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Global Intelligence Update
November 11, 1999
Shakeup At the IMF, And the Global Shakeup Yet to Come
 International Monetary Fund (IMF) Managing Director Michel
 Camdessus tendered his resignation Nov. 9, citing personal reasons.
 In the midst of several investigations into money laundering of IMF
 loans in Russia, the timing raises questions over the extent to
 which the institution has been tainted by the scandals. In
 addition, the internal debate over the IMF's future direction will
 now play out in the choice of a new managing director; Asian
 nations seek more influence over the IMF. A battle is now brewing
 over the future leadership and the viability of the IMF is
 ultimately at stake. A discredited and paralyzed IMF, in turn,
 would threaten the fabric of the global financial system.
 Michel Camdessus, managing director of the International Monetary
 Fund (IMF), announced that he would step down by mid-February 2000.
 Camdessus cited personal reasons, and said it was a good time for
 transition in the institutional leadership. Camdessus suggested
 that he took the appointment in 1997 knowing he wouldn't serve the
 full five-year term - but he didn't want a change in leadership in
 the middle of Asia's financial crisis. Camdessus said that for him
 to complete his current term "would be inappropriate in a world in
 permanent need of renewal of its institutions."
 His move comes as investigations into possible misappropriation and
 money laundering of IMF funds from Russia intensify. In addition,
 the IMF and other international lending institutions have recently
 admitted that assistance programs linked with stiff austerity
 requirements may have actually added to the difficulties in some
 recipient nations in Asia.
 His action may be linked to opposition to the IMF's unpopular
 practice of linking aid to austerity measures as well as the need
 to keep the IMF from being dragged into the Russia money laundering
 scandal. Whether IMF officials were directly involved in the
 Russian bank scandal, or it was simply a case of mismanagement, the
 IMF is nonetheless faced with a crucial leadership decision.
 The debate over the next IMF leader may well leave the institution
 paralyzed, as factions push for a leader who will redefine policy
 in their terms. The fundamental battle is between the United
 States, the IMF's biggest donor, which demands that loans be
 conditioned on radical free market reforms, and other donors and
 recipients, who argue that loans should be sensitive to individual
 concerns and situations.
 A key example is found in the underlying tension over whether
 capital controls are legitimate economic tools. Since Asia's
 financial crisis, when Malaysian Prime Minister Mahathir Mohamad
 refused IMF assistance, opting instead for capital controls, the
 issue has triggered hot debate. Malaysia's economic recovery,
 independent of IMF assistance and without severe economic reforms
 and social consequences, has inspired other Asian IMF recipients to
 support, or at least not condemn, limited capital controls
 [ ].
 Beyond capital controls, the debate is between proponents of a
 unified, global economic system and proponents of more regional
 options. With Camdessus no longer at the helm, these factions will
 attempt to wield their influence during the search for a new
 managing director.
 This will pit nations like the United States - advocates of the
 one-solution-fits-all free-market policy - against countries like
 Japan, which is supportive of more regional economic security nets,
 including an often-proposed Asian Monetary Fund. The United States
 will likely call for more auditing, tighter controls, transparency
 and restrictions in light of the Russian bank scandal. However,
 these very principles have been tearing the IMF apart all along, as
 they contrast with the desires of nations like Japan and recipient
 nations, forced to accept stringent reforms while begging for
 As with the long-running debate over the choice of the World Trade
 Organization (WTO) head earlier this year
 [ ], the selection of
 a replacement for Camdessus will likely paralyze the management of
 the IMF. If accusations of institutional complicity, or even gross
 mismanagement or neglect, in the Russian scandal are raised, the
 IMF will be further discredited. The debate opened by Camdessus'
 resignation, then, threatens the very viability of the
 The IMF is the key proponent of the idea of a unified global
 economy. If it is crippled by infighting and potentially
 discredited by scandal, such a global economic system itself is in
 jeopardy. This, in turn, would lend credence to calls for regional
 systems operating under differing rules. It may also trigger new or
 relapsed economic crises, as donor nations call in loans and the
 IMF suspends new distributions. While Camdessus may indeed have
 resigned for personal reasons at a time of relative financial
 stability in the world, the result may be an accelerated
 realignment of the global economy.