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Tuesday, May 17, 2011

Dominique Strauss-Kahn's arrest and the IMF's political direction

Robert Kuttner gives a quick run-down on arrrested International Monetary Fund (IMF) chief Dominique dubious personal and professional history as it relates to the pending charges against him in Strauss-Kahn and the European Left Huffington Post 05/15/2011:

Strauss-Kahn, who until yesterday headed the International Monetary Fund, was the Socialist front-runner to challenge French President Nicolas Sarkozy next year. Polls showed that Strauss-Kahn well ahead of both Sarkozy and far right populist Marine Le Pen.

But even before this latest scandal broke, Strauss-Kahn didn't seem like much of a socialist. Last week, the press caught DSK, as the local press calls him, and his wife tooling around in a borrowed $150,000 Porsche, which reinforced his image as wealthy playboy. In 2008, Strauss-Kahn barely survived a widely publicized affair with one of his IMF employees, and in the wake of the New York incident, another woman has stepped forward claiming a rape in 2002.

Cynics here have argued that the wily Sarkozy promoted his likely rival for the IMF post to increase the chances that the imperious Strauss-Kahn would commit some highly visible and politically fatal act. For demolishing the Socialists' claim to speak for the common Frenchman and woman, it's hard to beat an accusation of the entitled Socialist standard bearer orally raping a chambermaid in a $3,000 luxury hotel room and then trying to skip town.

Politics is politics, so it's certainly not unthinkable that Sarkozy may have had such a possibility in mind.

While Strauss-Kahn may not have been "much of a socialist," as Kuttner says - the IMF during his term in office had moved a bit away from the neoliberal Washington Consensus that had so badly discredited the IMF in much of the world. Joe Stiglitz discusses that shift in The IMF’s Switch in Time Project Syndicate 05/05/2011 (before Strauss-Kahn's arrest). Stiglitz describes how "Iceland showed that responding to the crisis by imposing capital controls could help small countries manage its impact." And that subsequent capital flows to growing developing nations has made the need for such capital controls even more widely appreciated. The IMF has now "blessed such interventions," i.e., capital controls, though Stiglitz notes that the IMF stayed witht he neoliberal notion that they should be only a "last resort." And he argues:

On the contrary, we should have learned from the crisis that financial markets need regulation, and that cross-border capital flows are particularly dangerous. Such regulations should be a key part of any system to ensure financial stability; resorting to them only as a last resort is a recipe for continued instability.

Stiglitz considers it an even more signficant shift in IMF policy has been "the link that the IMF has finally drawn between inequality and instability." This is an issue of particular concern in the United States, though we are a long way from being subjected to the dubious tutelage of the IMF that threaten Greece and other EU countries under attack by the capital markets. Stiglitz notes, "As it is, with almost one-quarter of all income and 40% of US wealth going to the top 1% of income earners, America is now less a 'land of opportunity' than even 'old' Europe." And he concludes

For progressives, these abysmal facts are part of the standard litany of frustration and justified outrage. What is new is that the IMF has joined the chorus. As Strauss-Kahn concluded in his speech to the Brookings Institution shortly before the Fund's recent meeting: "Ultimately, employment and equity are building blocks of economic stability and prosperity, of political stability and peace. This goes to the heart of the IMF’s mandate. It must be placed at the heart of the policy agenda."

Strauss-Kahn is proving himself a sagacious leader of the IMF. We can only hope that governments and financial markets heed his words.

Obviously, Stiglitz was commenting on Strauss-Kahn's public role as IMF chief, not on his alleged sexual assaults. Kuttner concurs with Stiglitz' judgment on the recent direction of IMF policy:

For all his personal flaws, Strauss-Kahn, in his current job as head of the International Monetary Fund, has been less of an austerity-monger than most of his predecessors. That's a pretty low bar, but under Strauss-Kahn and his chief economist, Olivier Blanchard, the IMF has uncharacteristically weighed in on the side of not punishing nations with large deficits, but helping them to grow their way out of recession.

With Strauss-Kahn sidelined and probably finished, the IMF has appointed an American, John Lipsky, a career official, as acting managing director. Strauss-Kahn, as a French Socialist, had been leaning against the IMF austerity culture, and Lipsky is considered more orthodox.