Opinion

Mohamed El-Erian

The new international economic disorder

Mohamed El-Erian
Dec 21, 2011 19:35 UTC

By Mohamed El-Erian

The views expressed are his own.


A new economic order is taking shape before our eyes, and it is one that includes accelerated convergence between the old Western powers and the emerging world’s major new players. But the forces driving this convergence have little to do with what generations of economists envisaged when they pointed out the inadequacy of the old order; and these forces’ implications may be equally unsettling.

For decades, many people lamented the extent to which the West dominated the global economic system. From the governance of multilateral organizations to the design of financial services, the global infrastructure was seen as favoring Western interests. While there was much talk of reform, Western countries repeatedly countered serious efforts that would result in meaningful erosion of their entitlements.

On the few occasions that such resistance was seemingly overcome, the outcome was gradual and timid change. Consequently, many emerging-market economies lost confidence in the “pooled insurance” that the global system supposedly put at their disposal, especially at times of great need.

This change in sentiment was catalyzed by the financial crises in Asia, Eastern Europe, and Latin America in the late 1990’s and early 2000’s, and by what many in these regions regarded as the West’s inadequate and poorly designed responses. With their trust in bilateral assistance and multilateral institutions such as the International Monetary Fund shaken, emerging-market economies – led by those in Asia – embarked on a sustained drive toward greater financial self-reliance.

Once they succeeded in overcoming a painful crisis-management phase, many of these countries accumulated previously unthinkable levels of international reserves as precautionary cushions. They extinguished billions in external indebtedness by generating and sustaining large current-account surpluses. And they increased the scale and scope of domestic financial intermediation in order to reduce their vulnerability to external storms.

from The Great Debate:

How Lagarde should be appointed at the IMF

Mohamed El-Erian
May 20, 2011 15:06 UTC

By Mohamed El-Erian
The opinions expressed are his own.

Eager to retain a historical but outmoded entitlement, European politicians seem to be coalescing around Christine Lagarde to replace Dominique Strauss-Kahn as Managing Director of the IMF. Lagarde has the qualifications to successfully lead a multilateral institution that is central to the well being of the global economy. Her ability to do so, however, may critically depend on how she is appointed.

Lagarde has considerable skills and expertise; she has gained important experience in both the private and public sectors; and, judging from her stint as France’s Minister of Finance, she has navigated well the corridors of political power at the national and European levels.

Lagarde would be the first woman to lead a Bretton Woods institution. Such an overdue appointment would send an important message to an IMF demoralized by disturbing allegations of sexual assault by Strauss-Kahn. It would also come at a time when delicate questions are being raised as to whether the institution has historically been tolerant of inappropriate behavior.

from The Great Debate:

Strauss-Kahn allegations are consequential for the global economy

Mohamed El-Erian
May 16, 2011 15:49 UTC

By Mohamed A. El-Erian
The opinions expressed are his own.

This weekend's detention of the IMF's chief on allegations of sexual assault has implications that go well beyond the impact on Dominique Strauss-Kahn's (or, as he is commonly known, DSK) international prestige. They could also impact the IMF, France, market uncertainty and the well-being of the global economy.

We must wait to make a full assessment until we know the outcome of ongoing police investigations into allegations that, according to his lawyer, DSK intends to “contest vigorously.” Having said that, some commentators are already taking the view that the IMF could lose its managing director, and that France could lose a leading candidate for next year's presidential elections.

Should he be forced to step down, DSK would be the third successive head of the IMF to leave suddenly. Once again, this would catch the institution with a selection process for the top position that is still overly dominated by politics, horse-trading between Europe and the US and other outmoded characteristics.

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