If any­one can save us, Strauss-Kahn

The Jewish Chronicle - - Business -

AS THE world has sought to re­cover from the great panic of last au­tumn and the calami­tous drop in as­set prices, trade and out­put, no one has been more im­por­tant in driv­ing re­cov­ery than the manag­ing di­rec­tor of the In­ter­na­tional Mon­e­tary Fund, Do­minique Strauss-Kahn.

suave French­man, with mati­nee idol looks, Strauss-Kahn has shown a rad­i­cal­ism pre­vi­ously un­known among IMF leaders.

To­gether with his se­nior deputy John Lipsky, a for­mer chief econ­o­mist at Wall Street bankers JP Mor­gan, the IMF is un­der­tak­ing the big­gest tran­si­tion since it was de­signed at Bret­ton Woods in 1944.

Strauss-Kahn was born in the Paris sub­urb of Neuilly-sur-Seine to Jewish par­ents in 1949. His pe­riod as head at the IMF has not just been about steer­ing the global econ­omy out of slump. It has also been about strength­en­ing his CV as the most able French So­cial­ist ca­pa­ble of chal­leng­ing Ni­co­las Sarkozy for the French pres­i­dency in 2012.

His will­ing­ness to change the cul­ture of the IMF -— to meet the stern ev­ery­thing had been so called fis­cal con­sol­i­da­tion — a po­lite name for cut­ting bud­gets and rais­ing taxes. Over the decades, na­tions fac­ing fi­nan­cial dif­fi­culty had feared go­ing to the IMF for loans be­cause of con­cern that its rec­om­men­da­tions might af­fect their po­lit­i­cal fu­ture and even lead to ri­ots on the streets.

Bri­tain it­self ex­pe­ri­enced the bad medicine when De­nis Healey was forced to take an IMF loan in 1976 amid a full-scale ster­ling cri­sis.

Strauss-Kahn changed all of this. To­gether with Lipsky, from a Jewish fam­ily in Iowa, he de­signed a new flex­i­ble loan fa­cil­ity, a kind of over­draft for strug­gling coun­tries which is in­stantly dis­bursed without con­di­tions. As the fi­nan­cial cri­sis wors­ened in the au­tumn of last year, a se­ries of na­tions from East­ern Europe to Mex­ico took ad­van­tage and drew down tens of bil­lions of dol­lars of loans.

So great was the de­mand that at the G20 Lon­don sum­mit in April 2009 heads of state com­mit­ted to raise some $750bn of new cash for the IMF so that it could con­tinue to keep dis­as­ter at bay.

Strauss-Kahn, in a de­par­ture with the past, also promised to make emer­gency funds avail­able to the poor­est coun­tries of Africa — cut off from cap­i­tal flows — at zero in­ter­est.

He made this prom­ise even though he knew the money was not there. At this month’s IMF an­nual gen­eral meet­ing in Is­tan­bul, Strauss-Kahn was able to an­nounce that he had per­suaded Bri­tain and France to use a small pro­por­tion of their fund quo­tas — the equiv­a­lent of share­hold­ings — as se­cu­rity for loans to fi­nance the African fa­cil­ity.

But Strauss-Kahn’s big­gest sur­prise is his will­ing­ness to take on the global banks re­garded by many as the main cul­prits for the credit crunch, sub­se­quent mar­ket panic and global re­ces­sion. The resur­gence of the prof­its and bonus cul­ture — at a time when un­em­ploy­ment and poverty are still ris­ing — re­mains at source of ten­sion.

At the G20 meet­ing in Pittsburgh, the IMF was au­tho­rised to look at ways of calm­ing bank prof­its.

The IMF’s manag­ing di­rec­tor has lost no time. He dom­i­nated the head­lines in the Bri­tish press when he re­vealed that he has asked Lipsky to look at the idea of a ‘Tobin tax’ on banks. In the 1970s, the late James Tobin, a No­bel prize winning econ­o­mist, pro­posed tax a small tax on for­eign ex­change trans­ac­tions with the money raised used to set up a fund for de­vel­op­ing coun­tries.

The idea floun­dered but was re­vised again by the head of the Fi­nan­cial Ser­vices Au­thor­ity Adair Turner in an in­ter­view in late Au­gust. It was won sup­port in Ger­many and France and now the IMF has now launched its own study with a view to set­ting up an “in­sur­ance fund” which would hold re­sources to deal with fu­ture crises.

His­tor­i­cally, the main bar­rier to a Tobin-style tax has been en­force­ment.

But the strength­en­ing of global fi­nan­cial gov­er­nance with the empowerment of the G20 means that reg­u­la­tory ar­bi­trage, the mov­ing of op­er­a­tions off­shore to avoid tax, has be­come more dif­fi­cult. More­over, the anti-bank mood in many of the West­ern economies means that a broader trans­ac­tion tax, aimed at ex­cess prof­its, looks fea­si­ble.

Agree­ment clearly is a long way off but one should not un­der­es­ti­mate Strauss-Kahn’s po­lit­i­cal clout. Alex Brummer has been named Fi­nan­cial Com­men­ta­tor of 2009 at the Com­ment Awards, or­gan­ised by Ed­i­to­rial In­tel­li­gence, for his work at the Daily Mail

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