Why the IMF may become more sympathetic to cash-strapped borrowers
For the first time in its history, the International Monetary Fund’s head will hail from the ranks of those it has rescued
Sofia/Prague — For many economies that drift into stormy seas, the first port of call is the International Monetary Fund (IMF). Soon, and for the first time in its history, the lender’s head will hail from the ranks of those it has rescued.
Kristalina Georgieva is an economist from Bulgaria, which was bailed out in 1997 amid hyperinflation and a currency crisis, and is now the EU’s poorest member-state. Currently the World Bank’s CEO, she is set to become the second woman to lead the IMF when Christine Lagarde leaves in the fall.
Georgieva, a former EU commissioner, has championed anti-poverty initiatives throughout her career. With the IMF under increasing pressure to soften its austerity demands on struggling borrowers, she may provide a more sympathetic ear.
“She comes from an emerging market — this is new,” Athanasios Vamvakidis, head of G10 forex strategy at Bank of America Merrill Lynch and a previous IMF official, said by phone. “I’m optimistic she’ll try to address the issue that emerging markets should have stronger representation.”
Georgieva’s arrival — all but guaranteed under an unwritten pact where Europe picks the IMF head and the US chooses the World Bank’s boss — comes at a volatile juncture.
Tremors from the US-China trade war are stoking concern about global growth. Just as Greece plans an early exit from its IMF loan, Argentina is again facing crisis, further questioning the spending cuts the IMF typically prescribes for nations in need of emergency funds.
Georgieva, whose office at the World Bank said she is not giving interviews, is no stranger to hardship or crisis.
Before she left for the World Bank in 1993, Bulgaria was struggling to shift from communism to a market economy. Output plunged by more than half in the five years after the Iron Curtain fell.
“Let’s remember how in 1990 we had to get up at 4am to queue for milk,” Georgieva said two years ago.
By 1997, about a third of Bulgaria’s banks had collapsed, the lev had lost 98% against the dollar and inflation topped 1,000%. People were hoarding goods after shops stopped taking the national currency.
Tonka Gandzhurova — a resident of the town of Lyubimets near the Greek border, where Georgieva spent summers when she was growing up — shudders when she recalls the country’s predicament.
“There was nothing in the shops,” Gandzhurova said in an interview.
Lyubimets lost factories and businesses as Bulgaria succumbed to the slump. Eventually, an $800m IMF loan was sealed. Some of the conditions attached to that rescue — such as pegging the lev to the euro — helped prepare the nation to join the EU.
The government hopes to lock its path to euro membership in 2019.
“Those reforms that the IMF wanted? Bulgarians are patient, and it worked,” Gandzhurova said.
Georgieva’s appointment would break 40 years of dominance by Europe’s more affluent west. Before Lagarde there was Dominique Strauss-Kahn, also from France, Spain’s Rodrigo de Rato and Germany’s Horst Kohler.
But not everyone’s happy with Georgieva’s candidacy.
Her nomination in August was contested by Germany and the Netherlands, which backed former Dutch finance minister Jeroen Dijsselbloem. On top of that, Georgieva, 66, would be above the age limit at the start of her term, meaning the IMF would need to change its bylaws if she were to take over — a process that is under way.
Meanwhile, developing nations see her as representing Europe rather than the emerging world. They may propose their own candidate for the final vote, which should be a formality because of the traditional arrangement between Europe and the US
Ashoka Mody, a former deputy director at the IMF’s research and European departments, says Georgieva may not have the global stature for “arguably the most important international economic job.”
But after missing out in the past on the top posts at the European Commission and UN, she now has an opportunity to make her mark.
If Georgieva can use her chance to make the IMF “a voice against unbridled financial interests, and for a more just global economy, then she’d have done herself a favour and the institution too,” Mody said.