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It’s All About Leadership

Why Agustin Carstens should have been chosen as the IMF’s managing director.


Management gurus claim that, in addition to land, labor and capital, leadership is a fundamental factor of production. It is true that an institution’s leadership can make all of the difference in the world. Take
Venezuela, for example. How can a hydrocarbon giant that is in the midst of an oil boom be in recession? It can only be explained by the poor quality of the country’s management. In recent years, we witnessed great companies, such as Ford, Apple and JPM, reverse years of decline through the appointment of new leaders. In all three cases, bureaucratic operators were replaced by experts in their fields. The combination of technical capabilities, competence and strong personalities allowed them to bring the disparate parts of their institutions into harmony, in the same way that orchestra conductors synchronize the various musical sections at their disposal. This is why the appointment of Christine Lagarde as Managing Director of the IMF is a tragedy, and a mistake that will have global consequences.

That is not to say that there is anything wrong with Lagarde as an individual. She is intelligent, affable and eloquent. However, she is a Eurocrat—a professional bureaucrat that effortlessly transitions between national and EU politics while cutting deals that will further their careers. Moreover, Lagarde is a lawyer, and not an economist. Unfortunately, the International Monetary Fund (IMF) is a bastion of economists. It is a closed cabal of professionals, who jealously protect the integrity of their institution. Academic pedigrees are in open display, and only individuals with the best doctorates, post-docs and publications are allowed entry into its hallowed halls. It is a melting pot, with economists from every corner of the world bound together through a rigid protocol of country missions and reports. The IMF also has its own language. Economists use language as a major barrier to entry. It is dense and obscure. However, the IMF staff takes this to an even a higher degree, using phrases such as Article IV and Markov processes as verbs instead of nouns. This is not to deny that Europeans typically held the senior role at the IMF, but most of them were well-regarded economists. Yet, this is not the frustrating thing. In its haste to ensure that a European remained in charge, it passed up a unique opportunity to have one of the most successful economic policymakers on the planet take the helm of what could become the most important institution on earth.

Banco de Mexico’s President Agustin Carstens is widely recognized as one of the best economic policymakers in the world. With a PhD from the University of Chicago, Carstens rose through the ranks of Banxico. He worked in the various departments and developed a reputation with international investors as extremely honest and competent. In 2003, Carstens was selected as the Deputy Managing Director of the IMF, the second most senior position in the institution. During that time period, he faced several major crises, such as dealing with Argentina’s and Uruguay’s defaults. Therefore, he is incredibly well-versed in the intricacies of multilateral dealings and international negotiations. Many of his decisions were unpopular. Yet, he stuck to his guns. Balance of payments crises, debt restructurings and financial collapses are the areas of his expertise. In 2006, Mexican President Felipe Calderon appointed Carstens as Finance Minister. Sensing that a crisis was brewing on his northern flank, he made preparations to weather the storm. There is an old Mexican adage that says, When the U.S. sneezes, Mexico catches a cold. The problem was that the U.S. was about to catch pneumonia. Almost 90 percent of Mexico’s trade is with the U.S., and there was no way it could avoid the fallout from the credit crunch. In 2009, the Mexican economy contracted 6.5 percent y/y. The peso devalued more than 50 percent. Instead of following the Keynesian shenanigans of so many other countries, Carstens pushed through a fiscal adjustment in the midst of the crisis. Fortunately, the economy rebounded quickly in 2010—growing 5.4 percent y/y. There were no runs on Mexican banks, and the government had ample resources to sustain the recovery. This year, Mexico is on track to be the second fastest growing country in Latin America.

This is the type of leadership that the IMF needs now while it is dealing with the complexities of
Europe and the U.S. It does not need another Eurocrat, who is surreptitiously plotting their next career move. At this time of need, it is time to focus on leadership and not preserving bureaucratic privileges.

Walter Molano is head of research at BCP Securities.


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