Christine Lagarde won the support of emerging-market nations for her successful bid to become managing director of the International Monetary Fund by promising them greater influence at the global lender. Now she’ll be under pressure to deliver.
Lagarde, the French finance minister, yesterday was selected by the Washington-based IMF’s board over her sole rival, Mexico’s Agustin Carstens. She garnered endorsements from emerging economies such as India and Brazil as well as European Union countries and the U.S.
“Lagarde had to send some signals, if not make some actual deals, with emerging market countries to be able to get in,” Kevin Gallagher, associate professor of international relations at Boston University, said in a telephone interview. “They’re going to hold her accountable or she’s going to have a rough time there.”
In the course of an election-style campaign that took her to Brazil, China and the Middle East, Lagarde promised to boost the clout of developing nations at the IMF and to give more management jobs to people from those countries.
Brazilian Finance Minister Guido Mantega was among those calling for an end to a six-decade informal agreement under which a European has always headed the IMF, while an American leads the World Bank. He called instead for a merit-based selection process.
Brazil ended up supporting Lagarde because of her commitment to quickly carry out a 2010 agreement to increase the voting power of some emerging nations, the country’s finance ministry said in a statement yesterday.
“The big issue for emerging markets is their quota, their ownership stake at the fund,” said Simon Johnson, a former IMF chief economist. China, the world’s second-largest economy, has a 3.8 percent vote in the fund -- also known as a quota -- while the U.S. has 16.8 percent.
The 2010 agreement also weakens the influence of advanced European economies, which pledged to reduce the number of seats they hold on the IMF’s 24-person executive board.
“The Europeans have been under considerable political pressure to scale back their voting share,” Michael Mussa, a former chief economist at the IMF, said in an interview.
Johnson predicted that Lagarde will create a fourth deputy managing director’s position and give the job to a Chinese national.
Lagarde said she is aiming for diversity in gender, country of origin and academic background to fight the “group thinking” that an internal audit last year said contributed to missing signs of the 2008 financial crisis.
An internal IMF report released last month said the share of senior positions filled by employees from Africa, East Asia, the Middle East and so-called “transition countries,” which include most of Eastern Europe, is “unacceptably small.”
“It’s not that the fund is totally dominated by the advanced countries, but obviously at the staff level and the board level the voice of the emerging countries will have to be heard more clearly,” said Claudio Loser, a former Western Hemisphere director at the IMF who supported Carstens’ candidacy.
Emerging-market nations seeking to break Europe’s monopoly of the IMF managing directorship failed to unite behind a candidate, while European nations quickly closed ranks behind Lagarde, said Morris Goldstein, a senior fellow at the Washington-based Peterson Institute for International Economics.
“If you want to upset the established tradition and talk about increasing your weight, you have to have some kind of caucus, some kind of procedure, by which you can come together relatively quickly,” he said.
Still, the presence of a qualified emerging-markets candidate like Carstens offers hope for change next time, said Loser, president of Washington-based research company Centennial Group Latin America.
“The process has opened the door for the emerging markets to come in,” he said by telephone from Mendoza, Argentina. “This is the last time where the Europeans can present a candidacy the way they did because they’ll have to compete on much more equal footing.”
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