The "currency" of the IMF is not the SDR: it is trust among the global general public that the institution is competent, even-handed, and diligent. So when the IMF raises alarms, people sit up--and it matters that they do.
The Great Financial, Euro, and Chinese crises--all of which were the fruit of policies the IMF had strongly endorsed--have badly tarnished its reputation for competence and even-handedness. Now that its Executive Board, including the outgoing Obama administration, has just reaffirmed its confidence in Mme. Lagarde, it is led by a Managing Director convicted, no less, of negligence.
Her defenders have immediately attacked the credentials of the French court concerned--a court "of politicians, by politicians, for politicians"--and noted that it imposed no sentence.
This defense ignores the tension between those two points. And it overlooks that in her own testimony at trial, she "did not have time", before deciding, to read memoranda from her own Ministry advising strongly against the course of action she then chose.1/ For a premier lawyer, as she is, "not making time" in such circumstances is the essence of negligence, regardless of the court in which such evidence is heard or of any penalty that it may or may not have imposed. There is fire under all this smoke.
The global general public is unlikely to focus on such details. Instead, coming hard on the heels of the disgrace of her three immediate predecessors, it will see that yet another politician, with power over them, has played by a different set of rules.
In this age, in which populism is stoked by precisely such concerns, and in which, as a result, the even-handedness and competence of expert global authorities is needed more than ever, this latest compromise to the core currency of the IMF could not have come at a worse time.
Many governments, globally, will take pleasure at all this:
China, for example, will be only too happy to see the IMF, in which it remains badly under-represented, thus diminished, even as it earns kudos from its peers by being "a team player" in re- endorsing her.
Mr. Trump likewise, inclined to revenge against his personal detractors--such as Mitt Romney and the CIA--now has an easy target in Mme. Lagarde, who also attacked him personally, should she now caution against his more dangerous proposals.
Even the Europeans, with whom she has sparred at least in form if not in great substance, will be only too happy to see her humbled.
And from now on, every time Mme. Lagarde, on behalf of the IMF, advises a wayward government against its chosen course of action, local headlines will read: "Mme. Lagarde, convicted of negligence, says that we must change course, or else. But, unfortunately, it seems that, yet again, she has not done her homework ...."
One cannot lament descent into a "post-fact-world" when all this is how figureheads claiming to speak on behalf of facts behave.
Four troubled IMF MDs in a row--Kohler, De Rato, DSK, and now Lagarde--is indicative of basic failures in the appointment process, which now always picks European politicians. With the global economy at stake, this plainly makes no sense.
The question now is whether four scandals in a row are sufficient, finally, to force adoption of a serious process to appoint IMF MDs 2/, in order to restore the institution's devalued and badly-needed global currency.
1/. http://on.ft.com/2hFB4Lk
2/. http://on.ft.com/20zhobb