French Finance Minister Christine Lagarde is cementing her status as the front-runner to head the International Monetary Fund, arousing concerns among emerging-market nations about a rush to judgment in filling the job.
Lagarde, who would succeed countryman Dominique Strauss-Kahn and become the first woman to lead the Washington-based lender since its founding in 1945, now has the backing of Europe’s main economies and, according to her government, China. Brazil will also privately support her rather than backing her main rival, Mexican central bank governor Agustin Carstens, a Brazilian government official said.
“It’s looking like it’s almost a done deal for Lagarde,” Desmond Lachman, a former deputy director at the IMF and now a resident fellow at the American Enterprise Institute in Washington, said by telephone. “The emerging markets can’t get their act together and back one candidate.”
The IMF executive directors representing Brazil, Russia, India, China and South Africa did unite yesterday to protest publicly the presumption that the fund’s next chief once again be a European.
“We are concerned with public statements made recently by high-level European officials to the effect that the position of managing director should continue to be occupied by a European,” the directors, who serve on the IMF board, said in a statement yesterday. “If the fund is to have credibility and legitimacy, its managing director should be selected after broad consultation with the membership.”
Lagarde, 55, has an 88 percent chance of becoming the IMF’s eleventh managing director and its fifth from France, according to Dublin-based odds-maker Intrade.com. The 187-member IMF aims to pick a successor to Strauss-Kahn by the end of June, little more than a month after he resigned in the wake of being charged with sexual assault on a New York hotel maid.
Lagarde plans to announce her candidacy today, Reuters reported, citing diplomatic sources. She has called a news conference for 11:45 a.m. Paris time, according to Reuters.
A lawyer who practiced in the U.S. before entering French government in 2005, Lagarde would bring frontline experience of the sovereign debt crisis at a time when Greece is struggling to persuade investors it can avert default.
The U.S., which has the biggest voting share in the fund with a 16.8 percent stake, has yet to publicly tip its hand as to whom it will back. President Barack Obama and fellow Group of Eight leaders plan to convene tomorrow in the French resort of Deauville.
“No doubt Mr. Obama will come under pressure in Deauville about all of this,” Edwin Truman, a former official at both the U.S. Treasury Department and the Federal Reserve who is now a senior fellow at the Peterson Institute for International Economics in Washington, said by telephone.
Rather than jumping on the European bandwagon, the U.S. will probably reserve its backing for Lagarde until it becomes clear she has the broad support of IMF membership, Truman said.
While the fund’s executive board has pledged to act transparently and make an appointment based on merit, European leaders have moved swiftly to support Lagarde. U.K. Chancellor of the Exchequer George Osborne praised her leadership skills during France’s current presidency of the Group of 20, while Italian Prime Minister Silvio Berlusconi called her “excellent.”
China is also “favorable” on the prospect of Lagarde leading the IMF, French government spokesman Francois Baroin said in an interview yesterday with Europe1 radio. Chinese officials haven’t publicly commented on specific candidates.
In exchange for its private support for the European contender, Brazil will push for Lagarde to run the fund only until the end of next year, when former IMF chief Strauss-Kahn’s term would have expired, said the Brazilian official, who requested anonymity because he isn’t authorized to speak publicly about the issue.
Emerging markets have shown little evidence of uniting behind a candidate, with Mexico, Thailand, Russia and South Africa supporting policy makers from their own parts of the world. Among those being discussed publicly are Finance Minister Tharman Shanmugaratnam of Singapore and Grigori Marchenko, Kazakhstan’s central bank chief.
Arkady Dvorkovich, Russian President Dmitry Medvedev’s economic aide, said yesterday that Brazil, Russia, India and China -- the so-called BRIC economies -- are still consulting on finding a candidate.
“I’m not totally pessimistic but I’m not at all optimistic” about prospects for an emerging-market representative to head the organization, Arvind Virmani, who represents India and three other countries on the IMF board, said in an interview yesterday in Washington. “There is no indication which suggests that the result will be any different this time.”
The IMF provided a record $91.7 billion in emergency loans last year and accounts for one-third of the euro-region’s bailout packages. Its next chief will be at the center of debates on determining an escape route for the euro out of the debt crisis, which still threatens to push Greece, Ireland and Portugal into default and raised concern about the currency’s longevity.
The new leader will also have to restore the fund’s image after the Strauss-Kahn scandal and ensure its decision-making better reflects the growing power of emerging markets such as China, now the world’s No. 2 economy.
France, the first to borrow from the IMF, has supplied three of its past five managing directors. A European has filled the fund’s top job since its creation as part of an agreement under which the U.S. picks the World Bank president.
The practice is now outdated, and focusing too much on the euro crisis risks depriving the organization of a leader who can turn it into one that mirrors a world economy increasingly led by developing countries, said Ousmene Mandeng, head of public-sector investment at Ashmore Group Plc in London.
“We need to look beyond the immediate European problems and appoint a new managing director based on broader criteria and who can best address the tasks the IMF must respond to,” said Mandeng, a former IMF economist. “Ideally that would mean an emerging market candidate.”
Europe’s nominees for the job have not always had smooth sailing. In 2000, Germany’s deputy finance minister, Caio Koch-Weser, withdrew his candidacy after he failed to secure enough support from the lender’s shareholders, including the U.S., which questioned his political heft and lack of broad support outside of Europe. Horst Koehler, who went on to become president of Germany, won the job instead.
Carstens, who was an executive director at the IMF at the time representing Mexico and other Latin American nations, was “very involved” in the behind-the-scenes negotiations on Koch-Weser’s candidacy, said Truman, who was then at the Treasury.
The Mexican central banker’s candidacy might face difficulties with the Europeans as a result, Truman added.
Carstens is struggling for support even from Latin Americans, with Peruvian central bank President Julio Velarde saying he’s made no decision on the Mexican’s bid even as Velarde favored someone from the region. Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development and a former Mexican Finance minister, backs Lagarde, Handelsblatt reported.
In an interview with Bloomberg Television yesterday, Carstens said it was too early to say which countries will back his nomination. Carstens served as a deputy managing director of the IMF from 2003 to 2006.
“I have heard expressions of sympathy, but most countries in a responsible way are waiting to see who all the candidates are,” Carstens, 52, said from Mexico City in an interview on Bloomberg Television’s “InBusiness” with Margaret Brennan.
Lagarde’s candidacy could still come unstuck. She faces legal challenges of her own regarding her resolution of a two-decade old dispute involving a supporter of President Nicolas Sarkozy.
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 businessman Bernard Tapie. Lagarde says the allegations are without foundation.