IMF director makes uninspiring choice for deputy

19 May 2006

With the imminent departure of Anne Krueger from the post of first deputy managing director of the IMF, Rodrigo de Rato had a unique chance to move the Fund in a different direction as it looks to implement its medium-term strategic review. Instead, the managing director nominated US banker John Lipsky, maintaining the convention of keeping the top two posts at the Fund split between the transatlantic power centres.

Lipsky, currently the vice chairman of JP Morgan Investment Bank, is no stranger to the IMF, having worked there from 1974 to 1984, including a stint as the country representative to Chile when it was under Pinochet’s rule. He also has an agreeable educational pedigree, with economics degrees from Wesleyan and Stanford Universities.

His nomination over other distinguished candidates cements the impression that no significant change in direction is in the offing at the Fund. One other name mentioned as possible deputy had been US academic and former IMF chief economist Ken Rogoff, who conceded in a 2003 Fund working paper that the Fund’s push for capital account liberalisation may have gone too far.

no significant change in direction is in the offing at the Fund.

While de Rato’s report on IMF reforms called for “a transparent procedure for the selection of the Managing Director”, there has been no transparency in his choice of a deputy. It seems the tradition of selecting an American has gone completely unchallenged. Queries to the UK representative office to the IFIs about the selection process elicited a ‘hand’s off’ response, saying it was a management issue, as the board and thus the UK executive director have no involvement in internal recruitment. Still, the board must officially approve de Rato’s choice, which is expected to occur at their next meeting on Monday, 22 May.

Lipsky’s past statements do not give much hope that the IMF will take a balanced approach in working to unwind the imbalances currently creating instability in the global economy. Lipsky is an ardent supporter of financial and capital account liberalization, and like US Treasury secretary John Snow, pins the blame for global imbalances not on US profligacy, but on excessively slow rates of growth in Europe and Japan.

In testimony before the US Congress in November 1997 about the developing Asian Financial Crisis, Lipsky faulted the “opaque and inefficient domestic financial systems in many Asian countries”, while exonerating international capital and the herd behaviour of developed-world investors. His recommendations were for even tighter monetary and fiscal policies, which eventually caused mass bankruptcies and unemployment across the crisis-stricken region.

The Fund under Lipsky will likely continue its pressure for financial market opening and capital account liberalisation around the world. His prescription for unwinding the present massive US current account deficit involves pushing the Chinese into “a flexible economic environment [by] trying to accelerate that process of financial liberalisation, both within the Chinese economy and eventually internationally as well”.

An Independent Evaluation Office report criticising the IMF’s often one-sided advice on capital account liberalisation had created hope that the Fund was softening its stance and accepting increased policy space for developing country governments (see Update 46). However, Lipsky’s history as a Wall Street banker and advocacy for private finance suggests he will push for more open capital accounts and greater access for private finance in developing country markets.