Christine Lagarde: Why she is the best candidate to lead the IMF right now.

Commentary about business and finance.
May 25 2011 5:29 PM

Still French, Not Male

Why Christine Lagarde is the best candidate to lead the IMF—for now.

Christine Lagarde. Click image to expand.
Christine Lagarde

The International Monetary Fund has just started accepting nominations for candidates to replace Dominique Strauss-Kahn as managing director. The selection process is opaque, to say the least. But the outcome is almost certain: The IMF will choose Christine Lagarde, currently the finance minister of France. She may not be a universally popular choice, with dozens of countries and economists opposing her candidacy. But she just may be the best choice.

For her part, Lagarde formally announced her intention to seek the position on Wednesday. "It is an immense challenge which I approach with humility and in the hope of achieving the broadest possible consensus," she said. "If I'm elected, I'll bring all my expertise as a lawyer, a minister, a manager, and a woman" to the job. She reportedly has the support of most of the European Union, China, Brazil, and the United States.

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In the crass terms of identity politics, the IMF could hardly pick anyone better. Lagarde is a woman, of course. Moreover, she is a multilingual, teetotaling, vegetarian yoga enthusiast—an ascetic, in welcome contrast to the pathologically indulgent DSK. The main charges against her are two: First, she is a European. Second, she is not an economist.

A decades-old "gentlemen's agreement" holds that the IMF managing director comes from Europe and the World Bank president from the United States. The IMF's quota-based voting system, which gives disproportionate influence to the United States and Europe, ensures that the status quo sticks around. Ministers and economists from emerging economies believe, rightly, that this is an anachronism. The IMF operates around the world and has representatives from 187 countries. Emerging economies are increasingly important, both in terms of IMF policy and in terms of the world economy. The IMF's leadership should better reflect its membership—and reality.

Thus, this week, the IMF representatives from the BRICS countries—Brazil, Russia, India, China, and South Africa—released a letter objecting to Lagarde and all other European candidates. "Several international agreements have called for a truly transparent, merit-based and competitive process for the selection of the Managing Director," they wrote. "This requires abandoning the obsolete unwritten convention that requires that the head of the IMF be necessarily from Europe."

As for the second count, while Lagarde is a finance minister and global economic heavyweight, she is not actually an economist. She is a lawyer who specialized in labor disputes and antitrust cases before becoming the first female head of the international white-shoe firm Baker & McKenzie. Most other IMF managing directors have either held advanced degrees in economics or come up through their country's civil service in economic policymaking.

Given that the IMF is in the business of helping countries restructure their finances in exchange for loans, a degree helps, critics charge. "DSK was great at [acting on his own ideas] because he had the economics background," one anonymous IMF functionary grumbled toReuters. "If he took risks, they were not so great because he knew what he was talking about. … With someone without that expertise, it would be different."

But neither of these charges matters much right now. Europe is home to the world's biggest economic basket cases—namely, the PIIGS, which are Portugal, Ireland, Italy, Greece, and Spain. As France's finance minister, Lagarde has for years sat at the table, negotiating how and whether to bail out the countries, what austerity plans to endorse, and how to restructure their debts, if necessary.

"It makes sense for Europe to have the [managing director] for the moment" even if the selection process should change, Michael Spence, the Stanford economist and Nobel Prize winner, told me last week. Her knowledge of European economies and reputation among the relevant policymakers is what matters.

Similarly, Europe's problems are primarily political, not economic—meaning that they do not take a Ph.D. to understand, but might respond to a labor lawyer's intervention. At the moment, the European Union is attempting to negotiate a "soft" restructuring of Greece's debt, stretching out its scheduled repayments to its bondholders to help ensure it will not default. (It still probably will, and yet more contractionary austerity measures seem likely too.) The plan is gaining support in Europe. But it is not at all popular among some of Greece's bondholders—most notably, the European Central Bank.

The IMF needs someone who will get the relevant parties to agree to some workable plan—to negotiate all of the burden-sharing, hair-cutting, and austerity-enforcing an agreement might require. That's going to take an insider and a strong-armed negotiator. In other words, Christine Lagarde.

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