Lagarde Cements Hold on IMF Leadership With Reserve Nod for Yuanby
Managing director's five-year term runs through July
Ex-board member says Lagarde has `perfect chance' of new term
Christine Lagarde has said she’s open to serving a second term as head of the International Monetary Fund. Now that she’s steered the lender to give the yuan reserve-currency status, she can count China firmly in her corner.
Lagarde announced Monday that the board of the Washington-based IMF approved adding the yuan to the fund’s basket of reserve currencies, alongside the dollar, euro, pound and yen. The decision is a victory for President Xi Jinping’s government, which pushed for inclusion as a symbol of the Chinese economy’s rising importance and a validation of the Communist-controlled nation’s efforts to liberalize its financial system.
The milestone also probably boosts Lagarde’s chances of reappointment, deepening support for the 59-year-old former French finance minister among the emerging-market countries that hold key swing votes. A second term for Lagarde would provide a measure of stability at the fund as it manages thorny loan programs involving Greece and Ukraine and monitors the risk of financial turbulence around the world.
“It looks like she has a perfect chance of being reappointed,” said Domenico Lombardi, director of the global economy program at the Centre for International Governance Innovation in Waterloo, Ontario. “China has no reason whatsoever to deny support.”
Lagarde took over as head of the IMF in 2011 when Dominique Strauss-Kahn resigned after a hotel maid accused him of sexual assault. Prosecutors dropped a criminal case amid inconsistencies in her testimony; Strauss-Kahn reached an undisclosed civil settlement with the woman.
Lagarde is the first woman to lead the IMF, which was conceived during World War II to coordinate international monetary policy and lend to countries facing balance-of-payments shortfalls. Her five-year term expires in July. The managing director is selected by the fund’s 24 executive directors, who represent its 188 member nations.
During her time at the helm, Lagarde has tried to give China a greater voice at the institution. In 2011, in one of her first actions, she created an additional deputy managing director position for former People’s Bank of China official Zhu Min, the first Chinese national to hold such a senior post at the fund. She visited the country within months of her appointment, meeting in Beijing with senior leaders including Xi, who was then vice president.
Last year, she said she wouldn’t be surprised if the IMF were to eventually move its headquarters from Washington to Beijing. Under the IMF’s charter, it must be based in the nation that is its biggest shareholder, currently the U.S.
On a visit to Shanghai in March, Lagarde said it was a question of when, not if, the yuan would win inclusion in the IMF’s Special Drawing Rights, a reserve asset that serves as the fund’s unit of account.
“The situation looks completely different from a few years ago when the IMF was actually confronting China,” Lombardi said.
The fund and China disagreed for several years over whether the yuan was undervalued -- the IMF dropped that assertion earlier this year -- and China has also in the past refused to approve the release of the IMF’s annual assessment of the nation’s economy.
Such disputes may now be water under the bridge. China’s official Xinhua News Agency applauded the IMF’s decision to include the yuan in the SDR basket, saying it demonstrated the fund’s “willingness and ability to adapt to global economic reality.”
“Without the inclusion of the yuan, the representativeness of the SDR and the legitimacy of the IMF would have been questioned,” Xinhua said in a commentary.
Lagarde has also promoted greater emphasis at the IMF on issues including climate change and income and gender inequality, helping to broaden the fund’s image beyond its reputation as a tightfisted advocate of budget cuts and policies to liberalize countries’ economies.
The IMF declined to comment Monday on the prospect of Lagarde’s reappointment. An IMF official told reporters that the decision to include the yuan in the SDR basket was based on merit, not politics.
At the fund’s annual meeting in Lima in October, Lagarde said she’s open to serving another term, adding that it’s up to the fund’s member nations to decide.
Lagarde’s future at the IMF looks brighter now than it did in June, when Greece became the first advanced nation to miss a debt payment to the fund. Greece’s struggle to reduce its debt burden revived criticism of the fund’s handling of its biggest loan program.
Meanwhile, emerging markets have been frustrated by an impasse in the U.S. Congress over measures that would increase the IMF voting share of countries like China and India. While the Obama administration supports the reforms agreed to in 2010, they’ve faced resistance from Republican lawmakers for ratification. Partly in response to the holdup, China this year formed the Asian Infrastructure Investment Bank with itself as the biggest shareholder, signing up more than 50 founding members.
In 2011, Lagarde beat out Mexican central bank Governor Agustin Carstens for the job. The IMF has been headed by a European since its inception, an arrangement the U.S. has tacitly accepted in exchange for European support for American chiefs of the World Bank. With a strong incumbent in place at the IMF, emerging markets will be hard-pressed to break that convention.
“It will be difficult to unseat her,” said Douglas Rediker, a fellow at the Peterson Institute for International Economics in Washington and a former U.S. representative on the IMF’s executive board.