The next IMF head should be Asian
U.S. Treasury Secretary Tim Geithner said Dominique Strauss-Kahn (DSK), now in a New York jail on suicide watch, is "obviously not in a position" to any longer run the International Monetary Fund (IMF). But fund policies won't change after DSK departs. They reflect years of tradition reinforced by the belief that the fund is grounded in "solid economic theory."
So, except for DSK himself, his shenanigans are unimportant -with one proviso. The question of who will be -more to the point, what will be the nationality of -the next IMF chief is now in play. And it matters, at least symbolically. Ever since the IMF was founded after the Second World War, it has been controlled by Americans and Europeans. But the next chief could be from China. To understand why, you must know what the fund is and how it works.
When it opened its doors in the mid1940s, the fund was a financial lending and borrowing machine designed to control and stabilize international exchange rates: That is, it hoped to fix the price of major world currencies in terms of U.S. dollars. At the time, international money flows, not yet recovered from WWII, were small in comparison with the endowment given and lent to the infant IMF by the victorious United States, then flush with cash. But its relative power over money markets didn't last. Today, the market price of, for example, a euro in terms of dollars is determined by an aggregate US$3trillion daily flow of many currencies, moving about the world to buy and sell products, commodities, and services as well to make investments, lend money, fight wars and provide aid. In contrast, the fund's total cash position represents only a few hours' trading in the foreign exchange market. But as with other political organizations, although the IMF can no longer accomplish its initial task, it remains in existence. The billions of dollars it controls give it staying power.
To stay in business, the IMF reorganized itself into an international bailout fund (IBF in my parlance). Its representatives and analysts visit countries that have borrowed too much, taxed too much, spent too much, saved too little and invested unwisely. They scold the economic managers of such nations; tell them to repent their improvident, immoderate and imprudent financial practices. After the scolding, the IMF gives those economically challenged nations lots of new money, in the sometimes naïve belief that better policies will be adopted going forward. (It's a fine irony that the behaviour of its current boss is so imprudent and immoderate.) This role of financial scold and bailout artist is far too well-entrenched at the Fund for any new boss to change it.
So why worry about whom the top person might be? Because the top person should logically come from the part of our new world that is financially most important, i.e., most solvent. The IMF has no real money of its own. It lives on, works with, and lends out taxpayer money obtained from solvent, economically stable nations. These days the U.S. federal government borrows 40¢ out of every dollar it so recklessly spends. That means it borrows 40¢ of every dollar it hands over to the IMF. The net lenders to the United States -the true lenders to the IMF, indeed the net lenders to the entire rest of the world -are the fast-growing exporting nations, mostly in Asia, especially China, who sell their products to the developed world in exchange for IOUs -debt.
At the time of the IMF's founding, the United States gained economic influence over the rest of the world by selling and investing abroad, lending money and material to nations in need of post-war reconstruction and rehabilitation. Back then, the rest of the world was unable to look after itself. Today Asia has sold, saved, invested, schooled, studied and bootstrapped itself into prosperity, while the rest of the world, enraptured by the seductive borrow-and-spend logic of the welfare state, took a break from hard work and sacrifice.
The most highly qualified European/ American candidate to be IMF chief is one-time MIT economics professor, now governor of the Central Bank of Israel, Stanley Fischer. He was vicepresident and chief economist at the World Bank, first deputy managing director of the IMF and president of Citigroup International. He is a personally conservative guy who does not, while naked, chase hotel maids.
He is a hard-money man less likely than was socialist DSK to bail out nations that follow the borrow-and-spend strategy. Nonetheless, Prof. Fischer could run second behind a less-experienced Asian, or worse, behind an easymoney European with a better political network.
No matter. IMF institutional practice will remain fiscally "sound" no matter who occupies the best office in the building. But at the IMF, as in any well-run bank, the folks who ultimately provide the cash have the power -or at least should have the power -to run the place.
There's a lesson here for Strauss-Kahn and indebted nations both: Prudence and moderation, in money and in life, is wise policy.
Our army needs soldiers and guns-not more bureaucrats
Peter MacKay remaining in the National Defence portfolio wasn't a surprise. MacKay is a high profile minister, and the Tories like to tell anyone who'll listen that they Support The Troops. Sticking one of the big guns of the party in that cabinet post is one way of showing that commitment. Besides, MacKay has done a decent job of it, and by all accounts likes the role and enjoys working with the men and women of the Canadian Forces.
