Carstens, the Mexican central bank chief, has the intellectual background, his track record is good and unlike Christine Lagarde, the French finance minister, he’s not conflicted by the EU’s woes. Carstens is the underdog, but global taxpayers should back him.
The IMF was too soft under Dominique Strauss-Kahn, the previous managing director now awaiting trial in New York.
Its $42-billion commitment to Greece is only the largest of several loans to countries that are struggling to undertake serious public sector reform.
Commitments to governments that can’t deliver reinforce failure in the short term.
In the longer term, they can make restructuring exercises more damaging for other lenders because debts owed to the IMF take priority, leaving less for everyone else.
As the 2008 crisis showed, if banking system losses are large enough the world’s taxpayers suffer.
Although Lagarde comes from a more theoretically pro-market tradition than the socialist Strauss-Kahn, in her four years as France’s finance minister she has failed to control the budget deficit, expected by The Economist’s forecasters to be 5.9 per cent of GDP in 2011, while France’s debt to GDP ratio was 84.2 per cent in 2010.
She has also been closely involved in the bailouts of Greece, Ireland and Portugal and would face extensive conflicts of interest if further rescues follow.
Carstens’ record in Mexico is more disciplined.
Mexico’s expected 2011 budget deficit is only 1.6 per cent of GDP, while Carstens has held the central bank’s overnight interest rate target at 4.5 per cent, above inflation.
Aside from having worked in Mexico’s finance ministry and at the IMF for a time, he also has formal economic training, something Lagarde lacks.
Lagarde seems to have more concrete support, but Carstens is trying to secure backing not only from emerging market governments that might prefer a non-European to head the IMF but also from other nations like Canada, where he visited on Tuesday.
He may not get the politicians’ nod in the end, but the taxpayers who fund them and the IMF would probably end up better off if he did.