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Analysis/Comment Last Updated: May 23, 2011 - 8:05 AM


Dr. Peter Morici: European should head IMF
By Professor Peter Morici
May 20, 2011 - 1:02 AM

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International Monetary Fund's Acting Managing Director John Lipsky enters his conference room for a regularly scheduled economic surveillance meeting with senior staff and management, May 18, 2011, at the IMF Headquarters in Washington, DC. The former banker is an American citizen and is due to retire in coming months. IMF Photograph/Stephen Jaffe

Lipsky said in a speech at the Annual Meeting of the Bretton Woods Committee, on Thursday: In many advanced economies, we are experiencing a moderate recovery. Unemployment remains stubbornly high in most of these countries, raising the risk of higher structural unemployment. Only in a few advanced economies that have improved their competitiveness through structural reforms, such as Germany, is growth notably above-trend, thus reducing the margin of excess capacity.

Dominique Strauss-Kahn was granted bail on Thursday by a judge in a New York court, after being formally charged with trying to rape a hotel maid. He had earlier resigned as the International Monetary Fund's boss.

Strauss-Kahn's lawyers said he was honourable and would not try to abscond. Prosecutors said he had "incentive to flee."

Supreme Court Justice Michael Obus imposed $1m cash bail and said there must be 24-hour home detention, with an armed guard and electronic monitoring. The judge said one armed guard must be available at all times, at Strauss-Kahn's expense, and the defendant must surrender all travel documents. In addition to the $1m cash bail, a $5m insurance bond would also apply.

An article in The New York Times today titled, At IMF, Men on Prowl and Women on Guard, says: "Some women avoid wearing skirts for fear of attracting unwanted attention. Others trade whispered tips about overly forward bosses. A 2008 internal review found few restraints on the conduct of senior managers, concluding that 'the absence of public ethics scandals seems to be more a consequence of luck than good planning and action.'”

Dr. Peter Morici: The debate over whether a European or Asian should lead the International Monetary Fund (IMF) involves more than symbolism. An Asian leader could be bad for free markets and the progress of the global economy.

After World War II, the World Bank was established to provide long-term financial and technical assistance to developing countries, and the IMF was created to manage a system of fixed exchange rates. Essentially, the dollar was pegged to gold and other currencies to the dollar. The Americans got the head of the World Bank and the Europeans the IMF.

With the demise of the fixed exchange rate system in the 1970s, the IMF mission evolved to providing short term loans to countries with sovereign debt issues—that is why it is currently involved in Greece’s debt problems—and advocating transparent, market determined exchange rates.

Too many Asian governments on too many occasions have flaunted the system of market determined exchange rates, and violated World Trade Organization rules against manipulating exchange rates to accomplish competitive advantages and trade surpluses—the WTO defers policing such abuses to the IMF. Notably abusers have included China, India and Japan, who constitute the lion share of Asian GDP.

Were the Asians permitted to capture the IMF bureaucracy, its role could easily morph into sustaining exchange rate relationships that greatly disadvantage U.S. and European growth. Slow growth caused by the global trade imbalances, created by undervalued Asian currencies, make worse sovereign debt problems in Europe and U.S. federal and state budget challenges.

Asian growth has been remarkable but it has come in some measure from Asian governments breaking the rules—now we should not put them in charge of enforcing those rules.

Changing the Guard at IMF: A look at how the IMF should regroup on the heels of the IMF sex scandal, with Robert Reich, UC Berkeley, and David Malpass, Encima Global:

Strauss-Kahn's Pension Shocker! Dominique Strauss-Kahn is expected to walk out of jail on a $1m bail. CNBC's Eamon Javers speculates 10% of that was put down - - "Trump change" next to what the disgraced Strauss-Kahn stands to make for the rest of his life:

Peter Morici,

Professor, Robert H. Smith School of Business, University of Maryland,

College Park, MD 20742-1815,

703 549 4338 Phone

703 618 4338 Cell Phone

pmorici@rhsmith.umd.edu

http://www.smith.umd.edu/lbpp/faculty/morici.html

http://www.smith.umd.edu/faculty/pmorici/cv_pmorici.htm

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