Personally, I like the idea of Christine Lagarde getting the post. She has a well rounded career and she would bring a fresh face to the role. She has the respect in Europe as well.
However, there are some countries that seem to have other ideas about who should lead the IMF. As regards to the opinions of the Goose (Wayne Swan) from Australia, he is such a bad Treasurer that his opinions should not matter in the slightest. He is one person who has absolutely no idea about what is required in the top job. Put it this way, I would value the opinion of Paul Keating (a man I detest anyway) over that of the Goose.
If the person is chosen on merits then Christine Lagarde should remain the number one contender. Amongst the other names being mentioned is the failed politician UK Gordon Brown. It is well known that he aspires to this type of role, but, he does not have the support of the present leadership in the UK. On top of that Gordon Brown messed up the economy in the UK in both of his roles.
Socialism and pushing socialism through the IMF is not going to help the world’s woes. At present the IMF has a big problem in Europe. It really does need someone with credibility in Europe to head the group. Gordon Brown does not have that credibility. Christine Lagarde has the credibility. The people being pushed from Singapore and other countries do not have that credibility. There is one other new contender from Brussels.
Some of the issues that I have with the IMF structure includes the heavy socialist emphasis. The challenges of the eurozone has meant that there has been a need to catapult some of the present ideas. Keynesian economics will not work in a time of stagflation. This is the lesson that should have been learned from the 1970s and the 1980s when the stagflation was prolonged. There is a need for a different set of responses to the crises that occur.
For too long Europe has turned to socialism (which is not quite the same as Communism) in order to offer a raft of welfare benefits to their communities. What most of these governments have forgotten is that there is a need to have people working in order to gather taxes, and there is a need for business and industry in order to have people working. Policies such as high taxes on business do not work because in the long term employers make the decision to leave the marketplace. When this happens the consequence is a drop in tax revenue as well as higher unemployment which in turn leads to higher welfare benefits.
Europe also has another problem that desparately needs attention: open borders attracts the wrong kind of immigrants. This can be seen in countries such as Spain, France, England and Germany, as well as in Norway and Denmark. These immigrants see this as an opportunity to place their wives on welfare, and they soak up all of the other welfare state benefits such as free medical, free education etc. etc. If this is not kept under control, inevitably it leads to a break-down in the whole system. At the root of this problem is taxation, or rather taxation receipts.
Under Dominique Strauss-Khan the IMF has steered a number of European countries towards putting in place austerity measures that are supposed to bring about a restructure of their economies. Those governments can only be compliant if the people are compliant and stop their protests that cause disruption, and in the instance of Greece, become extremely costly in terms of property lost, as well as lives lost due to the riots. The Greek attitude has not been conducive to the necessary reform required. Greece is the typical example of a country where the expenditure on welfare outstrips by a long shot the taxation receipts, but the lazy Greeks do not seem to understand the implications of their own bad welfare system.
I am not against some form of welfare buffer for the most vulnerable in the community. There is a need to protect such individuals. I am not against short term unemployment benefits for those who are able-bodied. I do think that government needs to have other structures in place that will help the unemployed find work. What I am really against is the expenditure of government funds on projects such as wind farms that are inefficient and will never deliver according to government expectations. The windfarms do not increase employment, but decreases employment in some sectors.
The watermelon policies and the claims regarding AGW or climate change need to be challenged, and governments everywhere need to stop wasting money on bogus research. This also means that I am against the use of IMF funds going third world countries, where such funds would only be wasted upon dead in the water projects whilst those third world countries continue to purchase arms and kill their own people.
World Bank president Robert Zoellick has called on bickering G20 nations to bring gold back into the global monetary system as an anchor to guide currency movements.
This is very interesting because the World Bank President is actually putting forward the idea that the world should return to the Gold Standard for international trade.
At present there have been accusations against the Chinese of doing things to weaken their currency. On top of that the United States is being criticized for the Federal Reserves decision on the $600billion monetary stimulus. There is a chorus of criticism over Ben Bernanke’s decision because of the obvious inflationary effects.
Despite the rather flowery language of the author, this article on the IMF and where it wants to head is worth reading. It takes time to digest because it becomes necessary to remove all of the flowery language to get down to the nuts and bolts.
There are several European countries that are in danger of collapse: Spain, Greece, the U.K., Ireland, Turkey, Italy and a new one to add to the list Hungary. The IMF seems intent upon interfering in the economies of these countries by providing loans coupled with austerity measures. This is certainly the prescription that was given to Greece. (I have already covered the issue of the laziness of the Greeks). The question though, is whether or not this interference is justified, especially when these Socialist countries do not seem to want to reform, let alone grasp the reality that their Socialist policies might be to blame for the imminent collapse of their respective economies.
