Newly appointed IMF chief may need to distance herself from Europe

Christine Lagarde may seek to distance herself from the Europeans who helped her win the International Monetary Fund’s top job amid pressure on the lender to toughen its response to Greece’s debt crisis.

Lagarde, 55, was chosen yesterday in Washington by the IMF’s 24-member executive board and will start on July 5. She was picked over Agustin Carstens, the head of Mexico’s central bank, and will replace Dominique Strauss-Kahn, who resigned after his arrest last month on charges including attempted rape.

After spending more than a year trying to contain Greece’s turmoil as French finance minister, Lagarde must now switch her allegiance to the 187-nation IMF, which has already lent $110 billion to cash-strapped European nations. As Greece struggles to meet conditions under the bailout, the Washington-based agency must impose stricter rules in exchange for funding and force Europe to accept some debt restructuring, said Eswar Prasad, a former official at the fund.

“A major challenge Lagarde will face at the outset is to manage the IMF’s involvement with Greece in a way that doesn’t cause a blow-up, but also doesn’t smack of favored treatment,” Prasad, a senior fellow at the Brookings Institution in Washington, said in an e-mail. “The IMF is a key player, but has in some ways been a bystander in assisting Greece,” he said, and it must now “take a more active role.”

European leaders have committed to a new three-year program for Greece to stave off default, including a voluntary debt rollover by banks, as long as Prime Minister George Papandreou pushes through a 78 billion-euro ($111 billion) package of budget cuts as early as today. While the IMF has pledged to provide a third of the bailouts in the region, it hasn’t acknowledged the need for a new one, asking Greece to first take its austerity steps and European nations to agree on their own funding plan.

Lagarde faces “an uphill struggle” to preserve the IMF’s impartiality on Greece, said Jerome Booth, who helps manage $47 billion of emerging-market assets as co-founder and head of research at Ashmore Investment Management in London. “If there’s no effective plan to get Greece to a sustainable debt position, then there’s no justification for further lending.”