But what was a bit unexpected was the appointment of Julian Fantino, former chief of the Toronto Police Service and the Ontario Provincial Police, to be Associate Minister of National Defence, essentially MacKay's deputy.
Fantino was only elected last fall -hardly an experienced parliamentarian. There have been association ministers of defence before, but the position has often been left vacant. Fantino is the first to fill it under Prime Minister Harper.
There are political reasons to give Fantino something with a big profile: He's a well-known Toronto-area MP. And Defence isn't the worst place to put his years of work in public security to use, either. But those political reasons aside, it must be asked why Defence needed an extra minister. If anything, it needs more soldiers and equipment.
Earlier this year, it was announced that National Defence had purchased a large complex of modern office buildings in the Ottawa area. This was good news, as the existing National Defence headquarters was old and overcrowded. But when the announcement of the purchase was made, it was noted that the size of the civilian staff at Defence had grown by 31% between 2006 and 2009. Indeed, the civilian staff at Defence had grown so large, so rapidly, that it was actually exceeding its authorized strength. Defence is allotted 25,000 civilians to run the ministry. Somehow, that had ballooned to 28,500. No wonder they were out of room.
This didn't look particularly good on the Harper Tories, who have been rightly criticized for abandoning their small-government agenda. But what made them look even worse was the fact that even while the size of Defence's bureaucracy surged by 31%, the size of the Armed Forces -so publicly loved by the Tories -was able to increase only by 5% over the same period.
The military has received extra funding and equipment, starting under prime minister Paul Martin and continuing under Stephen Harper. But the Canadian Forces still have urgent equipment shortfalls, and are simply not large enough to do all the jobs expected of them.
Consider the last few weeks. Almost 3,000 Canadian military personnel are fighting in Afghanistan. Hundreds of others have joined the NATO campaign against Libya (indeed, a Canadian general is commanding the entire international ef-fort). Meanwhile, at home, we've had three major natural disasters strike all at once: major flooding in Manitoba and Quebec, and a devastating wildfire in Alberta that has nearly destroyed the town of Slave Lake, turning thousands of Canadian citizens into displaced persons. And, of course, at all times, the military must also have the reserve strength necessary to handle additional crises.
Canada's air force needs new fighter jets, and more than just the 65 F-35s the government has said it intends to purchase (a smaller number of F-35s, and a large order of less-advanced but still modern jets, would strike the right balance between size and sophistication). The air force also urgently requires more helicopters, both to carry supplies at home and abroad, and to (if necessary) transport troops into battle. The navy is rapidly rusting out, with virtually every type of ship in the fleet needing either upgrades or outright replacement. The army has benefit-ted the most from the Afghan-era urgent purchases, but still should be expanded, to reflect its duties both at home and abroad. And this is far from a complete list.
None of these steps are likely, unfortunately. The Tories will have other priorities in the years ahead. They must slay the deficit and protect the economy, while still spending enough to please their core constituencies. And as the combat mission in Afghanistan comes to an end, it's likely that the armed forces will fade into the background. As former chief of the defence staff Rick Hillier has mused, the Canadian military has no natural constituency, and can be easily shunted aside and ignored when not actively needed. This is especially true in times of fiscal restraint.
The Forces will no doubt get some extra equipment and additional personnel, but not as much as they need and deserve. They'll just have to content themselves with a new home for their bureaucrats and Julian Fantino.
Lose the election, head to the Senate
Question: How do you get a Senate appointment from Stephen Harper?
Answer: Lose your election. The lucky loser/winners this time around are former MP Josée Verner, and candidates Larry Smith and Fabian Manning. Ms. Verner lost her seat in the May 2 vote, while the other two return to the Red Chamber after an unsuccessful sabbatical on the campaign trail.
Given the choice between having to run again for a seat in the House of Commons in four years, or riding a gravy train till age 75 in the Upper House, we're surprised more Tories didn't throw their ridings on purpose.
And yet this is the same government that wants to bring in Senate reform. What message does Stephen Harper think he's sending by appointing defeated candidates? Hi, the voters didn't want you, so I'll stick them with you anyway at $132,000 a year.
The timing of these announcements is clever: Evidently, the PMO figured that the appointments would be overshadowed by the cabinet appointments made on the same day.
The only silver lining is that Mr. Harper didn't appoint these folks, à la Michael Fortier, to Cabinet itself. Of course, there's always the next shuffle. Tasha Kheiriddin
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