Why Fischer’s IMF candidacy is a non-starter

By Felix Salmon
June 13, 2011
decision to throw his hat into the ring as a candidate for managing director of the IMF has been lauded by Mohamed El-Erian, who reckons that "he would likely prevail in an open, transparent and merit-based selection process." Insofar as this is true, it's a bit depressing.

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Stan Fischer’s quixotic decision to throw his hat into the ring as a candidate for managing director of the IMF has been lauded by Mohamed El-Erian, who reckons that “he would likely prevail in an open, transparent and merit-based selection process.” Insofar as this is true, it’s a bit depressing.

I’m no great partisan for Christine Lagarde, whose main qualification for the job is that she’s French. But she’s smart, she’s tough, she’s an able politician — as the latest endorsements of her candidacy attest — and she has the ear of the European heads of state who are going to be forced to make some very tough decisions during her inevitable tenure at the Fund.

The job of IMF managing director is a particularly tough one. Everybody else at the Fund can kid themselves that they’re working for the managing director — the boss. But the managing director himself works for a fractious and highly opinionated board of directors which can be counted on to micromanage and second-guess every important decision. As such, the main skill needed in a managing director is to be able to manage those delicate relationships with great finesse, while at the same time projecting enough power and authority that any interference is kept to a minimum in the first place. It also helps to be respected by key heads of state, who ultimately direct the board.

This is where Fischer’s interview with the WSJ is revealing, and not in a particularly flattering way. Remember, here, that Fischer was number two at the IMF during the Asian financial crisis:

“There are serious economic issues” that need to be addressed, Mr. Fischer said, and IMF staffers often offer conflicting advice. “Without having that [economic] training, it’s very hard to know who’s right and who’s wrong,” he said…

Since the global financial crisis of 2008, the IMF has eased up on some of the requirements it once imposed on countries that accept emergency loans. Mr. Fischer said he approved of those changes and had tried to do something similar when he was at the IMF a decade ago but couldn’t win sufficient support from the IMF’s board.

This is the view of someone who sees the biggest issues facing the IMF managing director to be technocratic, rather than political. I have no doubt that Fischer is better at adjudicating economic questions than Lagarde — this is the man, remember, who co-authored a hugely respected economics textbook (now in its 11th edition) with none other than Rudi Dornbusch. But Fischer by his own admission is bad at winning support from the board. Either that, or in fact he was perfectly happy with the IMF’s economic orthodoxies in 1998-9. Which is quite likely, given that he quite literally wrote the book when it comes to economic orthodoxy. I remember those days reasonably well, and I certainly didn’t get any impression from Fischer at the time that he had any issues at all with the policies he was espousing.

One other thing is worth remembering about Fischer’s role as first deputy managing director: the job is always held by an American, and he got the job by dint of his US citizenship. It’s therefore a little rich for him to turn around and start complaining that he’s up against the very same set of conventions which allowed him that job in the first place.

It’s also worth remembering, while we’re on the subject of failed economic orthodoxies of the recent past, that Fischer spent three years, from 2002 to 2005, at Citigroup, working very closely with Bob Rubin. Indeed, he’s the only person I can think of who actually formally reported to Rubin, whose reputation has been comprehensively demolished by the financial crisis. As the co-author of an incredibly lucrative economics textbook, Fischer didn’t need the money; it’s fair to say that he saw no particular problem with taking the contacts he built up over a long public-sector career and turning them into profits for Citi shareholders, just so long as he got paid millions of dollars for doing so.

My feeling about Fischer is that he would be a managing director not dissimilar to the French technocrats who ran the shop during the 80s and 90s, Jacques de Larosière and Michel Camdessus. He’s not an agent of change; he’s a throwback to the past. And although he claims to be “full of vigor” at the age of 67, he’s probably a one-term MD at best, in an institution which has had altogether too much turnover in that role since Camdessus stepped down in 2000.

Of course it is high time that a non-European became managing director of the IMF. But Fischer is not the kind of break with tradition that the Fund needs — by non-European nobody means American, and Fischer would have a very hard time trying to present himself as an African, even if he was born in what is now Zambia.

So when Lagarde inevitably gets the job, let’s not shed too many tears that Fischer didn’t get it instead. In some kind of technocratic utopia, he’d be perfect. But in the messy real world, with his age and his US citizenship and his Citigroup years and his actions during the Asian financial crisis all counting against him, his candidacy is a non-starter. I’d be surprised if anyone at all, bar Israel, ended up voting for him.


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Please don’t forget what he did to Russia (his role in the forced privatization that allowed the Oligarchs to grab most of Russia’s best companies or even industries).

Posted by Foppe | Report as abusive

This is a remarkably poorly argued post. You’re pointing out one instance in which Fischer had trouble winning the support of the board (an issue where the board had strong political incentives to act “tough” and according to orthodoxy) and using it to conclude that he has trouble influencing the board—and this comes from a time when Fischer was #2, not #1 at the IMF.

How much do you know about Lagarde’s political career in France? Have you ruled out the possibility that there is a similar episode in her past, when she didn’t get her way on some political issue? Are you going to wildly extrapolate from that episode to conclude that she is bad at influencing others? Or does she get a past because, hey, she has a political background, so she must be good with people?

By the way, saying that Fischer “literally wrote the book when it comes to economic orthodoxy” is also a very sloppy statement. There was a TREMENDOUS difference between the “orthodoxy” at institutions like the IMF and the “orthodoxy” among actual academic economists. If you don’t recognize this distinction, you’re in trouble.

