Lagarde Vows Impartiality Toward European Nations as She Seeks Top IMF Job

French Finance Minister Christine Lagarde, vying for the leadership of the International Monetary Fund, pledged to be impartial toward European nations seeking aid and to give emerging economies greater influence.

“I will not shrink from the necessary candor and toughness in my discussions with the European leaders,” Lagarde said in a statement in Washington delivered in a meeting yesterday with IMF directors. “I am not here to represent the interest of any given region of the world, but rather the entire membership.”

Lagarde, 55, has the backing of European nations that have 31 percent of the voting shares at the IMF and has also gathered support among emerging countries from Egypt to Indonesia. Her sole rival, Mexican central bank Governor Agustin Carstens, claims the backing of 12 Latin American nations while failing to garner endorsements from Argentina or Brazil. The IMF board has said it will meet June 28 to assess the two candidates and repeated it aims to make a choice by June 30.

Under an informal agreement, an American has always headed the World Bank, while a European has led the IMF. Leaders from emerging-market nations, including Brazilian Finance Minister Guido Mantega, have called for an end to that arrangement, saying the heads of the two institutions should be chosen on the basis of merit.

While emerging economies have failed to unite behind a candidate from their own ranks, they may still gain influence if Lagarde gets the job, said Kevin Gallagher, an associate professor of international relations at Boston University.

‘Best Opportunity’

“Lagarde is the best opportunity for emerging markets,” Gallagher said in a telephone interview. “Since so many of them are lukewarm about Carstens, they can dangle and maximize, basically trade their vote for commitment” on policies and IMF representation.

Lagarde yesterday sought to dispel notions that she might show favoritism toward Europe. The IMF approved a record $91.7 billion in emergency loans last year and provides a third of bailout packages in Europe. She also called for a more diverse staff, from gender to country of origin to education.

Carstens, a 53-year-old former deputy managing director of the IMF, has described Lagarde’s chances as “quite high.” Lagarde has tried to turn attention away from her nationality and pledged to make the IMF more representative of a global economy projected to see developing countries’ share exceed that of advanced counterparts in 2013.

Merit-Based

“The fund should be more responsive, certainly more effective and more legitimate,” Lagarde told reporters yesterday in Washington after her meeting with the board. She said the selection process “has been clearly both open, transparent and should be merit-based.”

The U.S., the largest IMF shareholder with almost 17 percent of the votes, has refrained from publicly taking sides. Treasury Secretary Timothy F. Geithner has said both Lagarde and Carstens are qualified.

“We want to see a real change in the voting power,” Paulo Nogueira Batista, Brazil’s executive director at the IMF, who also represents eight other countries, said in a telephone interview before meeting with Lagarde and after seeing Carstens. “The reason why this election is so pre-determined in its result is the voting-power distribution.”

When she announced her candidacy on May 25, Lagarde vowed to push for quick implementation of a 2010 agreement that makes China the third-strongest voice in the organization and gives more say to nations such as Brazil and South Korea. It also weakens the influence of advanced European economies, which pledged to reduce the number of seats they hold at the 24-person board. She indicated more changes may come.

187 Members

“I would be committed to continuously adapt the representation of the fund, in particular quotas, to changing economic realities,” she told IMF directors yesterday, referring to so-called quotas, which reflect the division of voting power at the 187-member agency.

While Lagarde is likely to support existing efforts to give emerging markets a greater say, she may not take additional steps to extend their influence, said Arvind Subramanian, a senior fellow at the Peterson Institute for International Economics in Washington and a former assistant director in the IMF’s research department.

The next IMF chief could “use the whole euro crisis to reduce the role of Europe in the board” in exchange for more funding for the continent, he said. “A non-European would be more willing to do that.”

Staving Off Default

European Union leaders yesterday pledged to stabilize the euro-area economy and stave off a Greek default in the latest attempt to stem the debt crisis after bonds of debt-strapped euro nations slumped and officials in the U.S. and China warned that the euro area’s failure to restore confidence threatened the world economy.

“There is no room for benevolence when tough choices must be made, and there is no option that does not start with difficult but necessary adjustments by the Greek authorities to restore the sustainability of public finances and to rebuild the country’s competitiveness,” Lagarde told the IMF board.

Lagarde may come under pressure to offer more job opportunities to economists from emerging markets at the IMF, Boston University’s Gallagher said.

An internal IMF report released last month said that the share of senior positions filled by employees from Africa, East Asia, the Middle East and so-called “transition countries” that include most of Eastern Europe “is still unacceptably small.”

Senior Posts

While Lagarde has said she isn’t trading positions for votes, she acknowledged emerging countries’ complaints that they are under-represented in senior posts.

“If that was the case, which it very well might be, I would certainly apply the principles that in my previous roles I applied to gender,” she told the Financial Times in a May 26 interview, a reference to what the newspaper said was her practice of choosing a woman over an equally qualified man.

When asked in Beijing earlier this month if Zhu Min, a special adviser to the IMF chief, would play a bigger role, she said that it is “fully appropriate if he played a key role in the management of the fund.”

To contact the reporters on this story: Sandrine Rastello in Washington at srastello@bloomberg.net;

To contact the editors responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net;

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