(May be read along with the previous paper on the subject in paper no. 4585 of 6th July)
During her whirl wind tours to New Delhi, Beijing and other capitals to canvass her candidature, Lagarde made promises and gave assurances to correct the infirmities and deficiencies attached to the management structure of the IMF and to increase their voting strength, etc.
During her one-day stay in Delhi, she was on a ‘charm offensive’ and cooed that if she were to be elected the Managing Director “there would a little part of me turning Indian.” It would have been music to ingenuous Indian ears. She went to say that India- like China – was “massively underrepresented in the fund.”
Of course, kind words and homilies don’t count in diplomacy and did not result in any commitment from India either. Not many would have counted on her assurance to increase India’s voting strength in the IMF, which was subject to a two-year review over which the M.D. would have no say.
Along her way she was able to get the support of Ethiopia and Egypt. But she secured the most significant support in Lisbon where she met African leaders who had met for the Annual Meeting of the African Development Bank. She was able to get the support of ten members. As explained earlier, the African states were settling their scores over the reduction of their shares in IMF vote.
It was her visit to China, which assumed great importance. Unlike other members of the BRICS, China did not make any overweening attempt to sponsor any of her candidates. For instance Brazil had its candidate in Augustine Carstens; Russia sponsored one of its own; South Africa was leaning on Manuel’s hopes and India was undecided about Montek Singh’s aspirations. China had its own plans for the capture of the IMF management, but was willing to wait.
It had commenced its plans long before. It had deputed earlier Dr. Zhu Min as Adviser to the IMF Managing Director. In fact, China had groomed him for the post some years in advance. He held senior positions at the Bank of China from 2003 to 2009 and also served as Deputy Governor of the People’s Bank of China from 2009-10. That elevation was to advance his appointment to the IMF post. I had dealt with this at length in an article done earlier.
With the fall of DSK, it was natural that the candidature of Zhu should have been raised. Reuters and the BBC did carry rumours to that effect. However, Chinese authorities were not too eager to push for it. They seemed to have shared the view that Dr. Zhu was ‘not experienced enough for the position of managing director and was not expected to rise further than to a deputy managing director.”
Press reports suggested that Lagarde was more than pleased with her talks in China. Xie Xuren, Vice Premier Wang Qishan and the central bank governor Zhou Xiaochuan. All of them were reportedly very friendly and supportive but were non-committal. On her part, she expressed support for changes in the IMF structure that are raising the voting powers of China and other major developing countries to reflect their increased economic stature. She added, “If the Chinese economy continues to grow and to be a driver of growth in the world, then clearly the percentage will have to grow.” These were generalities and platitudes, which would not have excited the Chinese authorities.
She discussed her candidacy with the Chinese Finance Minister The most significant understandings reached were hidden in the press reports. Timesonline mentioned thus: “She also expressed support for a leading role for a former Chinese central bank official Zhu Min who serves as Adviser to the IMF boss. She said it would be ‘fully appropriate if he played a key role’ in the fund’s management.”
While most of the BRICS members were keen about the top post, China showed more interest in getting a higher share in the senior management of the IMF. China Daily3 refers to the views of Chinese academics who supported China’s higher share in the senior management of the IMF. Most of them supported Zhu Min’s rise. In its report4 the Wall Street Journal made a reference to the discussions about Zhu Min’s elevation.
According to a report in the International Political Economy (IPE)5 the rumour was that long before Carsten’s visit to China, the die was cast. As reported by IPE, “The primary interest of China at this time is to get one of its own in a high- ranking position within striking distance of becoming IMF managing director (that is deputy managing director #2 or #3. So, when the post becomes open once again, he will be well-placed to become the first head from an LDC.”
China Daily reported the substance of discussions with Lagarde. It said, “To win over China to her candidacy, Lagarde said she supported the decision to increase China’s voting rights at the IMF from about 4 percent to 6.4 percent. She also said Zhu Min, the former deputy governor of the Chinese central bank and the current economic adviser to the IMF managing director, should play a more significant role in the fund.” The deal was that China would throw its weight behind Lagarde for the top post, but expects the Europeans to do the same with a deputy managing director post for Zhu Min. Incidentally, apart from Lipsky’s post which will fall vacant in August this year, there are two others: one held by a European and the other by half-American. Thus, enlargement or replacement may not be an issue even with the U.S.
The above analysis is not fanciful. It is indeed evident that there was a bargain. This would be seen from the very first statement made by Lagarde after she took over as the IMF Managing Director on 7th July 2011. Taking over the office, she pledged to give more sway to emerging countries in the IMF’s decision- making process. Institutions like the IMF should better reflect the shifting balance of power in the global economy. She added, “the idea of creating a top ranking post at the IMF to give more say to emerging economies was “not a bad idea.”
In short, Lagarde stands by her commitment made to China while getting their support. China’s long-term strategy is to get a larger share in the senior management of international institutions like the IMF and the World Bank. China was able to send a Chief Economist two years ago. Dr. Justin Lin Fu has indeed brought about changes in the developmental thinking of the World Bank. In the IMF also, China has begun its innings rather well and played its cards well. We have to add this to its achievements on the currency front and related issues, which we have already explained in the main paper.
(The writer, Mr K.Subramanian, is a former Joint Secretary, Ministry of Finance, Govt of India, New Delhi and is presently Associate of the Chennai Centre for China Studies. Email:subrabhama@gmail.com).)
