The IMF has just elected the first woman to its managing directorship, and already Christine Lagarde’s new desk in Washington is piling up with folders eagerly awaiting her arrival.
First folder: the Greek crisis and the IMF’s role. In an attempt to fill the European institutional vacuum, under its previous leadership the IMF took unprecedented political and financial risks, which have now irreversibly tied the institution to the political and financial developments of the euro area, while narrowing its ability (and credibility) to leverage upon the Greeks and the European creditors to pursue a more effective approach.
Ms Lagarde faces a double challenge: in her new role she will have to urge her fellow Finance Ministers in Europe to take resolute and convincing action, while distancing herself from a basic approach she has helped to shape. More importantly, in her new capacity she will face the close scrutiny of the IMF membership, starting from its largest shareholder—the United States—who has proven impatient with the nuances and complexities of European policymaking.
Second folder: the global economy and the G-20’s mutual assessment process. As she joins the institution in the next few days, the staff will have already finalized the spillover reports aimed at assessing the impact of systemically-important countries/regions (China, euro area, Japan, U.S., and U.K.) on the world economy.
Though formally distinct from the consultations that the G-20 has charged the IMF to conduct with analogous systemically-important economies, both the spillover reports and the consultations themselves will test her ability to facilitate the dialogue between China and the U.S., on which the success of the MAP ultimately hinges. As the U.S. administration comes increasingly under pressure to rebalance its fiscal position, it will become necessary to compensate for the fall in domestic demand resulting from fiscal consolidation, with an expansion of foreign demand, putting China and other emerging economies under substantial pressure to rebalance their current account surpluses in a shorter-term horizon.
Finally, while still in her current role as G-20 Chair, Ms Lagarde has asserted the primacy of the intergovernmental forum. She will now face the challenge of asserting the primacy of the IMF’s role—technically, the most legitimate multilateral forum to host such discussions.
Third folder: IMF’s governance reforms. Right from the start, Ms Lagarde will have to ensure that the agreement reached at the G-20 Summit in Seoul in November of last year, later approved by the IMF’s own governance bodies, is ratified by the membership before the Annual Meetings in 2012.
The agreed-upon package of reforms foresees China rising to the rank of third shareholder and the other BRICs among the institution’s top ten shareholders. Importantly, the package is also tied to a reform of representation in the IMF’s main policymaking body, the executive board, whereby Europe has agreed to give up two of its approximately eight seats in favour of under-represented members.
The latter measure will prove extremely contentious given that the European countries who have agreed to it—including France—in the context of the G-20 are not those who will have to forfeit their chairs. There is, however, more than a sense in some European quarters that the current turmoil may provide the chance to delay any such reform.
Fourth folder: other matters. The new managing director will be the first to show up for work with a significant private experience and a non-technocratic background. She may take the opportunity to expedite a number of organizational reforms with a view to enhancing not only the breadth of the skill mix employed by the institution but also the flexibility of the internal setting where those skills should be applied, as repeatedly advised by the IMF’s own internal watchdog, the IEO. And these organizational reforms could prove even harder to sell than the already tricky governance ones.