Jake's View

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

PUBLISHED : Tuesday, 16 October, 2012, 12:00am
UPDATED : Wednesday, 17 October, 2012, 7:17am

"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 …