The IMF’s Emerging Conflict.
Europe is circling the wagons. Forced to select a new head of the International Monetary Fund during a debt crisis, European politicians have lined up behind French Finance Minister Christine Lagarde, who announced her candidacy Wednesday.
That solution makes sense in Brussels. Ms. Lagarde has been in the thick of talks over the sovereign-debt crisis and would be unlikely to surprise markets and politicians by taking the IMF in a new direction.
But insider status is no unequivocal plus. There are legitimate questions about why the new chief should be a European politician, given the continent is calling so heavily on IMF resources as it tries to hold the euro together.
Emerging markets are not giving in without a fight. Representatives of Brazil, Russia, India, China and South Africa – the BRICS – issued a joint statement calling the practice of automatically selecting a European managing director obsolete. The
G-20 did, after all, commit to an open, transparent, merit-based process.
Mexico has fielded its central-bank governor as a candidate, and there are signs South Africa’s former finance minister could enter the race. But the BRICS haven’t so far rallied behind a single nominee.
The reality is that the BRICS are anything but a unified bloc. Unlike the euro zone, which is trying to hold itself together, the BRICS are competitors in export markets and have different views on key policy questions. Brazil and India, for example, have been among the most outspoken critics of China’s exchange-rate regime.
Given the conflicting agendas, finding a common candidate is easier said than done. But even if they can’t mount a credible campaign for the top job, making a fuss will open opportunities for side deals and concessions in other areas. China has hinted that emerging-market representation in the IMF’s senior management, if not the managing director spot, might be acceptable.
The whole debate puts the U. S. in a difficult position. Rather than being able to let support coalesce around a European candidate, it may now have to pick sides – potentially with implications for America’s grip on the top job at the World Bank in the future, too.
But even if Ms. Lagarde, as seems likely, does emerge as leader at the end of June, developed nations need to tread carefully. Emerging economies have no interest in destabilizing Europe, given its importance as an export market. But distrust of the IMF in some countries still runs deep. China, for example, has long felt the fund was run by the West for the West. For three years until 2010, Beijing didn’t even allow the IMF to release its annual report on the Chinese economy.
A new managing director’s most pressing role will be to solve the euro-zone debt crisis. But equally vital for his or her tenure will be reshaping the organization to ensure emerging economies are fully engaged.