Christine Lagarde’s Uncharted Asian Territory
Christine Lagarde’s Asia charm offensive ended on a rather discordant note.
The head of the International Monetary Fund cut short her Asia trip to attend the umpteenth meeting of euro-area finance ministers on Greece. It was a stark reminder that with the West either in recession or political paralysis, the IMF is giving short shrift to Asia, a place that could use more face time with the woman in charge of the world’s economic rescue squad.
Lagarde’s Asia trek was meant to woo a region that, 15 years after its own crisis, helps power the world economy. She got in a bit of wooing in Malaysia and the Philippines. In Kuala Lumpur, she stood shoulder-to-shoulder with Zeti Akhtar Aziz, Malaysia’s internationally respected central-bank governor. In Manila, Lagarde paid her respects to Finance Secretary Cesar Purisima and central-bank head Amando Tetangco for their success in reviving the perennial sick man of Asia.
And then, poof, she was gone. Her trip to Cambodia for the East Asia Summit was scrapped, along with a rare chance to catch up with leaders from Australia, India, Japan, New Zealand, Russia and South Korea. All for another European debt confab that will resolve what? A summit bubble, anyone?
I’m a big believer in the inverse relationship between the number of summits and the result each produces. No one doubts Lagarde’s sincerity about this next one in which 17 euro countries will get together in an effort to cut Greece’s debt to sustainable levels. But let’s be real. None of the countless powwows have done so. A year or two from now, Europe will still be dueling with Athens and its debt.
All this says two things about today’s IMF. One, like too many European leaders, IMF officials are living in denial about the magnitude of the West’s problems if they think another gathering and yet another communique matter. Two, they don’t grasp the importance of Asia and its growing challenges.
The IMF’s defenders will surely take exception. But Lagarde missed a perfect chance to address Asian leaders directly on their turf on everything from weak global growth to financial instability to widening income gaps to optimal regulatory approaches. She missed out on pressing China on reforms after its leadership change; India and Indonesia on attacking corruption and weathering surging food prices; Vietnam on its latest market crash; Laos on its bid for World Trade Organization membership; and Singapore on a possible chill in its immigration policies.
Her time in Phnom Penh, Cambodia, would have been a timely opportunity to feel out Japanese and South Korean officials on next month’s elections. Or talk some sense into Asia over the territorial disputes driving it apart. Why not debate the logic of the currency-reserves arms race that has occurred since Asia’s 1997 crisis and discuss the pros and cons of capital controls? The mix of recession, poverty and increasing hunger among Asia’s billions might make Europe’s crisis seem manageable by comparison.
Lagarde could have worked the room at the East Asia Summit to see what Europe can learn from Asia’s crisis response. Europe could do worse than emulate how quickly countries such as South Korea confronted the magnitude of their debt and structural flaws, implemented sweeping changes and began thriving.
It hasn’t escaped notice in Asia that the IMF is treating Europe very differently. Fifteen years ago, the IMF demanded that Asia raise interest rates, boost currencies, cut debt, force banks to write down bad loans and let companies fail in exchange for bailouts.
Now Asia looks on, often aghast, at how the IMF coddles Europe with ever-growing amounts of aid and misplaced patience. In Manila last week, Lagarde said discussion on Greece “isn’t over till the fat lady sings.” Well, she won’t sing for a long, long time because IMF policies defer the needed reforms.
The IMF needs Asia. No big economic or environmental issue can be solved without China’s participation. It also needs money from Japan, China, India, Australia, South Korea and other economies in the region. Lagarde’s visits to Malaysia and the Philippines were, in part, to show appreciation for their contributions to a $461 billion increase in the IMF’s resources this year, when the U.S. and Canada abstained.
I like and respect Lagarde. I believe the IMF has benefited greatly from her presence in Washington. And granted, Lagarde is a busy person with Europe’s mess, the U.S. teetering on its self-inflicted fiscal cliff and sparks flying in the Arab world. Her resources are stretched a bit thin.
It is important, though, for IMF officials to focus on Asia, a region on the front lines of every risk facing the global economy. Lagarde may be courting bigger trouble if she doesn’t spend more time there.
(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)
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