-Caveat Lector- WJPBR Email News List [EMAIL PROTECTED] Peace at any cost is a prelude to war! STRATFOR.COM Global Intelligence Update November 11, 1999 Shakeup At the IMF, And the Global Shakeup Yet to Come Summary 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. Analysis 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 [ http://www.stratfor.com/asia/aiuarchive/b990226.htm ]. 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 assistance. As with the long-running debate over the choice of the World Trade Organization (WTO) head earlier this year [ http://www.stratfor.com/SERVICES/GIU/050699.ASP ], 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 organization. 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. (c) 1999, Stratfor, Inc. _________________________ **COPYRIGHT NOTICE** In accordance with Title 17 U. S. C. 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