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A Co-Directorate for the IMF? Say Yes to Lagarde and Carstens

What's a creative solution to give the emerging market countries their fair leadership share in the IMF?

June 21, 2011

What's a creative solution to give the emerging market countries their fair leadership share in the IMF?

Say what you will about the IMF, but the problems dropping in the Washington, D.C.-based institution’s lap are massive. They range from staving off financial wildfires in Europe to safeguarding the global financial system and creating a truly balanced global approach to some key problems of our era.

But, as happens so often in politics, those big agendas are often overshadowed by personnel choices. And it is certainly more than overdue that the world move away from that all-too-convenient European and American job-sharing program, where the former always scores the top job at the IMF and the latter the one at the World Bank.

Alas, as things stand now, the biggest absurdity — that citizens of France have snatched the top IMF job for 35 of the Fund’s 64 years of existence — may well continue if, as seems likely, Christine Lagarde, France’s finance minister, gets the nod to become the IMF’s new managing director.

That seems like way too much of a cozy thing for the French — were it not for the person of Christine Lagarde herself. Yes, the presumed core argument against her is that she isn’t even an economist, as if economists had such a great track record in preventing, rather than haplessly fueling, global financial crises.

And true, she happens to be French, even though it would seem to anybody who has met her that this applies merely by virtue of passport and elegance of attire. She is a consummate professional, very global and smart, a good manager and — very important in this day and age — a very good explainer to the public at large of complex economic challenges on the global agenda.

Rather than just Europe, she also represents a much larger global constituency that has never received the nod for one of the top global jobs: the half of humanity comprised of women.

It so happens, as the World Bank’s new top leadership makes plain, that there is a very impressive number of women who have held top finance jobs around the world, such as Nigeria’s former finance minister, Ngozi Okonjo-Iweala, who now holds one of the World Bank’s number-two jobs as one of three managing directors.

Also at that level, as an effective deputy president of the World Bank, is Sri Mulyani Indrawati, Indonesia’s former finance minister. And the list of qualified candidates goes on and on, and includes such names as Zeti Akhtar Aziz, Malaysia’s central bank governor.

Now, Christine Lagarde is “only” a lawyer — but a terrific one at that, having been the first woman managing partner of one of the top-level U.S. law firms, Baker & McKenzie. Her experience is broad, including a stint as trade minister.

So far, so good. Her eventual elevation, however, if it comes to pass, does not resolve the problem of the under-representation of the emerging markets at the top level of the IMF.

And now the choice is down to two. In addition to Lagarde, Mexico’s former finance minister and current central bank president, Agustin Carstens, certainly is a viable candidate.

What to do? It turns out that the U.S. government is in a position to unilaterally fix the problem. Here is how: As stated at the outset, the plate of the IMF and its top boss is more than full. In fact, you could say that the job requires more than one person to handle it.

And indeed, that’s how it has been, especially in recent years, when the now-infamous Dominique Strauss-Kahn had a “sidekick” in John Lipsky, the former chief economist at Salomon Brothers and JP Morgan, who as first deputy managing director played a powerful role at the IMF.

The trouble, you see, is that the Americans always get to double-dip at the IMF. Remember as well that the United States is effectively endowed, for now, with the World Bank presidency.

And be very much aware that Hillary Clinton, despite her denials, seeks to extend that endowment for the United States by virtue of riding on the very same ticket as Christine Lagarde. She, too, is a very competent woman, skilled manager and politician — all of which makes the issue of nationality a pure “happenstance” (and secondary issue, as indeed it should be).

Just how is the United States “double-dipping” at the IMF? Well, the organization’s agenda is really determined by a board of directors that is in permanent session. Consisting of 24 executive directors, representing single governments, groups of countries and broader regional constituencies, this body is quite unequal in structure.

Far from being “one man, one vote,” or consensus-based, what counts here is money. Voting rights are effectively based on capital percentages of paid-in funds. And here, one country stands above all others: the United States. Its share of about 17% effectively gives it veto power at the Fund, as important decisions require a supermajority of 85%.

For all the focus on the Europeans, and they do remain overrepresented at the Fund (but don’t vote in unison), the real kingpin of the IMF is the U.S. government. Unlike the UN, the IMF in essence has a permanent “security council” composed not of five members, but one: the United States.