It’s particularly bizarre to see you compare Fischer to French technocrats—if there is any category of people containing virtually zero academic economists, it’s French technocrats. Presumably you think they’re similar because they’re boring and technocrat-y, but in reality they’re incredibly dissimilar, in much the same way that Bernanke and Trichet are dissimilar.

I’m not even going to bother with the juvenile “oh my God, Fischer worked at Citigroup under Bob Rubin!” argument. This kind of guilt by association (or skewering of anyone who has ever held a financial industry job) has no principled end.

Look: there is a good chance of a crisis in Europe in the next few years. Maybe we need someone with “political connections” in Europe, even if she knows jack about economics. But maybe it’s also important—even more important—to have someone who is more than a politician, someone with an incredibly deep understanding of the underlying economic issues (he was Ben Bernanke’s thesis advisor, for god’s sake) and experience with countries in financial crisis.

But hey, Lagarde is “smart, tough, and an able politician”. So is Hillary Clinton, who also has approximately the same background in international finance and economics (i.e. none). Does anyone think it would be a reasonable idea to name her head of the IMF? Of course not. But somehow, a few years as Minister of Trade and Minister of Economic Affairs (political appointments, in a country that is not exactly known for prizing economic expertise) are enough to qualify Lagarde. It’s a little crazy, to be honest.

Posted by agradstudent | Report as abusive

But maybe it’s also important—even more important—to have someone who is more than a politician, someone with an incredibly deep understanding of the underlying economic issues (he was Ben Bernanke’s thesis advisor, for god’s sake) and experience with countries in financial crisis.
My, aren’t you self-confident. Too bad you haven’t actually acquainted yourself with Fischer’s splendid record in practicing Chicago School “economics” (with its central dogma that theory trumps empirical data) down the throats of South Korea, Singapore, Indonesia and Taiwan.
Let me remind you, then. Fischer was the guy who forbade those countries to reinstate capital controls, leaving them to the mercy of a bunch of currency speculators. Yes, these same capital controls that the IMF has only 13 years later admitted “might have their uses”: http://www.ft.com/cms/s/0/cb95f0dc-5f9e- 11e0-a718-00144feab49a.html
But don’t let these facts rain on your parade, busy as you are calling Felix out on criticizing the rather poor credentials of this “economic giant.”

Posted by Foppe | Report as abusive

Foppe, saying that Fischer is a practitioner of “Chicago school” economics reveals an extraordinary lack of knowledge on your part about academic macroeconomics. In fact, Fischer was one of the leading lights of MIT macroeconomics, which was basically the “Chicago school’s” foil. No one with any knowledge of academic economics would ever make such a ridiculous statement. I congratulate you for demonstrating the depth of ignorance a person can reveal in a single sentence.

I don’t know exactly what Fischer advocated during the Asian financial crisis (and whether he fought with other members of the IMF), but it is worthwhile to note that as early as 2001, he was declaring in interviews that capital controls were lifted incorrectly: http://www.pbs.org/wgbh/commandingheight s/shared/minitext/int_stanleyfischer.htm l

Posted by agradstudent | Report as abusive

“As early as 2001″. Fat lot of good that did those countries. You will note that Malaysia, as the exception, did immediately reinstate capital controls, and was the only country that exited the crisis relatively unscathed (along with China, which also still had CC in place). It was, however, heavily lambasted for doing so by Fischer and his ilk.

As for your blather about “the depth of my ignorance”: we had already established that you care entirely too much about which irrelevant macroeconomic theory adheres to, and entirely too little about what they do with it. During his tenure at the IMF he was one of the most vocal advocate of dogmatic neoliberalization of first Russia (which ended up with a kleptocracy thanks to policies Fischer helped enact), and then the Asian Tiger countries (and thailand etc.) Now, i’m sure you find it of immense importance to do “justice” to the man’s theoretical background, but at the IMF, he either preached Chicago School economics, or your precious MIT variant is no better at all. As such, I do not care about the distinction.

Posted by Foppe | Report as abusive

“Christine Lagarde, whose main qualification for the job is that she’s French. But she’s smart, she’s tough, she’s an able politician ”

On the other hand, her main problem is that she is French. given her qualifications (and, with world leadership as it is, being a woman is pretty neat) surely you would be greatly partisan for Ms Lagarde were she NOT French.

For me, while it is extremely frustrating that she is French, she is a breath of fresh air. Over here in the UK she gives regular TV interviews and is extremely frank for a politician. She manages to combine this with not causing too much controversy too often.

Christine Lagarde is an excellent candidate. She will probably be among the best leaders the IMF has ever had. She will shake the institution up and unsettle people who have become too comfortable. It is just a pity that she happens to be French.

Posted by Dafydd | Report as abusive

Thank IMF for disqualifying Fisher not only for his old age but also his dual nationality. What oes he want to be? American of Israeli?

Posted by hariknaidu | Report as abusive

This feels like a thread that deserves its own post on Gawker.

Posted by fixedincome | Report as abusive

Foppe, you probably don’t care because like your post on GS you are too stupid to understand what you are talking about and presumably are cutting and pasting from some other idiot.

Taiwan did not go to the IMF and was barely affected by the asian crisis. Maybe you are confusing them with Thailand? Both begin with T right? Singapore also did not need to go to the IMF because both these countries unlike Korea and Thailand and Indonesia were not doing a carry trade. Dumbass.

hariknaidu, I assume you’d prefer someone from Syria or Libya? Would be a nice follow-on compliment after their presidency of the UN Human Rights Council

Posted by Danny_Black | Report as abusive

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Posted by traducere romana daneza | Report as abusive