[D66] Behind the battle over new IMF chief

[Antid Oto]

Behind the battle over new IMF chief
21 May 2011

The arrest and jailing of International Monetary Fund managing director
Dominique Strauss-Kahn and his subsequent resignation has set off a battle among
the major powers over the appointment of his successor.

The European powers are insisting that the new managing director must be a
European, with

French Finance Minister Christine Lagarde being put forward as a likely
candidate. This is in line with the practice that has prevailed since the
founding of the IMF in 1944, whereby a European heads the IMF, while its sister
organisation, the World Bank, is headed by an American.

An even more powerful factor than tradition is the eurozone financial crisis.
After acknowledging the claim that developing countries had on the top IMF
position, German Chancellor Angela Merkel declared that “the current situation
speaks for a European candidate, given the considerable problems of the euro”.

US Treasury Secretary Timothy Geithner initially called for the American deputy
managing director John Lipsky to take over, at least in an interim capacity, and
the appointment of former US Treasury official David Lipton as deputy managing
director. He then issued a statement calling for an “open process that leads to
a prompt succession”.

The so-called emerging and developing nations—including China, India, Brazil and
South Africa—are also calling for a fair and open process, insisting that the
structure of the IMF has to change in line with the shifts in the world economy.
South African Finance Minister Pravin Gordhan said the Europeans “must be alive
to changes in the world”.

In the midst of the Strauss-Kahn crisis, these issues were underlined in a
report issued this week by the World Bank pointing to vast shifts underway in
the structure of the world economy—shifts that signify that the conflict over
the next IMF chief is just one of many more to come.

Projecting trends up to the year 2025, the Global Development Horizons report
began by noting that “sweeping changes are afoot in the global economy” with the
“growing clout of emerging markets … paving the way for a world economy with an
increasingly multipolar character”.

In the postwar era, the global economic order “was built on a complementary set
of tacit economic and security arrangements between the United States and its
core partners with developing countries playing a peripheral role,” shaping
their policies with an eye to “benefiting from the growth dynamism of the
developed countries”.

That era has well and truly passed. The report found that while economic growth
over the next 15 years would be substantially lower than the levels reached in
2010, “emerging economies will … expand collectively by an average of 4.7
percent per year (more than twice the developed world’s 2.3 percent rate)
between 2011 and 2025”.

As a result, the report estimated that by 2025 six major “emerging
economies”—Brazil, China, India, Indonesia, Korea and Russia—would collectively
account for more than half of all global growth. Centres of global growth would
be distributed across developed and emerging economies, giving rise to a
“multipolar world”.

These shifts will have far-reaching implications for the global monetary system.
According to the report, “the most likely scenario … is a multicurrency system
centered around the US dollar, the euro and the renminbi [the Chinese currency,
also known as the yuan]. Under that scenario, the dollar would lose its position
as the unquestioned principal international currency by 2025, making way for an
expanded international role for the euro and the burgeoning role for the renminbi.”

The report all but ruled out an alternative scenario for a single multilateral
reserve currency administered by the major powers because this would “require
countries highly protective of their national monetary policy to relinquish full
control”. In other words, such a scheme for a global currency would founder on
the rocks of the national interests of the major powers, just as did a similar
proposal by John Maynard Keynes, the leader of the British delegation in the
negotiations that set up the IMF in 1944.

The report noted that a third alternative—a continuation of the present system
based on the US dollar—would see the persistence of the causes of the global
imbalances that had led to the financial crisis.

But the scenario advanced in the report for a three-legged global monetary
system does not provide for stability. On the contrary, under such a system
there would be an immediate shift toward the formation of trade and investment
blocs based around the three leading currencies. As the report itself pointed
out, in the absence of coordinated international controls of currency
fluctuations, the tendency would be for countries to forge an “alliance with one
of the leading-currency countries, via a currency peg or monetary union” in
order to reduce financial risks.

In other words, the emergence of a multipolar global economy will recreate, in
an even more explosive form, the situation that arose in the 1930s. Then the
world was divided into rival currency and trading blocs, giving rise to the
intense economic conflicts that eventually led to World War II.

Of course, the World Bank report does not draw out the implications of its own
analysis. That would be impossible for an organisation whose chief political and
economic function, along with the IMF, is to police the demands of the global
financial and corporate elites and to reinforce the central ideological
conception that there is no alternative to the capitalist order.

But the international working class will ignore the implications of these
processes at its peril. The immense movements in the tectonic plates of the
world economy have raised to a new peak of intensity the contradiction between
the global development of the productive forces and the division of the world
into rival capitalist nation-states.

This contradiction drives the bourgeoisie into an ever-more frenzied struggle of
each against all, for markets, profits and resources, leading ultimately to
military conflict and a threat to human civilisation itself. It can be resolved
only on a progressive basis by the international working class through the fight
for political power and the establishment of a global planned socialist economy
that tears down the barriers of the historically outmoded nation-state and
profit system.

The changes to which the World Bank report points are the most fundamental in
the world economy since the rise of Germany, Japan and the United States ended
the hegemony of British imperialism at the beginning of the 20th century. Those
changes led to a breakdown of the world capitalist order in 1914 and three
decades of war and revolution. A new period of wars and revolutions has begun,
in which the fundamental pre-condition for the victory of the working class is
the building of a new revolutionary leadership on the program of world socialist
revolution. This is the perspective of the International Committee of the Fourth
International.

Nick Beams

http://wsws.org/articles/2011/may2011/pers-m21.shtml