Hungary had been on the brink many times since the fall of the Berlin Wall, and it had been borrowing from the IMF on and off for several years, until the negotiations were broken off. Any country borrowing from the IMF must be prepared to make certain necessary reforms including: a reduction in the civil service employees and employee pensions. Here is an outline of Hungary’s interaction with the IMF and the results for that country (not all that encouraging):
Hungary has been an IMF member since 1982. The country embarked on economic reforms early on, and to do so it needed IMF loans — to the tune of $520 million in the first year of its accession to the Fund. Hungary, a model student when it came to developing a market economy, relaxed its import policies in 1984. Subsidies were cut and the Hungarian forint was devalued, all at the request, urging or instruction of the IMF.
The country received six more loans by 1996, one for $365 million, another for $480 million, and in 1991 the Fund approved a loan worth $1.6 billion. In all those years, Hungary was reinventing itself. The banking system was restructured to satisfy free-market requirements, and a value-added tax was introduced. In 1990, the government passed laws to allow foreign investment, removed customs barriers, reduced government bureaucracy and lifted controls on prices and wages.
But there was a dark side to the policies, even though they pleased Washington, attracted investors and were rewarded by the financial markets. The real wages of Hungarians — those who even had a job — declined by 22 percent between 1989 and 1996. When the Berlin Wall fell and the country opened up to global markets, Hungarian industrial production declined by more than a third, unemployment rose and inflation reached 30 percent. In other words, workers, retirees and the overwhelming majority of Hungarians had less in their pockets from one year to the next, they had to work longer for a pension that was smaller than expected, and when they became welfare cases, the state no longer felt responsible for them — because the very nature of the state had changed.
Hungary’s accession to the EU in 2004 brought a new round of so-called adjustments. And then came the global economic crisis. By 2008 Hungary was on the verge of default. To avert a disaster, the IMF, the World Bank and the EU joined forces to provide Budapest with $25 billion. The IMF, which put up $15.7 billion of the total, dictated the conditions: pension cuts and a freeze on civil servants’ salaries. It was back to square one for Hungary.
The real gems in this article come from the economist Rogoff from Harvard University. These gems includes not very flattering assessment of the new financial reform legislation, as well as some not very flattering comments about the way in which the IMF and the G-20 handled the GFC. Here are some of the statements and assessments by Rogoff:
“A Greek bankruptcy is unavoidable. There is a 95 percent chance that Spain will go bankrupt. Hungary is on the brink. Things will get much worse in Eastern Europe. We will have a certain number of countries that will go bankrupt. We will have a number of euro zone countries that would be well advised to take a sabbatical from the euro for a year. The situation in the United States is very worrisome. The markets will refuse to tolerate this level of debt.”
and on the Wall Street reform legislation:
The government asked him to comment on a draft bill on the regulation of the financial sector. “The draft had 2,000 pages,” says Rogoff. “I don’t know what to say to that. I suspect that those 2,000 pages are filled with enough loopholes that Wall Street will discover and exploit to come up with new business models.”
A real reform of the banking and finance sector would have to drastically shrink the system to a business volume that existed 30 years ago. Rogoff says: “The financial market, with all of its products, adds up to $200 trillion, $120 trillion of which represents trading in debt securities. I remember a speech given by Angela Merkel. She said that the Americans make the profits while distributing the risks, with all those debt securities, worldwide. That’s true. This could be curbed.”
On the IMF and crisis management efforts:
“We are fundamentally too quick with bailout packages and too hesitant with default,” he says. Rogoff believes that the G-20 and the IMF, with their protective mechanisms, have already pre-programmed future misconduct. Experts call this a “moral hazard,” the notion that bailout packages, instead of preventing crises, simply create new ones. “It boils down to the banks ultimately speculating with taxpayer money,”
The final gem in this piece comes from the Chinese IMF worker Min Zhu. It is actually a sage piece of advice, and I might add here that it is quite obvious that this is the remedy that Europe should be seeking (rather than agreeing to follow the Watermelons to the precipice of destruction):
. “There is the issue of social welfare, and demographic change. Everybody has longevity, so the cost for the pension and health insurance is very different today than, say, 20 years ago. The model, of course, does not fit today’s needs. It would not survive tomorrow.” Besides, he adds, Europe needs a growth strategy, an industrial strategy. Europe must invent new products and sectors that meet the demands of the world — otherwise, with labor costs of $30 an hour, they won’t prevail “against a country that pays $3.”