These are questions on which the IMF can offer added value compared with others because we have this huge database of knowledge and information about 187 members of the institution. We are in this sort of surveillance position, which is very privileged, because we have access. We can analyze, and then we can show to the members what will be helpful for them. So, our role has evolved to include much more of an effective, more holistic surveillance of the economic situation.
And I think we need more money [laughs].
Knowledge@Wharton: How can the IMF build more credibility and quality?
Lagarde: Credibility is a matter of being representative of the institution, and that is a factor of our quota allocation, a factor of our governance. Does the executive board actually reflect the membership? We have to represent our membership and we have to look like our membership. That calls for diversity of the staff in terms of gender, geographical origin, ways of thinking and cultural background. That can help build credibility.
Quality is not a subset, but it’s closely linked to the issue of diversity. [The IMF must] have the ability to bring together people with different backgrounds, from different regions of the world to confront issues. I think that’s a big test of the relevance of the institution.
Knowledge@Wharton: Historically the IMF has been dominated by the industrialized Western countries. How do you see the role of the BRIC nations, especially China and India, in the IMF?
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Lagarde: Their role is significantly evolving. It reflects, as I was telling you for the credibility issue, the economic evolution of those countries. It is best manifested in three areas. One is the staff. How many staff do we have in the institution who come from India or from China? This applies throughout the institution but also at the top level. How many people in the management originate from China or India? We have quite a number of them. I’ve just recently appointed the Secretary of the Board, who is a Chinese national. One of my deputy managing directors is a Chinese national. Among the key leaders of this institution, we have many very talented Indian economists who lead key departments like the strategic department. So, that’s one level.
Then you have a second level, which is quota and voice. That is an evolving phenomenon, because we are right in the middle of the quota reform, which is going to shift 6% of current quota to dynamic emerging market and developing countries, while protecting the quota shares and voting power of the poorest members. Clearly, the BRICs will be among the recipients of these additional quotas, and as a result of the reform, all of them will be within the top 10 countries of this institution in terms of quotas.
The third level, which I don’t think is as relevant but it matters, is whether they sit at the board of the institution. As it happens, they do. Brazil sits at the table, Russia sits at the table, India sits at the table. China does as well.
Knowledge@Wharton: What role could the IMF play in bringing about a better balance between rates of exchange, for example, for a possible re-valuation of the yuan versus the U.S. dollar and the euro?
Lagarde: It’s funny that you would focus exclusively on these currencies, because our job is to assess the appropriate exchange rate — and to actually say what we think of it — for all 187 members of the institution. We do that through appropriate modeling, gathering of data and comparing and taking into account multiple data, including the current account. It’s a daunting task because we don’t make anybody happy. Everybody sees himself either higher or lower and our assessment is not necessarily always welcome or well-received. But we do it on the basis of what we know, what we observe, what we can compile and model. We are in the process of refining and updating our methodology. Probably later in 2012, we’ll be able to come up with a new methodology and model of assessing exchange rates.
Knowledge@Wharton: I’m wondering if the IMF will be raising its projected growth for the U.S. at the spring meeting. Right now I think it’s projected 1.8% growth.
Lagarde: Maybe a little bit, but you’ll have to be patient, because the meeting is not until three weeks from now. But maybe a little bit. There have been good signs, let’s face it. There have been good numbers coming out, particularly on the unemployment front and on some high-frequency indicators as well. There are measures taken at the moment, particularly on the housing markets, that might turn out some significantly improved results.
Knowledge@Wharton: Of all the things that you do here, what are you most passionate about? What would you really like to make sure happens? It could be a small thing, it could be a large thing. What is it that really has your heart?
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Lagarde: That’s complicated. I think it’s this issue of relevance … that is of real concern to me. You see, this is a very fascinating institution because it’s completely counter-cyclical. When the world around the IMF goes downhill, we thrive. We become extremely active because we lend money, we earn interest and charges and all the rest of it, and the institution does well. When the world goes well and we’ve had years of growth, as was the case back in 2006 and 2007, the IMF doesn’t do so well both financially and otherwise.
For this institution, which is a fascinating mix of almost all countries of the world with a single objective that should transcend all their respective individual policies and strategies, for it to be sustainable, we need to be very agile, very in touch with our membership, with our client base, if you will. We need to be able to invent and reinvent ourselves in many ways. So, as I was explaining about going from bilateral to multilateral surveillance, from a narrow focus to something that is more holistic, that is exactly what is at stake.
Republished with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.