Despite being unable to come together to back a single candidate for the top job at the International Monetary Fund (IMF), emerging economies, particularly those in Asia, will expect much from its new managing director, Christine Lagarde.
Given the rhetoric surrounding her visit to India and China in the run-up to her election, along with her appearance at the Asian Development Bank’s annual meeting in Vietnam earlier this year, Asia’s rising economies will hope Lagarde delivers on her promise of giving them greater influence at the IMF’s highest levels.
Just hours after her appointment yesterday, Singapore’s deputy prime minister and finance minister, Tharman Shanmugaratnam, said there was a need to continue the “reforms to the governance of the Fund, so as to reflect the evolving balance in the global economy and financial system”.
“This includes securing full implementation of the 2010 reforms and pressing ahead with the review of the quota formula that will commence before the annual meetings in September this year,” added Shanmugaratnam, who is also chairman of the International Monetary and Financial Committee at the Fund.
Lagarde, the first woman chief of the IMF, will have to contend with the demands of developing nations to have a greater say in governance of the global lender. India and China have called for an increase in their quota at the body, to fairly represent their growing economic clout. Each IMF member-country is assigned a quota, broadly based on its relative position in the global economy, which determines not only its maximum financial commitment to the Fund but also voting power and access to financing.
China’s central bank said it hoped Lagarde would “continue to promote the reform of the IMF” and “enhance the representation of emerging markets and developing countries in the IMF’s governance”.
The Asian Development Bank (ADB) — its chief, Haruhiko Kuroda, had publicly backed Lagarde — said it looked “forward to continuing to work with the IMF under its new leadership and strengthening our partnership in the Asia and Pacific region”. The new IMF chief was also, till now, the ADB governor for France.
Although the status quo, in terms of having a European head at the Fund, has been maintained, Charles Adams, a former assistant director at the IMF’s Regional Office for Asia and the Pacific, expected Lagarde to face “major challenges” from the region.
“On the surface things look very smooth, but under the surface they are different. Asia, for a long time, has been calling for greater representation in the IMF and an open transparent process (for the selection of the managing director). But essentially, we haven’t moved that far away... Behind the scene, Lagarde will have a little bit of a battle,” Adams, currently a visiting professor at Singapore’s Lee Kuan Yew School of Public Policy, told Business Standard.
At the same time, Lagarde’s handling of the European debt crisis would reveal how much she would abide by her stated intention of being impartial to the region, which continues to be the IMF’s biggest borrower.
“There is a concern in Asia that Europe is treated differently, with a light touch,” said Adams, adding that if Lagarde were to pour IMF money into Europe, it could send the wrong signals to other constituencies. “She must go beyond her words. Actions have to be there.”
