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The people leading the IMF

The Banker profiles six senior figures at the International Monetary Fund, and looks at the ways that they are changing and improving the institution's policies, strategy and reputation.
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The people leading the IMF

CHRISTINE LAGARDE

Nationality: French

Current position: Managing director, International Monetary Fund (IMF).

Previous jobs: French finance minister in the Nicolas Sarkozy government; head of law firm Baker & McKenzie, Chicago.

Goals:

“When I think about the IMF, I think about co-operation. The IMF is the premier forum for international economic co-operation in the world today. It is a venue for 188 countries to come together and work together in pursuit of the global common good. The idea is simple – by standing together, the countries of the world can do far better than by standing alone.”

Aims and achievements: In 2012, Ms Lagarde raised $461bn though special borrowing arrangements with 38 member countries, including many emerging economies, to help the IMF contain the euro crisis. It was a notable achievement at a time when raising financial resources by increasing IMF quota contributions – its equivalent to shares – was complicated, for the simple reason that quotas are also the basis for voting power on the IMF’s board and have caused some controversy.

Lessons learned: The IMF, and with it Ms Lagarde, has learned many lessons from the economic crisis. It has learned to take account of economic inter-connections, especially in the financial sector. It has had to reassess the role of monetary and fiscal policy in times of crisis. It has had to pay much more attention to financial sector regulation and supervision, including across borders. And it has also had to adopt a new perspective on the importance of income distribution and equality, for growth and stability.

What others say: Ted Truman, senior fellow, Peterson Institute of International Economics: “She’s done a nice job so far. It’s hard to fault her. She came in as someone suspect because she was a European and the European countries are receiving a lot of funds from the IMF. But she’s managed to separate herself from her European colleagues.

“My impression is she is much more of a collegial manager in her style than Dominique Strauss Kahn or any of her three predecessors who tended to take advice from a small group of advisers. It seems she lets more voices be heard, and encourages that.”

Bessma Momani, associate professor, Waterloo University, Canada, and Brookings Institute senior fellow: “She’s a very good spokesperson for the IMF. The camera loves her. People do like her. She handles the media perfectly. All of this comes [in contrast to] Mr Strauss Kahn, who brought disgrace to the institution. But she’s not really getting into the operations and functions of the fund where Mr Strauss Kahn had a lot of ideas.”

DAVID LIPTON

Nationality: US

Current position: Appointed IMF first deputy managing director by Ms Lagarde in September 2011.

Previous jobs: Senior White House adviser under president Barack Obama; managing director at Citigroup and hedge fund Moore Capital; under-secretary for the Treasury for International Affairs in the US during the Bill Clinton administration.

Goals: “My job is to assist the managing director in setting the strategic direction of the IMF. Our goal is to help member countries achieve global stability so that their economies can grow, their people can have job growth and rising living standards. All of what we do is directed to that.”

Aims and achievements: During the crisis, the IMF played a key role as a trusted adviser on how to tackle the crisis and how to change the rules of the international economic system. The IMF’s analysis was widely respected. And it was also considered an even-handed truth teller, including when some countries – including those in Europe and the US – were reluctant to face the realities the IMF described.

Lessons learned: As the world’s lender of last resort – stepping in when countries face a debt crisis – the IMF is on a permanent learning curve. Mr Lipton says that striking a balance between the advice it provides governments on fiscal adjustment, and on the amount of growth support needed to limit recession effects, can be difficult. And looking back at financial crises in Latin America, Asia and now Europe, the IMF’s progress in terms of calibrating that balance has been uneven.

What others say: Ms Momani at Waterloo University: “Mr Lipton is very competent. He does have a particular perspective, though, which is still very US Treasury-dominated. So I don’t think of him being as nearly forward thinking or risk taking as some of the others at the fund, such as [chief economist and head of research] Olivier Blanchard and [deputy managing director] Nemat Shafik. Though he is pushing on changing the governance structure which, everyone knows, does not represent emerging economies and developing countries nearly enough.

“Mr Lipton is the power behind the throne. He is an economist, the orthodox economist of the management team. And, because Ms Lagarde is not an economist by training, she may not have the depth on economic policies to make tough calls. That’s something that’s left to Mr Lipton.”

