The backstage maneuvering behind the recent selection of Christine Lagarde as managing director of the International Monetary Fund became apparent today with her nomination of senior American and Chinese officials as two of her top deputies.
The move largely preserves the status quo of European and U.S. leadership at the fund while laying down a marker for enhancing the influence of emerging markets countries in the future.
Lagarde proposed the appointment of David Lipton, a senior economic advisor to President Barack Obama, as the fund’s first deputy managing director, her effective No. 2. She also proposed naming Min Zhu, a former top official of the People’s Bank of China who currently serves as a special adviser to the fund, to a newly created fourth deputy managing director post. The other two deputy positions are currently held by Naoyuki Shinohara of Japan and Nemat Shafik, an Egyptian and U.S. national
Both men appeared Tuesday before the IMF’s executive board, the body that will ratify the appointments, but the moves were almost certainly agreed upon earlier by national capitals as part of the deal that installed Lagarde as successor to Dominique Strauss-Kahn last week.
Several emerging markets countries had protested Lagarde’s candidacy, seeing it as a continuation of the longstanding duopoly whereby Europe named the fund’s managing director while the U.S. controlled the No. 2 post and held an all-important veto. But Mexico’s Central Bank governor, Agustín Carstens, who campaigned openly as a voice for the world’s emerging economic powers, failed to win the backing of BRIC nations, much less Europe or the U.S.
The simple fact of the matter is that major countries weren’t politically ready to pass the leadership baton at the IMF, the effective steward of the global economy. Emerging market countries with their radically different histories, political systems and cultures are not a coherent bloc, and Europe was never going to surrender the MD position at a time when the IMF was propping up the euro zone with unprecedented bailouts. The real battle will come in a few years’ time, presumably over Lagarde’s successor. One of the new MD’s top priorities, which she pledged to win backing from China and other emerging countries, is to get member countries to ratify already-agreed governance changes that will strip Europe of two of its nine seats on the IMF board.
In naming Min as a deputy managing director, though, Lagarde is making a significant nod to the growing might of China, and emerging markets generally. Min is one of Beijing’s most-seasoned international policy experts. He ran the central bank’s research and international affairs department as a deputy governor, and is well-known globally, having spent six years as a senior official at the World Bank before Strauss-Kahn named him as a special adviser two years ago.
Min runs the fund’s annual spring and fall meetings and has been instrumental in making them more topical and interactive with policy sessions involving top officials and academics – a kind of mini-Davos. As a deputy managing director, he will be the most senior Chinese official at a major international financial institution.
Lipton, a special assistant to President Obama and senior director for international economic affairs at the U.S. National Economic Council and National Security Council, is also a well-known quantity. The Harvard-trained economist spent eight years on the IMF staff in the 1980s and served as a senior U.S. Treasury official under former secretaries Robert Rubin and Lawrence Summers in the 1990s, including playing a key role in responding to the Asian financial crisis in 1997 and ’98. Lipton also has private-sector experience. Before joining the Obama administration, he was head of global country risk management at Citigroup. Prior to that, he worked as an economist at Moore Capital Strategy Group, an arm of the hedge fund group. Usefully, one of his former Moore Capital colleagues is Klaus Regling, the German head of the European Financial Stability Facility, the €440 billion EU bailout vehicle that works closely with the fund.
Lipton will replace John Lipsky, a former JP Morgan Chase & Co chief economist who is stepping down but will remain as a special adviser to the IMF through the G-20 summit meeting this November.
