Behind the scenes at the IMF in Rio

  • 27 May 2011
  • From the section Business
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Christine Lagarde
Christine Lagarde is still likely to be the next head of the IMF

We're supposed to be talking capital controls at this IMF conference in Rio, but naturally, the battle for the leadership of the Fund has been a hot topic as well. The consensus on that subject is easier to summarise.

Everyone here: senior officials and economists from inside and outside the Fund, thinks that Christine Lagarde will be the next head of the Fund.

But they wish it wasn't so.

They don't like the symbolism of the job going to yet another French citizen; they worry that she will not be able to inject fresh thinking into the management of the eurozone crisis, and more than a few still harbour hopes of a last minute revolt.

That's not likely, but the fact it is even a possibility tells you how much the Europeans' approach to the question has alienated the rest of the world.

"For once, the Europeans have come together and acted quickly," said one exasperated participant, "and it's probably the one time when they would have been better off deliberating, letting Lagarde "emerge" as a candidate after paying due attention to other candidates from the rest of the world."

For once, Europe's talent for indecision might have served it well.

Stanley Fischer
There is some support for Israeli central bank chief Stanley Fischer

This man was not the only one who thought the Europeans had weakened their case for keeping control of the top job by seeming presumptuous. (Let's face it, by BEING presumptuous.)

The rest of the world would have to overwhelmingly agree on a competing candidate for someone else to have any chance of beating Lagarde. Will that happen? At this point, the chances seem very slight. Candidates such as Agostin Carstens, the Mexican central banker, have a lot of supporters, but no-one so far looks like gaining a lot of momentum.

But they can dream, and more than one I spoke to was dreaming of Stan Fischer, the former deputy managing director, who is now head of the Israeli central bank.

The way the fantasy plays out, there would be a major fight in the board over the decision, with Fischer then emerging at the last minute as the compromise candidate to break the deadlock.

Stan Fischer would be an extremely good choice: born and raised in Africa, he has friends across the developing world and, as a distinguished economist, he's both liked and respected within the Fund. He'd also be good at banging European heads together.

Unfortunately, the fantasy has little chance of coming true, not least because he has been a US citizen for much of his working life.

If he came in as number one at the Fund, the Americans would lose not just the number two slot at the Fund, currently taken by John Lipsky, but the job of running the World Bank as well.

The Americans like Stan Fischer a lot, but not enough to give up two senior posts in the international financial system in exchange for just one.

Which leaves us back where we started, with Lagarde as the likely next head of the IMF.

But if she does come in there will be a lot of bad blood around, which the Europeans may come to regret. If you think of the parts of the world that are most likely to need international goodwill in the next year or two, Europe would surely come quite high up the list.