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Jake's View
PUBLISHED : Tuesday, 16 October, 2012, 12:00am
UPDATED : Wednesday, 17 October, 2012, 7:17am

China did well to stay out of Tokyo and IMF

For the sake of retaining its world-leading foreign reserves, Beijing should keep well away from the Christine Lagarde school of economics

"Instead of front-end loading heavily, it is sometimes better, given the circumstances and the fact that many countries at the same time go through the same set of policies with the view of reducing their deficits - it is sometimes better to have a bit more time."

Christine Lagarde, A misplaced labour lawyer, SCMP, October 12
 

I can't fault Beijing for sending only juniors to the International Monetary Fund's big talk shop in Tokyo last week. The decision was taken for the wrong reason of course - a territorial dispute with Japan - but it was the right one nonetheless.

It was the right decision because China has by far the world's biggest foreign reserves and needs some practice at an early stage in telling the IMF to get lost when it comes pleading for that money, as it is sure to do with Christine Lagarde running the show.

She is now the world's principal adherent to the notion that the way to overcome financial difficulties is to go deeper in debt.

It's such an unusual idea that you would almost think there is profound economic understanding behind it, a mystery not imparted to lesser mortals like you and me.

But, no. It's as stupid as it sounds.

And it's particularly stupid when applied to Greece, a country where tax cheating, corruption and mis-spending of public funds have so pervasively corroded normal social obligations as to bring in doubt whether a national community exists at all.

Yet Lagarde wanted international lenders to keep throwing good money after bad in Greece until 2016 before asking for any repayment while dismissing anything less as "front-end loading heavily".

Front end loading? Greece's repayment obligations are already so heavily back-end loaded that the front wheels have lifted off the road. Fortunately, the German finance minister was present to tell her (politely) to shut up.

She did so for the moment but there were no signs of a change of mind. Her retreat was Napoleonic. She'll be back.

Let's put her career in perspective. Her first job in finance was as French minister of finance from June 2007 to June last year. Before that she was briefly a technology booster for the French government and before that a lawyer specialising in labour and anti-competition cases.

Her principal achievement in office, as the charts show, was to double the ratio of the French deficit to GDP and to push up French debt by 40 per cent or €475 billion (HK$4.76 trillion).

With this amazing attainment to her credit she felt entitled to claw for the job of managing director of the IMF when her predecessor revealed an embarrassing fondness for hotel maids.

The post is effectively a French sinecure. France has held it for 37 of the past 50 years and the only reason I can find is a public deal with the United States that Europeans will run the IMF while the US runs the World Bank.

I also suspect a private French deal with Germany along the lines of - you still owe us. Remember Hitler?

Whatever the case, it would be best for China to stay away from the IMF for the time being.

And I have a job recommendation for Christine Lagarde. I know a tanning salon just down the road that's looking for a new …

jake.vanderkamp@scmp.com

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joyalsofi
As if the bailouts weren't to pay the bankers who made the bad loans. Rather than helping the Greek people, the terms of the restructuring agreement states that it is not intended to promote growth. It forces reduced salaries and pensions, and requires them to privatize their heritage and many of their main revenue sources. Just how that is supposed to enhance the country's ability to function is anyone's guess.
megafun
Oh, BTW, the original reasons for HSBC to want Tuen Mun road, or its improvements, was so that rich HSBC shareholders (German) can go buy cheap holiday homes at the Gold Coast resort. Now, that is really true, since Germans own alot of holiday homes in cheap Greece!
megafun
BTW, how did Greece get into this debt? Was the German guilty of lending to all the wrong Greeks, in the first place? I compare this to HSBC going into a poor housing estate in Tuen Mun and say to all its residents, I'll lend you guys money to build Tuen Mun road, or its present improvement works, but you have to repay me - even though you earn very little, or am unemploy! Somehow, the housing estate management (LINK) agreed to the vast loan, and pocketed a commission. Then HSBC imposed loan conditions wherein the builders of Tuen Mun road are from Kowloon (not Tuen Mun, so no benefits to Tuen Mun's economy) and all materials and plant were purchased from Hong Kong Island, or imported from outside HK. (Again, no benefits to Tuen Mun). After the project is finish HSBC demands residents in that Tuen Mun housing estate to re-pay the loan. Guess what? The residents were pleased at all, and fired "LINK". Seems this is the present state in this Greece / German , or Tuen Mun Housing Estate / HSBC scenario!!!!!!!
honger
You are so brilliant, Jake. Not many dare to call a spade a spade.
ssslmcs01, what are u talking about?
ssslmcs01
China may have the largest holdings in dollar/Renminbi value in the world but proportionately China's holding mean very little.
China has very big internal debt, money that has been used to keep the GDP high over the years by building. There are millions of uninhabited residential buildings all over China. The money used to construct these buildings is borrowed money. The value of assets to debt ratio isn't good, about 20% assets of the total debt which is well into the trillions of Renminbi.
The focus of the article is too narrow, look at the big picture. And besides, whether or not the top finance officials were present would not affect China's decision to lend or not to lend more money to Europe or elsewhere.
captam
Oh please Jake don't give poor Christine such a hard time.
She's the only 'Frenchman' in finance or politics who dares to speak publicly in English.
Without her, the poor Brits won't have an inkling of what's going on in Europe.
donniemcm
Exactly. When you have debts, let's get a new debt to cover it !
blue
Great article. I totally agree.
 
 
 
 
 

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