Mme. Lagarde’s IMF: Courage more than Heuristics


Our last posting suggested that the IMF exhibit courage in their next selection of a Managing Director. Although we had shown reservations towards a European selection, we confess that the appointment of Mme. Christine Madelaine Odette Lagarde to a five-year term by the IMF Executive Board must have involved great discernment and caution.  The IMF certainly demonstrated great courage by dismissing gender issues; and provoked some irony in selecting a neo-liberal/conservative successor to a socialist Mr. Strauss-Kahn. Moreover, no one can now doubt that the IMF did not seriously consider the possibilities and respective consequences that adverse disclosures from the investigation in the Tapie Affair could have on the new Managing Director, the Directorships and overall image of the institution.  That Rubicon is no longer a blindside-whatever the outcome.  

Mme. Lagarde has enjoyed firsts for most of her life. Her trek from the law firm Baker Mackenzie to France’s Minister of Economic Affairs is convincing. Commanding excellent English, she had an early stint in Washington DC as a congressional assistant to William Cohen, practiced law in Chicago to return to France and oversee three key French Ministries. Although her stay at Finance was largely polemical because she was considered by most as an executor of Sarkozy’s monetarism, it finally became controversial with the Tapie-Credit Lyonnais settlement. Notwithstanding, Mme. Lagarde is still considered by most critics as a very credible administrator. Some critics wonder whether her alleged monetarism and recent support of the ECB position on debt restructuring presents an intellectual hurdle in her new role. That’s somewhat doubtful. It may have been problematic for a despondent pundit, but it is actually a non-sequitur for a seasoned professional like Mme. Lagarde.  Although her recent record relating to the European debt-strapped sovereigns may be an affront presented by her critics, her more recent announcement since taking over the helm of the IMF indicate that Mme. Chairman may actually be suiting up for a transformative leadership of the institution:

… the IMF must be relevant, responsive, effective, and legitimate, to achieve stronger and sustainable growth, macroeconomic stability, and a better future for all.

The governance issues, and not necessarily internal, apparently take some precedence on Mme. Lagarde’ s agenda, There are facets pertaining to the IMF’s cohesiveness and overall effectiveness towards their membership that must be addressed immediately and there are incongruities that must be rectified in order to level the playing field. These ‘…issues cannot wait for yet another summer holiday.’ Structurally, the IMF is confronted by an unbalanced membership that is witnessing a proactive effort to realign expectations on the part of emerging economies and a responsive tacit gradualism on the part of the advanced economies. Organizationally, the IMF is experiencing institutional fatigue, and there are very few qualified professionals around since the inception of the Great  Recession in 2007 that have any stamina remaining and vision to assume the requisite leadership and ensure the appropriate continuity to an institution that is crucial to the ongoing stability of the global economic system.  Mme. Lagarde admits that

We are facing a landscape… with an uneven process of recovery and specific issues of a divided nature,…,between the advanced economies on the one hand, the emerging markets on the other, and the least developed countries, or low-income countries… with specific issues and yet a path to recovery that is obviously pronounced.

For Mme. Lagarde, who is a keen observer of Realpolitik, a refined diplomat of European mores and an ardent tenant of neo-liberal values, the signals voiced by the Many and les Autres are a clear indication that the institution must shed some of its theoretical armour- and modify its modus vivendi and operandi in favour of more proactive determinants of social responsibility.

…we cannot only analyze the economy by looking at some of the traditional standard criteria…by the hope to reduce fiscal deficits and organize fiscal consolidation in a big way, reduce debt and make it sustainable…

Knowing how to read the writing on the wall involves knowing when to replenish the artist’s easel with different brushes and colors, when to revamp the orchestra’s partition  with different instruments,  and sometimes knowing when to abandon a well-versed repertoire for newer measures and sensibilities. Contrary to the unsophisticated critic who challenges Mme. Lagarde’s ability to exercise sound judgement and exert good decisions because of her so-called non-economic background, this post suggests Good Riddance for the non-economist! This cynic’s rebuff is understandable: Who put the world economy in this mess in the first place, and who has not been able to restore any credence towards a reasonable path of recovery…certain specialized economists and certain other specialized bankers.

We contend that Lagarde, if one is permitted to embellish her podium with the generic pun! will be quite the man to do the job.

Her explicit resolve to ‘include such matters as employment, social affairs, peripheral components of the traditional economic look at the situation of a country’ is not only a commendation of Mr. Strauss-Kahn’s initiative but a recognition of the underlying critical factors that ensure sustainable economic growth. This flexibility towards diverse economic ideas and options is the mark of a good pragmatist. A non-zealot is what the IMF needs at the moment-an intelligent visionary:

                       

The International Monetary Fund is here… to help restore stability where there is instability, and there is plenty of that around; to help make sure the economies of the world work better to provide a better welfare for people. And to that, clearly, employment is a key issue. Whether you look at advanced economies, or whether you look at emerging markets, or low-income countries, the issue of employment is a critical one, and one that actually determines a stable social chemistry for society. So we should not lose sight of the overall main goal of the Fund.

The challenge nuances the Fund’s traditional mission. No one is suggesting that the Fund replace the sovereign’s  responsibility over national labour and its social and human development. Mme. Lagarde is clear on the focus as well as the demarcation of independent efforts. She has no ulterior pretensions to create a surrogate for sovereigns.

I'm not suggesting that the Fund should be turned into a specialized boutique on employment and best way to reduce unemployment.

However, she is certainly aware that IMF's traditional fiscal management may not be the only suitable solution, and may not deserve the prominent role it unfortunately once held. She is insightful with regards to spillovers and contagions recognizing their structural presence at the global systemic level,  and has committed the IMF to ‘actually addressing, describing, analyzing them’, and hopefully avoid and help resolve them.

It is not pretentious or gratuitous for Mme. Lagarde to suggest that

…Greek political parties altogether either in government or in a position, can be rightly inspired by the decisions, the courageous decisions made by political parties in Ireland, the courageous decisions made by political parties in Portugal.

The allusion to courage in the context of Greece and similar sovereigns is timely and natural. Courage is not only the trademark of Greek history and Greek culture, but picking up from Aristotle in the Nicomachean Ethics and the Rhetoric, both Samuel Johnson and Winston Churchill qualify Courage as the first of all human qualities. Courage is that necessary disposition that ensures first overcoming and then moving  beyond fear to achieving confidence in one’s capacities.  Mme. Lagarde understands full well that in order for weakening economies to succeed, it is essential to subvert fear in an unknown future and prep up the confidence factor. In the case of Greece, this modern economic crossroad is reminiscent of  Thermopylae and  Salamis. The Greek polis must rise to courage.  Following Aristotle’s lesson (Book III, chap 9), Mme. Lagarde reiterates in her own qualified manner that courage involves some ‘endurance of pain’ ;  and Mme. Lagarde is certainly no newcomer to courage. Her personal achievements and professional steadfastness are reflections more of that classical virtue than exhibitions of stubbornness and misplaced pride. Her decision to assume the helm of a great but battered organization is an appropriate reflection of courage and resolve: ‘So, here I am. And, for good…’

We hope so,  lest  Tapie's  fortuna unravels another IMF debacle.

Extrapolating power rankings from FORBES, Mme. Lagarde as Chair of the IMF would now move to 5^th  most powerful woman in the world,  from the 17^th ranking woman as Finance Minister of France. She also becomes the 37th most powerful person in the world.