Re­forms afoot at IMF

But Manuel’s dream of re­dis­tribut­ing its vot­ing pow­ers won’t fig­ure

Finweek English Edition - - Economic Trends & Analysis -

FI­NANCE MIN­IS­TER Trevor Manuel seems a lot closer – tech­ni­cally – to see­ing a ma­jor global change he’s long urged come to fruition. That re­lates to sweep­ing re­forms in the make-up and pow­ers of the In­ter­na­tional Mon­e­tary Fund. How­ever, the cur­rent sit­u­a­tion is coated in quan­ti­ties of bit­ter­sweet irony.

Manuel is cer­tainly not go­ing to get what he re­ally wants in his long-time urg­ing of fun­da­men­tal re­dis­tri­bu­tion of vot­ing pow­ers at the IMF. What Manuel ac­tu­ally seeks is ma­jor change that will os­ten­si­bly give a greater voice to South Africa and, to a lesser ex­tent, to con­ti­nen­tal Africa – cru­cially, sub-Sa­ha­ran Africa – gen­er­ally.

Well, there may well be mas­sive re­con­struc­tion work ahead at the IMF – but not along Manuel’s lines. First, there are more pow­er­ful IMF “re­formists” than SA. And they have their own agen­das. Sec­ond, some de­vel­op­ing na­tions – above all, China – have pre­cisely what that lobby wants in­jected into the IMF: vast new re­serves of for­eign cur­rency. That’s also just what SA – run­ning an enor­mous deficit on the cur­rent ac­count of its bal­ance of pay­ments – hasn’t got.

Still, in one of many other ironies, cur­rent main head­line-hun­ters – Prime Min­is­ter Gor­don Brown of Bri­tain and Pres­i­dent Ni­co­las Sarkozy of France – may well also find their pub­lic­ity-seek­ing ven­tures ul­ti­mately turned against them.

Those two world leaders have both called for a “new Bret­ton Woods”. That was the venue in New Hamp­shire in the United States where both the IMF and the World Bank were cre­ated in 1944 as the Sec­ond World War moved to­wards clo­sure.

What Brown and Sarkozy have both ef­fec­tively pro­posed is a new era of “reg­u­lated cap­i­tal­ism”. Fur­ther, they have both put for­ward a “new look” IMF as the sug­gested arch-reg­u­la­tor. Their de­mands, made in the midst of a mas­sive global fi­nan­cial cri­sis, have nat­u­rally at­tracted much favourable sup­port. But there’s lit­tle in­di­ca­tion that idea has been thought through in any de­tail at all.

Far from work­ing closely to­gether, Brown and Sarkozy are in many ways com­pet­ing against each other. There are clear po­lit­i­cal self-in­ter­est rea­sons for that.

The world fi­nan­cial cri­sis has – most un­usu­ally – ac­tu­ally proved a big boon, at this stage, to Brown. The Bri­tish econ­omy was al­ready fac­ing huge prob­lems be­fore the fi­nan­cial cri­sis erupted. Fur­ther, Brown was per­son­ally re­spon­si­ble for much of that as Chan­cel­lor (fi­nance min­is­ter) for 10 years af­ter New Labour came to power in 1997.

So there are vi­tal po­ten­tial po­lit­i­cal gains for Brown from ar­gu­ing (a) that Bri­tain is now sim­ply caught up in a world calamity (“Noth­ing to do with me”) and (b) that Brown has pre­cisely the qual­i­ties of lead­er­ship and ex­pe­ri­ence that Bri­tain (and every­one else) cru­cially needs.

Sarkozy also has his own mo­tives. His pop­u­lar­ity within France plunged to record lows ear­lier this year af­ter the highs fol­low­ing his pres­i­den­tial victory in 2007. He was quickly and painfully re­minded the French are not free mar­ke­teers (ex­cept when it’s patently to their own ad­van­tage).

So Sarkozy switched to the kind of na­tion­al­is­tic pa­ter­nal­ism that usu­ally does well with French vot­ers. • He made clear France would ig­nore any di­rec­tives from the Euro­pean Union pro­mot­ing more com­pe­ti­tion if those threat­ened any per­ceived, sig­nif­i­cant French in­ter­ests. He also an­nounced France would set up its own “sov­er­eign wealth fund” – pri­mar­ily, to block for­eign own­er­ship of any “strate­gic” na­tional eco­nomic in­ter­ests. Mean­while, Ger­many had been lead­ing EU op­po­si­tion to any op­er­a­tions by “se­cre­tive” Asian sov­er­eign funds tak­ing im­por­tant stakes in the Euro­pean econ­omy.

So France and Ger­many – with Bri­tain go­ing its own way – are once again fight­ing for eco­nomic/po­lit­i­cal lead­er­ship of the EU. Bri­tain won’t even join the euro sin­gle-cur­rency area and France dis­re­gards the EU when­ever it be­lieves the stakes are high enough. How ab­surd, then, for ei­ther Brown or Sarkozy to pre­tend they’d sub­mit their sovereignty to the IMF.

Se­bas­tian Mal­laby, di­rec­tor of the Cen­tre for Geoe­co­nomic Stud­ies and a for­mer se­nior writer at The Econ­o­mist and The Wash­ing­ton Post, adds yet more irony.

He ob­serves: “The credit bub­ble that has wreaked havoc on world fi­nan­cial mar­kets has its ori­gin in a two-headed mon­e­tary or­der. Over the past five years China kept its cur­rency cheap. This new ver­sion of com­pet­i­tive cur­rency ma­nip­u­la­tion in­flated a credit bub­ble that has now popped dis­as­trously.”

Mal­laby con­tin­ues: “But the Bri­tish and French leaders who have pushed most strongly for the global eco­nomic sum­mit in the US on 15 Novem­ber (Manuel will be there) will hardly men­tion the cur­rency is­sue. That’s be­cause China isn’t go­ing to give up its ex­port-led strat­egy for the sake of the in­ter­na­tional sys­tem – un­less it gets a much big­ger stake in that sys­tem.”

Mal­laby adds, crit­i­cally: “That would mean a much big­ger Chi­nese voice in the IMF and a re­duc­tion in Europe’s ex­ag­ger­ated in­flu­ence. Nat­u­rally, the Euro­peans aren’t propos­ing this.”

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