

What about an Asian rival? One obvious

candidate is Tharman Shanmugaratnam, a

former finance minister and deputy prime

minister of Singapore, who also chairs its

monetary authority. As well as a back-

ground in economics, he has the virtue of

hailing from a small country that is neither

improvident nor imperious—the kind of

country that would be a member of Asia’s

Hanseatic league if it had one.

But even in a fair race he would struggle

to beat Mr Carney, who has run two of the

world’s biggest central banks. And given

the horse-trading between Europe and

America, the imf race will not be entirely

fair. Why, then, bother entering? Candi-

dates from outside Europe face a Catch-22:

anyone credible enough to win an un-

rigged race will not be crazy enough to en-

ter a rigged one. That is a pity, because a

contest might force the fund’s members to

think harder about the institution’s future.

In 2004 Mr Shanmugaratnam revealed

that he kept four canes in his cupboard,

one for each of his children. But he never

had to use them. That is many people’s ide-

al for how the imf should work. Borrowing

countries would live up to its standards of

economic behaviour, fearing that other-

wise it would refuse further lending. And

speculators would be intimidated by the

“flexible credit lines” and other tools in its

cupboard, meaning that they would never

test the currencies and creditworthiness

those tools are designed to defend.

In practice the fund rarely operates that

way. It is reluctant to cut its members off,

especially if they have powerful friends.

This month, for example, it approved a

$6bn loan to Pakistan, which has often

flouted its prescriptions in the past. And

even its biggest-ever loan, over $50bn ap-

proved for Argentina last year, was not

enough to stop capital fleeing and the peso

slumping in subsequent months. Rather

than rely on the uncertain protection of the

fund, many members have chosen to look

after themselves, accumulating over

$11trn-worth of reserves between them.

Its next boss will find its cupboard a lit-

tle bare. America is opposed to increasing

members’ “quotas”: their permanent fi-

nancial commitments to the fund (which

now come to $660bn). Instead the imfis

The International Monetary Fund

Changing of Lagarde

A coronation for the imf’s next boss will not prevent a fight over its future

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