In an effort to put the current particularly odious image of sleaze behind it and set a world in the grip of a slew of economic crises more at ease, the International Monetary Fund appointed French finance minister Christine Lagarde its newest managing director. Not a moment too soon. By J BROOKS SPECTOR.
The IMF’s former managing director, Dominique Strauss-Kahn, swathed the austere financial fortress in sordidness following his headline-grabbing encounters with a New York City hotel housekeeper and ensuing courtroom appearances (with more to come). It stands to reason the IMF wants that behind it because ahead of it lie the less titillating but more pressing prospects of the wobbling Euro, the problematic Greek bailout and numerous lesser crises.
A lawyer before becoming France’s finance minister, Christine Lagarde had also served as chairwoman of the Baker & McKenzie law firm. As finance minister, she had already been in the forefront of efforts to restrain the European debt crisis. In the past year or so, this crisis has forced Greece, Ireland and Portugal to ask for bailouts to help them cope with huge sovereign debts. In the case of Greece, after asking for and receiving a €110 billion rescue package, the country’s debt problems have roared back, giving the IMF, the EU and the European Central Bank yet more sleepless nights.
Lagarde had previously taken a hard line on Greece, at one point actually threatening to withdraw financial aid if Greece did not cut spending and raise revenue. Not coincidentally, perhaps, the French have the largest exposure to Greece’s problems of any European financial institution – around €65 billion. Some have argued it is this very exposure that may affect her impartiality on the matter once she steps into the IMF’s top position.
Lagarde’s labours at the IMF formally begin on 5 July for a five-year term of office. She is the first woman to serve as MD of the Washington-based lender – indeed, of any of the world’s key international players like the World Bank or UN. Commenting on the singularity of her ascension to this position, the Canadian newspaper, the Mail and Globe noted this relative lack of female talent at the top of international economic decision-making universe:
“For decades, the IMF, World Bank and OECD have helped steer the global economy. And they’ve done it largely without women. Christine ’s rise to the top post of a global economic institution has catapulted her into a job no woman has done before, and highlights the maleness of the circle of senior officials at the agencies and central banks guiding the global economy. The dearth of women in senior roles reflects a glaring absence of women at all levels of the economics field.”
Lagarde’s move to the hot seat at the IMF became a lock once the US, China and a number of other major economic players lined up behind her, rather than endorse Agustin Carstens, the Mexican central bank governor. By tradition, the IMF’s leader has been a European, while an American appointee has headed the World Bank.
In an emailed acceptance statement, Lagarde thanked “the Fund’s global membership warmly for the broad-based support I have received. I will make it my overriding goal that our institution continues to serve its entire membership with the same focus and the same spirit” as it did in the recent global economic crisis. She also said that “I will have but one thing in mind when it comes to providing support to a euro-area member: Ensuring full consistency with the Fund’s mission and providing for good stewardship of the Fund’s resources. I will not shrink from the necessary candour and toughness in my discussions with the European leaders, on the contrary.” Putting the best possible face on this unanticipated transfer of leadership, the IMF’s board added it “looks forward to Ms. Lagarde effectively leading” the international financial body – an organisation that has been in the news a lot recently, but for all the wrong reasons.
In a column in the Financial Times, Mohamed El-Erian, the chief executive and co-CIO of Pimco, the world’s largest bond investor, explained how important a quick, decisive transfer of power at the IMF really will be:
“The post of managing director is not to be taken lightly in an institution that operates like a well-disciplined army, with staff looking up to the unquestioned general for decisive leadership.
“This is why the resignation of Dominique Strauss-Kahn has been so disruptive to the functioning of the IMF…. First, (Lagarde) must restore proper separation between the post and the political ambitions of the holder. This separation has been eroded in recent years by Europe’s decision to appoint politicians (Strauss-Kahn and Rodrigo de Rato before him) and, was essentially eliminated by the widely held view that Strauss-Kahn was using his position as a springboard to the presidency of France.
