Friday, September 28, 2007

Structural Changes at the IMF: More Voices Same Choices

The International Monetary Fund continues to be the resting place for European politicians waiting for better times. France found it necessary to place an important member of the new opposition party some place safe. And what better place than the International Monetary Fund. This is especially the case with the successful candidate--Dominique Strauss Kahn, the former French Socialist Finance Minister and the runner up for Socialist Party leader in France , who thus "won" (at the IMF) by losing to Segolene Royal to be the Socialist party's candidate in the recent French presidential election. Indeed, one of Mr. Strauss Kahn's principal backers was none other than "French President Nicolas Sarkozy [who] had supported Mr Strauss-Kahn's leadership bid and hailed the nomination as a 'great victory for French diplomacy.'" Frenchman is Named New IMF Chief, BBC News Online, Sept. 28, 2007.

But this time the Europeans may have chosen well.

There has been an increasingly effective attack on the legitimacy of the International Monetary Fund from a variety of perspectives. The old Marxist Leninist states, supported by elements drawn from the developing states have maintained that the IMF is illegitimate as part of a global system of national subordination and economic neo-colonialism in the form of a legal system establishing global financial markets in sovereign debt. See Larry Catá Backer, Ideologies of Globalization and Sovereign Debt: Cuba and the IMF, 24 Penn State Int’l. L. Rev. 497 (2006). Less comprehensive but possibly more effective, have been the "rule of law" and system legitimacy attacks by debtor states, and those rising developing states eager to project more power (though less eager to spend money in that effort). As the BBC accurately reports
there has been growing criticism over its legitimacy because of the overriding influence of rich nations at the expense of emerging powerhouses, such as India and China. Since the group's post World War II inception, it has been the custom that Europe picks the boss of the IMF, a practice considered unfair. Many of the IMF's 185 members are also unhappy with how the board and voting rights are structured.
Frenchman is Named New IMF Chief, supra. An who better to diffuse these attacks than a representative of European Socialism. Mr. Strauss Kahn is meant to present the warm and fuzzy, the empathetic face, of the dominant powers. "In a statement after the announcement on Friday afternoon, he said: 'I am determined to pursue without delay the reforms needed for the IMF to make financial stability serve the international community, while fostering growth and employment.'" Frenchman is Named New IMF Chief, supra.

And so he will. For the public law culture, and private law ordering norm systems, of the dominant states to continue to provide the basis for the restructuring of developing states; that is, for the continued success of a campaign to assimilate the global community to the norms of the victorious powers of the Second World War, it is necessary to preserve the legitimacy of the global institutions charged with this civilizing task. Having abandoned direct assertions of political power through systems of global colonial empires, the civilized states substituted a global structure based on a complex network of norm and norm naturalizing institutions, that were meant to be infused with appropriate values, and sent off to naturalise those values in the rest of the world. Among the global institutions created for that purpose was the IMF. It is thus necessary to preserve the legitimacy of the IMF without jeopardizing the structural values which it seeks to implement through its conditional lending programs and other efforts.

And for that purpose Mr. Strauss Kahn may be perfect. He appears to be willing to aid in the restructuring of the constitution of the organization. But who may win? To the extent that rising powers are given greater clout, it is unlikely that much will change. China, Brazil, and India, for example, are rising economic powers precisely because they have been willing to internalize the values the IMF is supporting. Giving them greater voice in IMF matters may change the IMF's actions at the margin, but not affect the basic values structures of the institution. At the same time, Mr. Strauss Kahn is likely to resist changes that will upend governance at the IMF. It is unlikely, for example, that he will permit power to flow from lenders to debtors. Still, he is likely to continue the programs of paying debtor countries off, by subsidizing debt restructuring that effectively reduce the aggregate cost to borrow of these states.

But debtor states will ultimately be no better off under a "kinder and gentler" regime of greater "developing" state participation. Global financial markets in secondary debt are unlikely to change much in the face of governance reconstitution at the IMF. The IMF will continue the process of reducing states to public corporations for purposes of debt markets. See Larry Catá Backer, Odious Debt and “Vulture Funds”: Making a Case for Repudiation of Sovereign Debt, Law at the End of the Day, Feb. 16, 2007. "Photo opportunity" governance changes play well in the press, and for elections, but they tend to do little to affect the financial obligations of poor states with a taste for borrowing (or the necessity thereof by operation of the current global economic system). Here the IMF will be presented with a great opportunity to indulge in a bifurcation of rule of law regimes within its governance systems--presenting greater representation within the formal structures of governance while reinforcing the structures of norm maintenance at the operational level. See Larry Catá Backer, Rule of Law as Form or Substance: Pakistan and Its Prostitutes, Law at the End of the Day, June 23, 2007. As long as the norm structure underlying norm conditionality, and the surveillance and assessments derived therefrom continue to reflect the understandings and values of creditor states--and there is no reason to believe that this will change--then structural changes at the IMF will make great press but have little effect on the key work of that institution.

In any debtor creditor relationship, the creditor will tend to assert a certain dominance. That dominance is not merely structural--a power to appoint or control the mechn ics of an organization. It is systemic as well. That is a point that critics like Fidel Castro understand well. Less well understood, though, is that in such a dynamic, "reform" will tend to be marginal. Modification of lender (IMF) institutional structures will change culture, and in this case the culture of lending and of appropriate behavior by debtors, only to the extent creditors are willing to continue to contribute--that is to supply the financing for the work of the institution. Systemic changes, thus, are not necessarily a function of structure--of the "law" of the organization--but of the "organic" law of the community. In this community, lender preferences have dominated. Changing the governance mechanics of the IMF might produce "control" to the debtor states, but that control may be illusory for one of two reasons: (1) the debtor states will be careful to appear "revolutionary" while retaining intact the underlying structures of power and culture in the institution (a charge sometimes made against several generations of post colonial African leaders); or (2) the creditor states will abandon the institution and form another, or leave it to the private markets (whose rule structures the creditor states will enforce in its courts).

There may be one significant caveat, and it reflects the "margin" mentioned above. That margin can have important effects. And indeed, in one respect those effects may be worth the effort for debtor states. A debtor controlled IMF may be more willing, to broaden the context in which debt need not be repaid, and to narrow the scope of obligations to restructure debtor governance to protect against corruption--especially the corruption of individuals controlling the state apparatus of debtor states. But even here, the extent of change may depend on the willingness of contributor states to tolerate changes. This may portend well for the elaboration of a more effective theory of odious debt. See Larry Catá Backer, Odious Debt Wears Two Faces: Systemic Illegitimacy, Problems and Opportunities in Traditional Odious Debt Conceptions in Globalized Economic Regimes, 70 DUKE JOURNAL OF LAW & CONTEMPORARY PROBLEMS –(forthcoming 2007) (document download here).

So let us cheer the appointment of M. Strauss Kahn. Expect changes in the form of governance, and fewer choices in the form of relationship between lender and creditor states.

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