Lagarde still favourite as IMF nominations close

The French finance minister has wide support but could face a formal inquiry into claims that she abused her authority
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The Independent Online

Christine Lagarde, the French Finance minister, remained the favourite to be the next managing director of the IMF as nominations closed last night.

Rivals to succeed Dominique Strauss-Kahn have included the Mexican central bank chief Agustin Carstens and former South African finance minister Trevor Manuel. Grigory Marchenko, chairman of the central bank of Kazakhstan, pulled out of the leadership race late last night.

Yesterday Mr Manuel also ruled himself out: "It is important to understand that decisions take place in the context of world politics. Against that backdrop, I have decided not to avail myself".

The new appointment will be made on 30 June.

Ms Lagarde soon emerged as a successor to Mr Strauss-Kahn shortly after the news broke that he had been arrested on charges of sexual assault. She has gained wide support among European governments, including the UK, and has visited China and India to try to widen her backing among the fast-growing emerging economies. The signs are that she has succeeded in doing so.

By convention the top job at the IMF is reserved for a European candidate, with the presidency of the World Bank going to an American. However, in recent years there have been calls to end that practice, and open the role to someone from the rest of the world. Despite some recent reforms, though, the US and Europe command the bulk of the voting rights at the fund, and are demonstrably keen on securing the job for Ms Lagarde. The IMF's 24 strong executive committee, which will shortlist and choose the candidates on behalf of the Fund as a whole, is also dominated by the established advanced economies. Mr Carstens said this week that said Europe was unwilling to give up its favoured position: "Europeans are not acting in that way... Even before we have a final list of candidates, they have made up their minds."

While the fund's articles of association say the managing director's job will be voted on, the successful new chief will be nominated by consensus.

But Ms Lagarde has issues of her own. A French court has put off until 8 July a decision on whether to open a formal inquiry into Ms Lagarde's role in a controversial 2008 arbitration.

The delay means allegations by opposition MPs that Lagarde abused her authority in approving a €285m (£253m) payout to Bernard Tapie, a businessman friend of President Sarkozy, will complicate her bid.

She has denied any misconduct in the affair and said yesterday that if an inquiry does go ahead she would only be called upon as a witness and would not have to defend herself in court.

On policy, allies of Ms Lagarde argue that she has the contacts and knowledge to deal with the most pressing issue facing the fund, the sovereign debt crises in the eurozone. Critics claim that the European crisis requires a fresh, objective set of eyes unafraid to recommend radical solutions.

If Ms Lagarde does make it she will be the first female head of the IMF, the fourth French one and one of the least experienced on economic policymaking. An employment and competition lawyer by background, this 55-year-old will enter office with plenty of goodwill behind her, but with the most challenging times in the fund's history in front of her.

Apart from the recurring crises in Europe she will also have to co-ordinate international efforts to end the "global imbalances" such as the US-China trade gap, improve banking regulation and expand the fund's role in warning of future problems, as the word's financial "early warning system".

Ms Lagarde has won a reputation for brokering deals under pressure, overcoming Chinese resistance to the use by G20 governments of indicators to measure global imbalances, and easing German fears over the creation of a eurozone bailout mechanism. On Greece and the other issues there seems little sign that her reign will bring in sharp changes in approach.