As the IMF annual meetings draw to a close, two intriguing questions remain unanswered. Will IMF managing director Christine Lagarde have her term of office extended when it expires in July, and who will succeed her when she does eventually step down?
Lagarde has said she is “willing” to serve a second five year term, but that the matter is not in her hands. She is “popular with constituents but faces a challenge from the US to shift away from a Europe-dominated IMF,” said a source close to the Fund.
First deputy managing director David Lipton, an American, has insisted that the next IMF head will be a non-European — though he also said the selection process would be “strictly merit-based”. This applies to “after” Lagarde’s term ends, an IMF official said.
But while Lagarde has strong support from some advanced and emerging economies, her continuance for five more years is not assured, said a former IMF deputy managing director.
He suggested a possible “deal” where-by Europe would renounce its right to nominate the head of the IMF, while the US did the same for the World Bank.
“The US argues that now the World Bank presidency has been given to a Korean American [Jim Yong Kim] the time has come for a non-European head of the IMF,” the former deputy managing director said.
One name mentioned is Harvard economics professor Carmen Reinhart. “These things go round from time to time,” Reinhart said yesterday, declining to comment on whether she wanted the job.
But if the list is opened to candidates from emerging economies, it might include people such as Mexican central bank governor Agustín Carstens, who was elected chairman of the IMF’s policy-setting International Monetary and Financial Committee earlier this year.
At the time of Lagarde’s selection five years ago, the rules were changed in the sense that “anyone could apply and a number of candidates did,” an IMF source said. The IMF board shortlisted two — Lagarde and Carstens.
Meanwhile, the fact that parts of Europe have since been plunged into financial crisis, requiring financing from the IMF, while China and other emerging markets have more recently run into difficulty might weaken the claims of either to lead the IMF — and bolster the US position.
UK finance minister George Osborne has come out in favour of a second term for Lagarde. She “steered the IMF through the Greek crisis, the Ukraine situation and recovery from global recession,” he told Emerging Markets. “I can think of no one better to lead the IMF.”
Lagarde, meanwhile, signalled in Lima her unhappiness with the US Congress’s continued failure to ratify a 2010 agreement that would greatly boost the IMF’s permanent financial resources, or quotas, and give more say to key emerging economies.
Asked whether she could continue running the IMF with this uncertainty hanging over her, Lagarde said at a briefing in Lima that it “does not impede my ability to manage the IMF, but it is an issue for the IMF’s credibility”.
Some have suggested a deal whereby the US would stump up cash in return for securing leadership of the IMF. “The IMF should be a quota-based institution, and [bilateral] loan resources secured when I took over in 2012 are no substitute,” Lagarde said.
The next milepost is the G20 Leaders’ Summit in Turkey in November. The hope is that by then progress will be made in getting legislation through Congress.
“The IMF has moved with the times and that includes shifting more of its voting power to the emerging world,” Reinhart said.