“To this end, Lagarde must realise that Europe’s perceived entitlement to the top post has left a bitter taste in the mouths of the institution’s membership and anyone who believes in the importance of a legitimate IMF at the centre of the global monetary system.”
El-Erian adds four other immediate top-of-the-in-box concerns with which Lagarde must deal almost immediately. He wrote that she needs to reinforce her commitment to an IMF regimen of meritocracy by eliminating other nationality based appointments and she must strengthen the analytical robustness of the IMF’s response to international debt crises (Greece’s current travails may just be the first of a larger sequence in the near future). Moreover, she must also prepare the Fund’s balance sheet for the risk of a future financial impairment because of some very large loans that have already made over the past year, especially to Greece. Perhaps most important of all, however, Lagarde must help restore the public standing of the IMF’s staff in the wake of Strauss-Kahn’s arrest in New York City.
Almost from the moment she moves into her powerful position at the IMF’s headquarters in downtown Washington, DC, she will have to start making tough decisions about how best to handle the Greek tragedy that is that country’s troubled financial bailout. Speaking on the French television station, TF1, Lagarde has already told the Greek opposition party to come to the support of that country’s austerity measures – budget cuts, higher taxes, a sell-off of some government assets – telling them they must put aside their political differences in support of their country in its hour of financial and political agony.
Lagarde isn’t going to have much time to ease into her new job, pick out furniture or change the colours of the carpets and curtains. The Greek bailout presents some immediate and difficult decisions about what is the IMF’s part in a broader, joint rescue package, together with eurozone authorities. There has been a growing sense of concern on the part of the IMF’s governing board, especially among emerging market countries, about what exactly the IMF’s position is towards Greece and its potential default. These countries have become increasingly concerned the IMF might end up lending a lot of money even as the Greek political situation eventually becomes unsustainable from widespread opposition inside Greece itself to the measures that are an essential part of the bailout.
On Wednesday, Financial Times quoted the governor of the Bank of Greece, George Provopouos, saying Greece would be committing “suicide” if parliament did not back the proposed austerity measures designed to ward off a catastrophic default. This warning, in turn, has focused even more attention on Wednesday’s right-down-to-the-wire vote in Greek parliament over the austerity package. Fortunately for Greece, the IMF and anybody who expects to do well with sovereign debt bonds this year, Greece’s parliament has approved the new austerity measures. This will open the way for the next round of EU-IMF bailout funds. Of course, this will enrage the country’s unions and probably set off yet another round of rioting, demonstrations and a most fitful breaking of plates.
The Greek parliament approved tax increases, wage cuts and the privatisation of about $72 billion in state assets, but the parliament must now take a second dose of medicine on Thursday to vote to implement the latest austerity programme. On this bill, key troublesome elements include the timing of the privatisation efforts, particularly that of the state electric utility, Public Power Corporation. The PPC’s union has close ties to the Socialists, clearly complicating things for the government. There is already a 48-hour strike on the go, the first time there has been a longer-than-one-day strike since Democratic rule was restored to Greece in 1974.
Now that Europe has made its desire to have another European head of the IMF reality, Lagarde needs to hit the ground running if her tenure is to become an inspirational saga of institutional transformation, rather than the same old, same old story for a crucially important international job. And, of course, if Greek finances, politics – and then the euro zone – ultimately go pear-shaped, Lagarde’s tenure as head of the IMF may end up being judged a failure, even before she is issued her computer log-on, password and keys to her penthouse office suite. And just to make her life a little more complicated, a French court is scheduled to decide 8 July if there will be an investigation over whether or not she abused her authority in a case in which a French businessman received a rather too-lucrative payment from the then government-controlled Credit Lyonnaise. DM
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Photo: France’s Finance Minister Christine Lagarde attends a news conference in Brasilia May 30, 2011. REUTERS/Ueslei Marcelino.
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