Christine Lagarde was named the first female head of the International Monetary Fund to take on Europe’s debt crisis and balance the demands of fast-growing emerging nations with the needs of a recovering developed world.
Lagarde, 55, currently France’s finance minister, will begin July 5, the Washington-based fund said today. She won the job over Mexican central bank governor Agustin Carstens after gaining a reputation as a skilled negotiator during the financial crisis within both the Group of 20 and the European Union as it provided bailouts for Greece, Ireland and Portugal.
Steering support for those countries and nurturing their economies will remain one of Lagarde’s biggest challenges as she moves from Paris to Washington to begin her five-year term as the IMF’s 11th leader. She’ll also need to restore morale at the fund, which is reeling from the arrest on charges of sexual assault and subsequent resignation of her predecessor, Dominique Strauss-Kahn. He has pleaded not guilty.
“The immediate task is that of dealing with Europe and the end of the financial crisis,” said Edwin Truman, an economist and former official at the U.S. Treasury Department and Federal Reserve, who is now a senior fellow at the Peterson Institute for International Economics in Washington. “The other question is the one of legitimacy. Most people think that the deals that have been cut so far on voting and representation are not sufficient.”
Chosen by Consensus
The IMF said Lagarde was chosen by consensus to lead the 187-nation organization.
Lagarde will need to decide whether the IMF is ready to provide extra funding for Greece, which already received the second-largest loan in the fund’s history, as Europeans attempt to craft a new package to help the country avoid debt restructuring.
The country’s debt has become the world’s most expensive to insure as Greece’s shrinking economy fails to increase tax revenues or narrow its deficit under conditions attached to the IMF and European Union bailout.
The IMF has committed $110 billion to Greece, Ireland and Portugal and called on policy makers this month to give a signal that member countries “will do whatever it takes to safeguard the stability of the euro area,” urging them to scale up Europe’s rescue fund and extend its potential uses.
Lagarde, appearing on France’s TF1 television today, called on Greece’s opposition parties to offer support to the government as it seeks to slash the budget deficit.
As the first woman to head the IMF, Lagarde will be treading on familiar ground. She is the first and only woman finance chief in the Group of Seven nations, and she was the first female chairman of Chicago-based Baker & McKenzie LLP, the world’s fifth biggest law firm by revenue last year.
Lagarde was appointed finance minister by French President Nicolas Sarkozy in June 2007, just before the onset of the global financial crisis.
Her 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 ($1.06 trillion) fund to support financially distressed governments and hold the bloc together.
American, World Bank
Lagarde’s IMF candidacy was bolstered by an informal agreement under which an American has always headed the World Bank while a European has led the IMF. Emerging-market officials such as 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.
During a campaign that took her to Brazil and China, Lagarde said she is ready to boost the clout of developing nations at the IMF and give more management jobs to people from those countries. She has also vowed to increase diversity in terms of gender and academic background.
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.
“I would be committed to continuously adapt the representation of the fund, in particular quotas, to changing economic realities,” she told directors during her job interview with the IMF board last week, referring to so-called quotas, which reflect the division of voting power.
The share of emerging markets in the world economy is projected to exceed that of advanced counterparts in 2013.
Lagarde last week dismissed suggestions 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.
“I will not shrink from the necessary candor and toughness in my discussions with the European leaders,” Lagarde told the board. “I am not here to represent the interest of any given region of the world, but rather the entire membership.”
Lagarde takes over an institution that got its resources tripled by the Group of 20 and was given a host of new tasks by the group of developed and emerging economies, including helping single out which countries’ policies threaten global growth.
In coming months, the IMF is set to discuss its first spillover reports, which examine what effect policies in large economies including the U.S. and China will have on other countries. It will also present proposals to diversify the international currency and reserve system and to strengthen the surveillance of countries’ economies.
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