Responsive but tough

Lagarde/IMF: Christine Lagarde, the new International Monetary Fund boss, should prioritize toughness. Too often, the fund has lent to countries that can’t repay, only delaying and worsening the reckoning. The institution can have the “pivotal role” Lagarde wants while being less of a soft touch, saying “no” more and saying “yes” only on strict terms.

The IMF’s new tranche of loans to Greece, conditioned on a further austerity program passed by the country’s parliament on Wednesday, is a case in point. A rollover of debt and harsh fiscal constraints certainly buy time. But even if the latter prove politically sustainable, plenty of analysts think the Greek debt burden is simply too high and the only medium-term solution is a restructuring.

If that view proves correct, the IMF’s participation in successive bailouts will have served little purpose but to increase the ultimate losses for private sector investors, because the IMF will get its money back first.

It's a positive sign that Lagarde has talked about being more diligent about holding borrowers to the conditions of loans.

But she also needs to ensure the IMF is more disciplined about making loans in the first place. She wants the institution to show “relevance” and “responsiveness” to the needs of all 187 of its member-states. That shouldn’t mean the fund has to continue the over-generous policies that emerged under her predecessor, Dominique Strauss-Kahn. Rather, Lagarde should be ready to push back and avoid lending to lost causes.

Lagarde, most recently the French finance minister, has a background as a lawyer rather than an economist. Though she has pledged to act independently of French or European interests and represent all IMF members, she may face pressures that a free-market economist from an emerging country would find less troublesome. Still, she has the skills to navigate the political waters both inside and outside the IMF.

If the fund can spot fiscal basket-cases early and impose better policies on them in return for loans that make long-term sense, it can prevent huge amounts of economic destruction.

That is the right kind of “relevance” — but if it’s going to happen that way, Lagarde will have to want the IMF under her leadership to be respected rather than liked.