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Lagarde faces quadruple challenge at IMF

Christine Lagarde's second term as manager of the International Monetary Fund (IMF) will be no more relaxing than her first. The French national already navigated a near-implosion of the euro zone. Now her challenges are fourfold.

First, low oil prices are pushing the more fragile energy-producing countries into the IMF's arms. Lagarde said on February 4 that help would be available if the likes of Nigeria and Azerbaijan needed it. At least such missions are well within the IMF's comfort zone. Second, a rout in emerging markets is spreading to developed ones. Rising borrowing costs add pressure to highly indebted countries, but the wisdom of prescribing endless rounds of austerity has been called into question since the financial crisis. New approaches may therefore be necessary.

Third comes unfinished business in Europe. The IMF won't lend Greece more money until its debt pile is slashed from 171 per cent of gross domestic product in the third quarter of 2015 to far more sustainable levels. However, it is supposed to monitor progress on austerity and reforms. Lagarde has also been pressing European countries to offer significant debt relief to Greece, the first advanced country to default on the IMF. More all-night summits could be on the cards before any of this is sorted out.

Then there is China. Lagarde banked credit with the world's second biggest economy after shepherding the yuan into the elite club of currencies that underpin the IMF's Special Drawing Rights. She now has to deal with the consequences. Lagarde has publicly said markets need more clarity about how China is managing its currency. Further gyrations in the yuan may force her to adopt a sterner line. Beijing can hardly be left to its own devices given its importance for the global economy. Yet since it won't need IMF financial assistance, the fund has little negotiating leverage.

Lagarde, a former lawyer, has already proven her talent as a diplomatic and indefatigable negotiator during the euro zone crisis. Big emerging economies backed her re-election, which suggests she has so far struck the right balance of offering advice without hectoring. These will be useful skills for her second term.