Challenges face Christine Lagarde in second IMF term
Christine Lagarde is heading for a second five-year term at the head of the International Monetary Fund(IMF) after the announcement on last week Thursday that no one else had been nominated for the job.
Advertisement
Ms Lagarde still faces a formal job interview with the IMF’s board. She also has legal problems to overcome in France. The former French finance minister is currently appealing against an order issued late last year for her to stand trial on negligence charges linked to her approval of a 2008 €400m arbitration payment to business tycoon Bernard Tapie.
But her bid for a second term has received wide support from major shareholders ranging from China to the US. In a statement formally announcing US support for Ms Lagarde’s reappointment, US Treasury Secretary, Jack Lew, said on Thursday that she had done an “exceptional job” at the head of the IMF and cited “the broad support she has secured among the Fund’s membership, including emerging economies”.
Here are five challenges high on Ms Lagarde’s agenda for a second term:
Bolstering the safety net for emerging economies
Problems ranging from a collapse in commodity prices to slowing growth have been hitting emerging economies and has sent some such as Brazil and Russia tumbling into recession in recent years. The inevitable result has been the beginning of a new round of developing economies approaching the IMF for emergency loans and with the expectation that more will follow.
Since the implementation, earlier this year, of 2010 reforms that give the IMF greater firepower and emerging economies a bigger voice at the fund, the IMF is in good shape to deal with any new crises. But Ms Lagarde has been calling for a “global policy upgrade” and arguing that the broader safety net is not in such rude health, particularly for emerging economies.
“While the safety net has expanded in size and coverage since the 2008 financial crisis, it has also become more fragmented and asymmetric,” she said in a speech this month.
As an example, she cited that many emerging economies lack access to the swap lines between central banks like the US Federal Reserve, the European Central Bank and the Bank of Japan. That, she said, was a problem because many emerging economies depended on currencies like the US dollar for trade.
The solution? That is still unclear. But Ms Lagarde wants a discussion high on the G20 agenda this year.
China
As managing director, Ms Lagarde played a big role in shepherding China’s renminbi into the elite currency basket that underpins the IMF’s own de facto currency, the special drawing rights. That amounted to a big bet on continuing Chinese reforms and the capabilities and intentions of the leadership in Beijing.
The move also has looked like a risky bet given the market turmoil over the past month, much of it driven by China’s muddled messaging and concerns over its currency policy.
Ms Lagarde is due in China later this month for a meeting of G20 finance ministers. But it is unlikely to be her only visit this year. She needs to hold China’s feet to the reform fire and help Beijing deliver without damaging the IMF’s credibility.
Greece
The IMF’s role in the eurozone crisis and the European-led bailouts of economies such as Greece, Ireland and Portugal undoubtedly will be the defining intervention of Ms Lagarde’s first term. But the Greek economy’s continuing travails mean that chapter is not over yet.
The big question is what the IMF’s role will be in an €86bn third EU-led bailout of Greece.
The IMF is pressing Athens to deliver on pension and other difficult reforms. But the fund also needs Greece’s European creditors to allow some manner of debt reprofiling for it to take part.
If Ms Lagarde fails to convince Germany’s Angela Merkel and other European leaders to do so, the IMF will probably have to take the high road and walk away.
The collapse in oil and other commodity prices
The tiny Latin American commodity-dependent economy of Suriname began discussions with the IMF in January about a financial rescue package, becoming the first commodity-producing country to approach the fund for a bailout. But it is unlikely to be the last.
This is proving to be a busy year for the fund and it is only likely to get busier. Analysts and people within the IMF are growing increasingly concerned about countries ranging from Azerbaijan to Nigeria, all of which are dealing with the impact of a collapse in oil revenues
The next steps on inequality, gender and climate change
One of the biggest achievements of Ms Lagarde’s first term has been inserting the once stodgy IMF into conversations on everything from inequality to women’s rights. “She has pushed the institution into areas beyond its standard remit of macroeconomic policy and international finance,” says Eswar Prasad, a former IMF economist.
But where does she go next with that?
Campaigners want Ms Lagarde to take the next step and have the IMF start including metrics for inequality in its daily work in economies like Greece. In an ideal world, the IMF would consider the impact on inequality of the reforms it forces governments to make.
That is unlikely to happen any time soon. But the fund has started including measures and discussions of inequality in its regular Article 4 reviews of member countries. FT/GB
