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Support and suggestions for lagarde

(China Daily)
Updated: 2011-06-30 08:10
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NEW YORK - The United States expressed its support of Christine Lagarde early Tuesday in a written statement by Treasury Secretary Timothy Geithner.

The US holds about 17 percent of the voting rights in the International Monetary Fund, by far the largest for one country. Japan ranks second, China third. Europe, as a whole, has 32 percent of the voting block

Lagarde's only contender for the post of managing director, Mexico's Agustin Carstens, had secured endorsements only from Canada, Australia and most Latin American countries except for Brazil and Argentina. Carstens is governor of Mexico's central bank and is a former deputy managing director of IMF.

Earlier support for a candidate from the developing countries had come from Sebastian Mallaby, director of the Maurice R. Greenberg Center for Geoeconomic Studies and the Paul A. Volcker Senior Fellow for International Economics at the Council on Foreign Relations.

"I believe it would have been better for the IMF to select a managing director from outside Europe," he told China Daily. "That said, I think Christine Lagarde will do her best to earn the support of emerging economies by listening to their concerns and increasing their voice within the fund."

Edwin Truman, senior fellow at Peterson Institute for International Economics, said he is sure Lagarde will try to address the concerns of emerging market economies.

Steven Dunaway, adjunct senior fellow for international economics at the Council on Foreign Relations and former deputy director of the IMF'S Asia and Pacific Department, said Lagarde faces three major challenges as IMF chief.

"She has to show that the IMF will not simply be a convenient source of funding to help Europe finance the efforts to deal with its debt crisis and that she will cut off IMF lending if European countries fail to consistently meet the conditions in their loan programs."

Lagarde also needs to give emerging market countries more votes and board representation to reflect their growing importance, Dunaway said. She also "has to demonstrate that she can effectively manage the work of the IMF, especially given her limited formal training in economics."

Mallaby said Lagarde's priority is clearly the euro crisis. Dani Rodrik, professor of international political economy at Harvard Kennedy School, agreed, but said, "Beyond that, we need a new framework for global financial flows and regulation, and she needs to do a lot of hard thinking on that. We certainly cannot keep going with a major financial crisis every decade or so."

Eswar Prasad, a professor at Cornell University and former head of IMF's China Division and Research Department, said Lagarde needs to be thorough and quick in shifting voting shares and board representation toward emerging markets. They were agreed upon under her predecessor's term, he said.

"Lagarde takes over an institution that has become central to the global financial system. The way she manages the political, technical and strategic aspects of the job will help determine the fund's legitimacy and effectiveness," Prasad said.

Allan Meltzer, professor of political economy at Carnegie Mellon University's Tepper School of Business, said, "The IMF should avoid further entanglement in ECB (European Central Bank) problems ... Putting in more money from China, Japan, the US and others is a waste because more debt will not prevent ultimate default by Greece."

While some experts have argued for a reduced function for IMF, Truman believes it has proved its worth time and again over the past 40 years.

"There is no alternative to the IMF at the present. We just need to make it work better," Rodrik said.

Chen Weihua

(China Daily 06/30/2011 page1)