Mr Chowla at the Bretton Woods Project: “I think what’s very interesting if you take what he says in his speeches, he’s quite clear he doesn’t think the IMF’s role in Europe is particularly important or helpful [for the fund]. He’s very focused on more geo-strategic political things, which in this case means the Middle East and north Africa region.”

OLIVIER BLANCHARD

Nationality: French

Current position: Chief economist and head of research at the IMF.

Previous job: Professor of economics, Massachusetts Institute of Technology.

Goals: “Arriving at the fund just two weeks before [the collapse of] Lehman Brothers, in that context it is obvious that whatever beliefs one had before the crisis, one had to question them and ask if these beliefs were right. So, I’ve seen my job very much as questioning, rethinking and then convincing both the fund itself, and then the governments in particular countries, to evolve. I think of my job as trying to make sense of the incredibly complicated world we live in. The whole crisis has been a process of learning.”

Aims and achievements: Succeeded in introducing more flexible policies and attitudes at the IMF on, for instance, the logic of a member country using capital controls at a time of crisis, as well as the benefits of introducing fiscal consolidation gradually, depending on a country’s circumstances.

Lessons learnt: An intrinsic flaw in the first IMF-European Central Bank [ECB]-EU programme for Greece – to help it cope with its debt crisis – was that Europe simply was not ready, says Mr Blanchard, to handle the financial contagion that would most probably have arisen if Greece had re-structured its debt. From the Greek point of view, restructuring its debt would have been better, as the austerity programme adopted was extremely tough. But, if Greece had restructured its debt at that time, the EU institutions needed to prevent contagion and provide liquidity were just not there.

What others say: Peter Chowla, coordinator at the Bretton Woods Project: “Mr Blanchard has been shaking up the IMF’s research department to make it less academic and more aware of development issues. He’s not the typical orthodox economist around the fund. He comes from a more centre-left background.”   

Ms Momani at Waterloo University: “They are starting to recognise [at the fund] that the one-size-fits-all approach of the 1990s or even early 2000s just doesn’t work. Some of this shift comes from Mr Blanchard, some from [deputy managing director] Ms Shafik. Mr Blanchard and Ms Shafik – they are the core thinkers at the fund.”

MINOUSH SHAFIK

Nationality: Egyptian/UK/US

Current position: One of the team of four deputy managing directors (with Mr Lipton, Min Zhu and Naoyuki Shinohara).

Previous job: Permanent secretary, UK Department for International Development, London.

Goals: “My main focus is on the countries in the European periphery as well as the transition countries in the Middle East and north Africa – you could call it the 'Mediterranean beat'. Not surprisingly, given the challenges these countries face, we are very focused on reviving growth and jobs while maintaining macroeconomic stability.”

Aims and achievements: A prime mover supporting major shifts at the fund – widely accepted in the wake of the 2012 Arab Spring uprisings – that for IMF-supported fiscal and economic policies and management reforms to succeed in member countries, the IMF needs to adopt a much more holistic approach. This approach includes a stronger engagement with different groups in a society, and not just with governments; more public communication; and more understanding of the social context, for instance, about the depth of income inequality, as this may affect the degree of support for a policy.

Lessons learnt: Before the 2012 Arab Spring uprisings, the IMF’s regular economic assessments of several Middle Eastern countries, including Egypt, Tunisia and Syria, were glowing, focusing as they did almost exclusively on these countries’ reasonable growth, deficit and inflation figures. But what these assessments ignored was that underlying the good macroeconomic statistics, there was often growing inequality and stubbornly intractable unemployment, fuelling widespread dissatisfaction. The important lesson learnt by the IMF is that now it realises the social and even the political context of a country has to be considered when making economic policy recommendations. 

What others say: Nancy Birdsall, founding president, Centre for Global Development: “She was head of the UK’s development aid office. She was extremely effective and well regarded as an excellent manager there.”

