July 15, 2024

U.S. Endorses France’s Lagarde as New I.M.F. Chief

Treasury Secretary Timothy F. Geithner had announced earlier Tuesday that the United States would back Ms. Lagarde, France’s influential finance minister, over the Mexican central bank governor, Agustín Carstens, her only competitor for the job, a move that all but sealed her victory.

“Minister Lagarde’s exceptional talent and broad experience will provide invaluable leadership for this indispensable institution at a critical time for the global economy,” Mr. Geithner said in his statement. “We are encouraged by the broad support she has secured among the Fund’s membership, including from the emerging economies.

The I.M.F. executive board met Tuesday in Washington to decide between Ms. Lagarde and Mr. Carstens. But having secured the backing of China, most countries in Europe and then the United States — which holds the largest number of votes at the fund — Ms. Lagarde’s appointment for a five-year term was effectively a foregone conclusion.

Ms. Lagarde will be taking over at a delicate time, following the resignation last month of Dominique Strauss-Kahn after his indictment on charges of the attempted rape of a hotel maid in New York.

As the finance minister of one of Europe’s most powerful economies, she has been at the forefront of efforts to contain the European debt crisis, which has led Greece, then Ireland and Portugal, to seek bailouts to help them pay their huge sovereign debts.

But a year after Greece secured a €110 billion, or $140 billion, rescue package from the I.M.F., the European Union and the European Central Bank, the country’s debt problems have now re-emerged with a vengeance.

Financial markets have see-sawed in recent weeks as the Greek government was buffeted by widespread social unrest stemming in part from the I.M.F.’s demands for greater austerity measures as a condition of releasing more aid. The Greek Parliament is to vote on the measures Wednesday.

Although emerging markets fought to claim the I.M.F. leadership from Europe, which has produced every managing director since the fund’s inception more than 40 years ago, Ms. Lagarde received substantial backing from Europe, the United States and China. Her key argument was that only another European could continue the I.M.F.’s leadership in managing Europe’s deepening debt crisis.

Yet Ms. Lagarde also came under fire from critics who say she and other top European policy makers mishandled the crisis from the beginning and are now having to scramble to clean up problems of their own making.

“For the I.M.F. to be devoting so much financial and human capital to try to combat a problem in Europe which is largely political in origin and can only be solved by political agreement is controversial,” said Simon Tilford, the chief economist of the Center for European Reform in London. “It threatens the I.M.F.’s credibility.”

What is more, French banks have the largest exposure of any in Europe to Greece, having loaded up on sovereign debt over the years, while Ms. Lagarde has been a major player in negotiating the bailout for Greece. She has adamantly opposed a full-blown debt restructuring or any solution other than a voluntary restructuring by banks.

That has led some analysts to raise questions about whether her impartiality on the issue would be clouded as she leads the fund.

“There is a risk that her perceived objectivity will be brought into question because of this,” Mr. Tilford said. On the other hand, “it’s possible she will come to believe debt restructuring could be in France’s interest, and that kicking the can down the road could ultimately cost the French more than an earlier move to lance the boil.”

Article source: http://www.nytimes.com/2011/06/29/business/global/29fund.html?partner=rss&emc=rss

Speak Your Mind