After Christine Lagarde won the top job at the International Monetary fund, the first non-economist in that post Now must sort through a world of baffling problems.
Christine Lagarde took the top helm at the International Monetary Fund at one of the worst times in its history – not because of the rape charges against former managing director Dominique Strauss-Kahn, but because of reputational damage to the IMF itself. Lagarde, the Fund’s first ever director who is not an economist, has had to work her way through a number of top priorities.
Her most public challenge: to restore the Eurozone’s future and strengthen the standing of European sovereign debt. Less publicly, but just as important, she must improve the IMF’s reputation in the emerging market economies – especially by reforming its governance to include more of them. Overall, the new director must restore countries’ confidence in the IMF’s ability to predict – and then contain — the kinds of crises that have been rattling the international financial system for more than 20 years.
As a European – and former finance minister of France, a country at the heart of the Eurozone — can Lagarde take an objective view about the long term sustainability of Europe’s common currency? Some worry about whether these inherent conflicts of interest keep Lagarde from ushering Europe out of its crisis.
And even before the international financial crisis, many emerging market economies made bold statements about how they would never return to the IMF for financing again. It was believed then that the IMF’s reputation had reached rock bottom. Fast forward to today and the IMF has done little to actually improve its reputation among many of the key emerging market economies – Brazil, Korea, Turkey, Thailand, etc.,. Throughout Lagarde’s so called campaign tour in emerging market economies, she identified this crisis of confidence and noted her desire to improve bilateral relationships. Beyond the obvious politicking, Lagarde surely realizes that the future of IMF financing will come from the emerging market economies.
To tame the fires in Europe with IMF funds, she will need the emerging market economies that are holding much of the world’s surplus capital to have faith in the organization’s ability to devise appropriate policies, to understand the reasons behind these continued economic crises, and to better predict fault lines and prevent contagion in the global economy. While a number of capitals in emerging market economies have argued that this requires the IMF to transfer decision making power to rising economies- most notably through shifting IMF quotas and giving an added number of IMF Executive Board seats to emerging market economies to countries like Brazil, China, Turkey, and others- there will be a lot more fundamental and internal reform before Lagarde.
Arguably, the IMF will require a serious rethink of how things are done and the perspectives the Fund brings to understanding how to repair the global economy. Clearly the Fund’s current toolkit has been inadequate – generally a strict adherence to neoclassical economics. Lagarde may be bold enough, possibly, to address the serious challenges posed by existing staff paradigms. As a lawyer, she may just bring a fresh perspective into how the organization can change and move beyond the narrow prism of neoclassical macroeconomic analysis.
Lagarde has a full plate of issues to address, but hopefully she will overcome her Eurocentric perspective and realize the interrelated nature of challenges before the IMF: fixing Europe, repairing IMF reputation, and freshening IMF analysis.
By Bessma Momani
University of Waterloo