New IMF chief, old rules of the game

It's not a done deal that a European will replace Dominique Strauss-Kahn as head of the IMF, but if Christine Lagarde formally threw her hat into the ring, my understanding is that her candidacy would be hard to beat.

As I said on Today this morning, it's awkward for the Europeans and the US because this time was supposed to be different.

The rise of the G20 and the reorganisation of votes in the World Bank and IMF to give more power to the Bric countries (Brazil, Russia, India and China) was supposed to come with a more "open" and "merit-based" approach to hiring the heads of these global institutions. And "open" in this context was supposed to mean "not European".

Image copyright AFP
Image caption Christine Lagarde is seen as a leading candidate for the IMF's top job

That is the message of a letter sent to G20 colleagues by the Brazilian finance minister yesterday, in effect, warning against a stitch up by the US and Europe. The emerging world can also point to several strong candidates for the job - such as Agustin Carstens, the Mexican Central Bank governor who has spent a good chunk of his career in Washington, and Kemal Dervis, the former Turkish finance minister and UNDP chief.

But the reform of the voting system has not done anything to prevent the US and Europe forming a blocking majority. If Europe can get the Americans on their side, then another European will replace Mr Strauss-Kahn.

Though they are sensitive - rather more sensitive - to the demands of the emerging world, the Americans also have to be sensitive of the fact that Congress will not continue to support the World Bank if America loses the top job there. The US is unlikely to get European support for another American to replace the current World Bank president, Bob Zoellick, if America refuses to back a European for the IMF now.

All of which is to say, we have all the ingredients of another stitch-up. But this time, the Europeans do at least have practical necessity on their side as well as an undeserved but traditional sense of entitlement.

When people talked about an "open and transparent" process two years ago, the IMF didn't have three active programmes in Europe.

Possible IMF successors

IMF frontrunners

There is a range of possible contenders for the top job at the International Monetary Fund. Find out about some of them

Christine Lagarde

Christine Lagarde

French finance minister


French Finance Minister Christine Lagarde, 55, looks like the leading candidate with backing from France, the UK and Germany. A flawless English speaker, she was voted best finance minister in Europe by the Financial Times in 2009. However, her nationality may count against her as several IMF chiefs have been French.

Agustin Carstens

Agustin Carstens

Governor Bank of Mexico


Mr Carstens, 52, is to be nominated by the Mexican finance ministry. He has spent most of his career as an economic policymaker in his home country, becoming governor of the Bank of Mexico in January 2010 after previously serving as the bank's chief economist. He had a successful stint at the IMF from 2003 to 2006.

Trevor Manuel

Trevor Manuel

Ex Finance minister

South Africa

Mr Manuel, 55, is well-respected in global financial circles, having served as finance minister of South Africa from 1996 to 2009. Born in Cape Town under apartheid, he was imprisoned repeatedly by the South African government for political activities in the late 1980s. He has yet to announce his intention to run.

Tharman Shanmugaratnam

Tharman Shanmugaratnam

Finance minister/deputy prime minister


The 54-year-old has been the country's finance minister since 2007 and on Wednesday added the new job of deputy prime minister. With degrees from the London School of Economics and Harvard. He recently became the first Asian to hold the post of chairman of the IMF's policy advisory committee.

Montek Singh Ahluwalia

Montek Singh Ahluwalia

Economic adviser to India's PM


Mr Ahluwalia, 67, is an influential economic adviser to Indian Prime Minister Manmohan Singh and has been a key figure in the country's economic reforms from the mid-1980s onwards. He supports open markets and has pushed the government to end fuel price controls and remove barriers to foreign business. His age may count against him.

Peer Steinbrueck

Peer Steinbrueck

Former German finance minister


Mr Steinbrueck, 62, is a long-shot to become IMF chief, in part because he alienated allies of Germany with his fiery rhetoric while serving as finance minister in conservative Chancellor Angela Merkel's "grand coalition" from 2005 to 2009. He also alienated the United States by openly blaming it for the global financial crisis.

Axel Weber

Axel Weber

Former head of Bundesbank


Mr Weber, 54, stunned Europe by announcing in February that he would be stepping down early from his post as head of the German central bank, the Bundesbank. Like Mr Steinbrueck, Mr Weber has a reputation as a loose cannon. Both Germans' chances may have been sunk by their government's support for Ms Lagarde.

Gordon Brown

Gordon Brown

Former UK Prime Minister


The 60-year old former UK prime minister and finance minister has long been seen as a candidate for the IMF job or another big international financial post. But his successor David Cameron - whose support he would need - has dismissed him as a "deficit denier", adding that it was time to look beyond Europe.

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As I said on Monday, the international community were preparing to find a replacement for Mr Strauss-Kahn anyway, when and if he had decided to run for president in France. In that sense, his shocking arrest is more important for France than for the IMF or the crisis in the eurozone. But, even if his exit was broadly anticipated, it still leaves a massive hole.

The past two years have confirmed that eurozone leaders don't have good mechanisms for coming up with solutions to crises - and those that they do have tend to move very slowly.

Frenchmen have traditionally made good IMF chiefs. (All the duff ones, in recent years, have been from other parts of Europe.) But even by past standards, Mr Strauss-Kahn was exceptional, and exceptionally well-suited to the time.

There are lots of people inside the Fund who can speak the language of current and capital account crises and fiscal adjustment. There aren't so many - inside or outside the institution - who can do that while also speaking the language of European politics and engaging, as an equal, with European leaders. Mr Strauss-Kahn could do all that at a crucial time.

President Sarkozy will perhaps be relieved to have Mr Strauss-Kahn out of the way. But the French are just as spooked by the financial crisis as anyone else, and he has his work cut out winning the trust and respect of German Chancellor Angela Merkel.

Would it help him, or the eurozone, to have Christine Lagarde at the IMF? Quite possibly. She has the gravitas and experience at the top table which other candidates - including Philip Hildebrand, the Swiss central bank governor the Germans are thinking about supporting - do not have.

To return to where I began - the emerging market economies will put up a strong fight, but under the circumstances a Lagarde candidacy would be hard to stop. And the fact that she's a woman doesn't hurt one bit.

Update 14:50: Axel Weber's name is doing the rounds as Chancellor Merkel's preferred candidate for the IMF job. Having spent the past two days talking to European officials in Brussels, my sense is that she is not thrilled by the idea of Lagarde taking the job, and has been persuaded that Axel Weber is the only person with a CV that stands comparison with the French finance minister's.

As I said earlier, the Swiss central banker, Philipp Hildebrand, has some support in Germany, and he is well known in Washington circles. But he is young and relatively untested, and might not be helped by his time in New York at the hedge fund, Moore Capital.

Axel Weber is more of a heavyweight, who has been a familiar figure on the international financial circuit for many years as head of the Bundesbank. He also, from Germany's perspective, has the advantage of being a traditionalist when it comes to little matters like inflation and budget deficits. If you think the IMF needs a firm hand on the purse strings after a period of throwing a lot of money at the financial crises, Weber is the man for you.

But, even with these advantages, Chancellor Merkel knows that Axel Weber would be a very hard sell, and not just to the emerging market economies who want a non-European. Weber is somewhat lacking in diplomatic skills and inspires a lot of mixed feelings in Washington - especially when compared with Lagarde.

If Merkel knows she can't win, experience suggests she will not want to publicly put her weight behind Weber. But the Americans are sensitive to Germany's feeling that France has had the job too often - and there is bad blood on this issue dating back to the late 1990s, when the Americans blocked Germany's first choice for the job.

All of which is to say... this is still very much up in the air.

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