Lagarde Becomes Front-Runner to Head IMF as Mexico’s Carstens Enters Race

Support mounted for French Finance Minister Christine Lagarde to head the International Monetary Fund as Mexico offered its central bank governor as an emerging- market candidate, challenging Europe’s 65-year hold on the job.

U.K. Chancellor of the Exchequer George Osborne said in a May 21 statement his nation will back Lagarde to become the first woman to head the Washington-based lender. German Chancellor Angela Merkel said consensus was emerging in Europe for her to get the post, Deutsche Presse-Agentur reported two days ago.

Nations from Australia to Brazil are urging a selection determined by “merit” rather than nationality, and Banco de Mexico Governor Agustin Carstens offered a veteran IMF candidate for emerging markets to rally around. Developing countries have so far shown little evidence of coordination, with Thailand, Russia and South Africa supporting policy makers from their own parts of the world.

“Lagarde might be front-runner,” New Zealand Prime Minister John Key said in an interview with TVNZ television today. “She’s super impressive I’ve got to say,” he said, while echoing officials outside of Europe in calling for a selection “on merit.”

The IMF, which provided a record $91.7 billion in emergency loans last year and accounts for one-third of the euro-region’s bailout packages, has promised transparency in the selection process, saying that by the end of June it will choose the most qualified candidate. Managing Director Dominique Strauss-Kahn resigned last week to wage a legal battle over sexual-assault charges in New York.

Nomination Today

Mexican Finance Minister Ernesto Cordero will likely present Carstens’s candidacy today, Ricardo Ochoa, head of international affairs at the ministry, said in a telephone interview.

Carstens, 52, was a deputy managing director of the IMF from 2003 to 2006, going on to serve as Mexican finance minister until taking the helm of the central bank in January 2010. Mexico, the first nation to request a flexible credit line from the IMF, a mechanism to help support economies pursing strong economic policies, leads a group of eight nations with 4.66 percent of the total IMF voting power, the fund’s website shows.

At Banco de Mexico, Carstens, who has a doctorate in economics from the University of Chicago and is a Chicago Cubs baseball fan, has overseen an increase in transparency. Minutes of policy meetings were published for the first time this year.

‘Gentlemen’s Agreement’

“Carstens obviously has all the technical preparation and the experience to be a very good director” of the IMF, said Gabriel Casillas, chief Mexico economist at JPMorgan Chase & Co. (JPM) in Mexico City. “Despite him meeting all the criteria, we think it will be pretty hard for him to be picked. The gentlemen’s agreement between Europe and the U.S. about the World Bank and the IMF will continue.”

Under an informal postwar deal, Europeans have always headed the IMF, with Americans picking the World Bank president. Treasury Secretary Timothy F. Geithner said in a statement three days ago the U.S. will support a candidate who can command “broad support,” and reiterated his call for a quick decision.

“What the leader mustn’t be is simply a figurehead of a pure European and U.S. ‘deal,’” Jim O’Neill, chairman of Goldman Sachs Asset Management, wrote in a note to clients. “If the IMF ends up with European leader, that person will have to face the additional burden of being regarded as such a product, adding to his or her challenges.”

Lagarde Chances

The IMF plans to name a new director by June 30, and Lagarde’s chances of securing the role may hinge on how she resolved a two-decade-old dispute involving a supporter of President Nicolas Sarkozy. At the time, Lagarde was a partner with the Chicago-based law firm Baker & McKenzie LLP, 12 years before she joined the government.

France’s Cour de Justice de la Republique, which oversees ministers’ actions in office, has until June 10 to decide whether to investigate if Lagarde abused her powers in agreeing in 2007 to send the case to arbitration. It resulted in a 385 million-euro ($550 million) award to Bernard Tapie, a former Socialist minister who endorsed Sarkozy’s presidential effort.

Lagarde has rejected accusations her decision to take the matter to arbitration and not appeal the award was a reward for Tapie’s support of Sarkozy.

First Woman

Britain’s Osborne praised Lagarde for her leadership skills during France’s presidency of the Group of 20 and for her “strong” advocacy of countries taking steps to reduce budget deficits. Last week, Osborne had left open the possibility that Britain might endorse a non-European to head the fund.

“On the basis of merit, I believe Christine is the outstanding candidate for the IMF, and that’s why Britain will back her,” Osborne said in an e-mailed statement late yesterday. “It would be a very good thing to see the first female managing director of the IMF.”

Lagarde, 55, declined to comment on her potential candidacy when questioned by reporters in Paris last week. She said that the successor to Strauss-Kahn should come from Europe.

A fluent English speaker, Lagarde’s negotiating abilities helped clinch agreement on the euro area’s sovereign bailout fund announced in the early hours of May 10 last year, according to a person who was there. The 16-member group’s finance ministers worked through the night to create a 750 billion-euro fund ($1.07 trillion) to support financially distressed governments and hold the bloc together.

European Unity

Merkel described Lagarde as an “excellent and experienced person,” Deutsche Presse-Agentur said. Austria may support Lagarde, Finance Minister Maria Fekter said two days ago, according to Agence France-Presse. Italian Prime Minister Silvio Berlusconi said in a statement last week Lagarde would be “an excellent choice” as Europe’s candidate.

France has supplied four of the 10 IMF managing directors so far, including three of the past five.

While Chinese officials haven’t publicly endorsed any candidate, Thailand and the Philippines backed Singapore Finance Minister Tharman Shanmugaratnam as a possible choice to succeed Strauss-Kahn. Philippine central bank Governor Amando Tetangco said the IMF should consider an Asian candidate.

“While either of those names” -- Mexico’s Carstens and France’s Lagarde -- “would be well-qualified as the chief of the fund, the IMF Executive Board must seriously consider a candidate from the Asian region,” Tetangco said in an e-mailed response to questions.

Kazakhstan Bid

Kazakhstan has discussed with Brazil, China and India making the nation’s central bank chief the emerging-market candidate to lead the fund, Prime Minister Karim Massimov said last week.

Massimov on May 19 announced the candidacy of Grigori Marchenko, chairman of the National Bank of the Republic of Kazakhstan, via Twitter. He said the prime ministers of the Commonwealth of Independent States, including Russia, supported Marchenko’s bid.

“Traditionally it has been a European, and most likely it’s going to be a European,” Malaysian central bank Governor Zeti Akhtar Aziz told reporters in Kuala Lumpur today. Asked whether she would be interested in the job, Zeti cited a recent renewal of her term and said: “I am going to be here in Malaysia. No, it would be a European.”

To contact the reporters on this story: Gonzalo Vina in New York at gvina@bloomberg.net; Andres R. Martinez in Mexico City at amartinez28@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.