Ms Momani at Waterloo University: “A first-class economist. She understands the developing world having come from Egypt herself – and knowing Egypt, which is a challenging case on its own. She really understands the practical political problems, the challenges and that governing is not just about economic theory but also about what’s political doable.” 

MIN ZHU

Nationality: Chinese

Current position: Deputy managing director since July 2011. Responsible for 70, mainly developing, low-income countries. Shares financial policy, monetary and capital market oversight throughout the world with Mr Lipton.

Previous jobs: Special adviser to Dominique Strauss Kahn during his tenure as managing director of the IMF; deputy governor of China’s central bank.

Goals: When Ms Lagarde created the position of fourth deputy managing director at the fund and appointed Mr Zhu to the new position, she said: “He will play an important role in working with me and the rest of the management team in strengthening the fund’s understanding of Asia and emerging markets more generally.”

Mr Zhu agrees that he has played such a role “in some way”. However, he also says that Asia has become more important. “It’s a growth engine so, first, understanding Asia, co-operating more with Asia and having good working relations with Asia has become more important for the whole world, not only for the fund.”

Aims and achievements: With concern growing about record high unemployment, especially youth unemployment, in many advanced economies as well as in Arab countries, and with a total estimated 20 million jobs lost as a result of the financial and economic crisis, Mr Zhu initiated discussions in the fund on the links between jobs and growth. The topic aroused immediate interest and was very quickly approved as a new area of IMF work by the executive board. And a policy on jobs and growth is soon to become part of the IMF’s regular economic assessment work with member countries.

Lessons learnt: The IMF now applies special programmes to help resource-rich developing countries avoid the resource curse trap, where the discovery of extractive industries, such as oil or minerals, instead of helping a country progress economically, does little to reduce poverty and only benefits a few and increases corruption. This is a change from IMF policies in the past, which tended to be more uniform and less specific. In the same way, the fund also has tailor-made programmes now for poor, post-conflict countries, such as Rwanda and Haiti, as well as for smaller countries. All three policy areas fall within Mr Zhu’s remit.

What others say: The Financial Times on the naming of Mr Zhu as the fund’s fourth managing director in 2011: “Together with the appointment of Mr Lipton, some former officials said the moves were payback for Chinese and US support for Ms Lagarde’s selection as IMF managing director.”

Mr Chowla at the Bretton Woods Project: “Having someone such as Mr Zhu, who is very competent, has been helpful. Mr Zhu has been able to clearly express some of the views of Asia. That has helped in the consensus, decision-making process at the fund. He leads the emerging economies point of view at the fund.

“His focus is on things such as jobs and growth and spurring investment in developing countries. He’s talked about the need for the fund to invest in infrastructure, services and industry that can help developing economies grow, not just to think about good discipline.”

JOSÉ VIÑALS

Nationality: Spanish

Current position: Financial counsellor and director, monetary and capital markets department. He represents the fund at the G-20 Financial Stability Board.

Previous job: Deputy governor of the Bank of Spain.

Goals: “The name monetary and capital markets department doesn’t do justice to what we do here. Because this is the part of the fund that is in charge of making sure that the world is a safer place financially, and that has the task of helping countries recover monetary and financial stability both with crisis management and with crisis prevention [recommendations and policies].”

Aims and achievements: The IMF came up early with a diagnosis of the depth of the problems in the 2008 to 2009 financial crisis, and was the first to estimate the losses that banks would suffer. This increased awareness that very difficult and drastic measures had to be taken to shore up large banks and the US took such actions very swiftly.

Lessons learnt: IMF advice to the EU on repairing European banks was carried out more slowly and not as deeply as the IMF would have liked, says Mr Viñals. But he believes there is a rare opportunity now to complete the task by establishing a European banking union, and with the ECB assuming the role of overall EU bank regulator.

As for bank regulatory reform, the IMF has been urging regulators to introduce effective resolution regimes so that global financial institutions, including large international banks, may be unwound in a crisis at a national and an international level. However, this regime too should have been established much faster, Mr Viñals says.

What others say: Ms Momani at Waterloo University: “Within the IMF, Ms Shafik, Mr Blanchard, Mr Viñals and Mr Lipton are all a breath of fresh air.”

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