Darling of Davos, Lagarde already has second IMF term sewn up

Reuters

The darling of the Davos political and financial elite, Christian Lagarde has a second term at the helm of the International Monetary Fund sewn up just days after nominations opened, despite facing possible trial in France.

The former French finance minister, regularly listed among the world’s 10 most powerful women, used the annual World Economic Forum meeting in the Swiss Alps — an echo chamber for her policy prescriptions — to announce her candidacy and secure instant support from global movers and shakers.

In a gesture of cross-Channel entente, British finance minister George Osborne formally nominated the center-right Lagarde, 60, within minutes of the appointment process opening.

Endorsements quickly followed from France, Germany and Italy, as well as unofficially from the United States, which holds a blocking minority of votes on the IMF’s board.

More significantly, China, South Korea and Mexico signaled in Davos they would support Lagarde, ensuring there would be no joint move by the big emerging economies to try to wrest the IMF job from European hands, which have held it since 1946.

“Any rival candidacy would be just symbolic — to put down a marker for the next time,” said a senior IMF source. “Everyone has cause to be happy with Lagarde. We don’t feel any counter wind.”

Whether out of diplomatic courtesy or lack of concern, no government has so far questioned whether she will be able to serve out a second term without being distracted by her legal troubles in France.

Lagarde has said she will appeal against a judge’s order that she stand trial in a case involving alleged favors for a business ally of then-President Nicolas Sarkozy. She denies wrongdoing and the IMF board has expressed confidence in her at each stage of the legal procedure so far.

Italian Finance Minister Pier Carlo Padoan listed some of the reasons why Lagarde has earned such wide support since she replaced disgraced French IMF chief Dominique Strauss-Kahn in 2011 after he was arrested in New York for sexual assault, charges that were later dropped.

“She was able to use the Fund effectively to help solve difficult situations and crises, not just in Europe,” he said in an interview in Davos, saying Lagarde should be allowed to continue her “terrific job.”

She kept the IMF involved in a series of financial rescues for eurozone countries, notably Greece, despite misgivings in less developed states in Asia and Latin America that had been subject to harsher IMF medicine in previous decades.

Padoan cited her skill in shepherding through a reform of voting rights in the global lender, agreed to in 2010 but long held up by the U.S. Congress, to give greater weight to China and other emerging economies.

She also built consensus for China’s yuan to be added later this year to the major reserve currencies used to calculate the Special Drawing Rights in which the IMF lends to its members.

“These are very important institutional elements which strengthen the IMF,” Padoan said.

By working patiently in Washington in support of IMF reform, she has managed to overcome for now frustration on other continents at a carve-up in which the United States has always nominated the head of the World Bank, and Europe the head of the IMF.

Mexico’s central bank governor, Augustin Carstens, carried that torch when he ran against Lagarde in 2011, but he has just been reappointed for six years and no such challenge is in sight now.

Spotting Lagarde sitting in the front row of his address to the WEF, U.S. Vice President Joe Biden joked that he should ask her for a loan, adding: “You’re doing a superb job.”

Her critics, who generally prefer not to be quoted by name, acknowledge the former national synchronized swimming team member’s political skills as a negotiator and spokeswoman for the IMF but say she is not an original economic thinker, unlike Strauss-Kahn.

A trained lawyer, Lagarde was an expert in antitrust and labor law and was elected to be the first female chairman of U.S. law firm Baker & McKenzie in 1999 before going into politics as France’s trade minister in 2005.

She gave some inkling of what a second term might look like when she spoke on a Davos panel on the world economic outlook on Saturday, smiling with embarrassment when the moderator said to applause that she was a shoo-in for reappointment.

Noting that the reform of the IMF’s quota system had increased its war chest, she said: “This trend should continue. The IMF should continue to be large.”

She made clear that a high priority would be working to integrate China fully into the global market economy, urging Beijing to provide more clarity about its new exchange rate mechanism, linked to a basket of currencies rather than just the dollar.

She reached a private understanding with Greek Prime Minister Alexis Tsipras that the IMF would stay engaged in Greece and press its eurozone creditors to grant it significant debt relief, provided Athens stuck to painful reforms of pensions and taxation, privatizations and the public administration, according to sources on both sides.

Her political skills will be tested before her first term ends in July in convincing the IMF board to continue to lend some money in Greece’s third bailout program.