Given that veto power, one must wonder why the United States indeed does get to double dip. That veto would be exercised by the U.S. executive director at the IMF, Meg Lundsager, a decade-long veteran in that office.

Doesn’t that tremendous power suffice? Without any doubt, the views of the U.S. government do get extremely close consideration in board discussions at the IMF. They may not be the determining factor but, by practice and track record, are clearly the overpowering one.

That makes it plain that there is no need for the United States to have another “chief control officer” in the post of first deputy managing director, a post that has always been held by an American.

Consider that the World Bank, underneath Bob Zoellick, its president and a U.S. citizen, has a Nigerian, Indonesian and Egyptian in its deputy posts. A balanced ticket, led by the United States.

For the IMF to come close to such broader representation, here is a Solomonic — read: wise — solution to the current leadership race: The U.S. government, in its wisdom, forfeits the pseudo-inherent right to pick a U.S. national as first deputy managing director.

In a sign of true regional conciliation, and to do its part to strengthen the hand of the emerging markets, it offers the post to one of the finest, most skilled graduates of its top economics training faculties, none other than the University of Chicago-trained Agustin Carstens.

The United States would get a de facto U.S. economist, by virtue of his tremendous skills and outlook on policy management. Offering the plum job to Mr. Carstens would do wonders for the confidence and self-appreciation level of its neighbor, Mexico.

But is it really feasible to have a true condominium in the IMF leadership?

I would answer yes. Clearly, the IMF is more pivotal than ever before. Having a healthy dose of economic management from the emerging markets — battle-worn, experienced and more resolute in light of past crises mastered and lessons learned as they are — is important.

The IMF’s top bosses need to live in an airplane, while at the same time managing the institution and coming up with responses to crises. For all of Mr. Carstens’s indubitable talents, being part chummy and part resolute with top-level political counterparts, as the job requires when things burn, isn’t one of them.

And for all of Ms. Lagarde’s indisputable communications and leadership skills, thinking through the ins and outs of complex economic and financial recovery strategies doesn’t come naturally to her.

But the two would make a good team in the sense that their respective sets of analytical skills are not just top-notch, but highly complementary.

And that matters, not just because things are very busy for the IMF right now. Consider as well the fact that three of the last IMF managing directors — Horst Koehler, Rodrigo Rato and, most recently, Mr. Strauss-Kahn — all departed their job before serving out their term.

That unfortunate track record aside, there are concrete reasons to think about deliberately double-filling the IMF’s top post. Ms. Lagarde has some legal issues in France that should not impede her leadership at the IMF, but at her level, the application of “justice” in one’s own country is always politically tainted, and all it takes is a “friendly” judge from the opposition party to throw a wrench into the system.

And Mr. Carstens? Well, there is no way to mince words in the age of television and health consciousness. Whatever the particular causes, he is extremely obese — a fact that raises questions about his physical ability to carry out a grueling, high-stress job.

To be sure, the IMF cannot afford to be hamstrung by constant succession races. Much better, then, to act in a provisionary manner — and always have somebody in the number two slot to move up to number one instantaneously if need be.

Under current circumstances, that could be a quick way for the emerging markets’ countries to get the top job at the IMF. But as long as the Fund’s number two job is always held by an American, having a quick succession, in case the need arises, is a practical impossibility.

Time therefore for the U.S. government to act in an enlightened manner and state that the presumed U.S. seat, this time around, really is an “Americas” seat, to be occupied by one of Chicago’s finest minds, Agustin Carstens.

And former hedge fund manager and Treasury official David Lipton, slated to take the post of John Lipsky, which — under the scenario presented here — would now be held by Mr. Carstens? Even he wouldn’t be left out in the cold. He could take the fund’s de facto number three job, as U.S. executive director. The current job occupant, after a decade in that office, can be counted on not to stand in the way of such an arrangement.


The IMF cannot afford to be hamstrung by constant succession races. Much better to always have somebody in the number two slot to move up to number one.

Lagarde's eventual elevation, if it comes to pass, does not resolve the problem of the under-representation of the emerging markets at the top level of the IMF.

The U.S. government is in a position to unilaterally fix the problem. It should forfeit the right to pick a U.S. national as first deputy managing director.

The University of Chicago-trained Agustin Carstens, while Mexican by nationality, is a de facto U.S. economist.

Yes, we can have it all — a woman at the top of the IMF, alongside an emerging market representative.