The IMF Needs More Lagarde

Christine Lagarde has said she is open to serving another five-year term as Managing Director of the International Monetary Fund. She should get it. The IMF has never had better leadership, and its board of directors should give her the chance to finish the work she has begun.
When Lagarde took the helm in July 2011, she inherited an institution in crisis. The global financial meltdown in 2008 and its economic aftershocks had discredited Western-led multilateral lenders and the free-market “Washington Consensus.” Lagarde’s leadership has helped to restore the Fund’s reputation.
Much attention is paid to her personal qualities – and rightly so. She is frank, forceful, warm, and engaging. In country after country, officials with whom she has met, often under delicate circumstances, describe her as both a teller of difficult truths and a sensitive listener. These are important qualities for the leader of an institution that must negotiate, rather than dictate, terms of agreement.
The Europeans did not like it much when Lagarde told them their banks needed to be restructured or that they needed to build a firewall to protect against financial contagion – but they did it. Likewise, she made tough calls on providing IMF support to countries – for example, Greece, Pakistan, Tunisia, and Ukraine – that are crucial to global stability.
And there’s much more. The Fund is not often associated with creativity and compassion. Lagarde has begun to change that. In the process, she has provided a human face for an institution often associated with the prescription of bitter medicine.
Helping to manage the Middle East’s refugee crisis, for example, is not an expected part of the IMF’s mandate. Yet, under her leadership, the Fund adjusted a program so that Jordan’s government could spend more to help those displaced by conflict in Syria and Iraq (more than a million of whom are housed in camps within its borders).
Similarly, when Ebola struck West Africa in 2014, Lagarde directed the IMF to use its available cash to buy debt relief for countries in crisis, which enabled them to pay more doctors and nurses – the first-ever such use of IMF capital.
In addition, Lagarde has identified, and acted on, three of the most important challenges facing today’s world. First, she has been both a forceful voice for the introduction of more women into the workforce and an exemplar of the value of having women in leadership positions. In countries as different as Saudi Arabia and Japan, she has urged leaders to stop wasting so much human talent – and thereby realize their economies’ potential.
Second, under her leadership, the IMF has also addressed the broader question of income inequality. This is not simply a question of basic fairness. The Fund’s research has highlighted the direct link between narrowing the gap between rich and poor and higher economic growth. The IMF is not the first to make this case, but its stature gives the issue greater prominence and urgency. Lagarde’s personal commitment to driving home this point has been essential to advancing the argument.
Third, Lagarde has done important work in helping the world begin to understand the full implications – some of them frighteningly destabilizing – of technological change.
For example, automation will continue to make manufacturing more efficient and less costly, but it will also ensure that economic growth generates fewer jobs than in the past. The political, economic, and social consequences of this emerging reality deserve recognition and serious study. Lagarde has brought the IMF into the center of that work.
Critics will say that it’s time for an IMF head who represents the developing world. Lagarde is, after all, the 11th consecutive European to hold the post, a privilege that has become hard to justify in today’s world. Others will say that the failure to recognize the full effects of IMF-endorsed austerity on Greek citizens proves that she is out of touch with ordinary people. Still others will argue that the charges she faces in connection with a financial scandal in France will distract her from IMF business. After the ugly scandal surrounding Dominique Strauss-Kahn, her predecessor at the Fund, the Fund, critics will insist, can’t afford such a distraction.
Let’s take these objections one at a time. The IMF (and the World Bank) should welcome leadership from beyond Europe and the United States. But the purpose of ending this Western privilege is to make the leadership selection process one that is based on merit, not political considerations. Lagarde is the best candidate for the job, and emerging powers like the BRIC countries (Brazil, Russia, India, and China) have not united behind an alternative. The leadership of a European managing director probably facilitated the IMF’s decision late last year to add China’s renminbi to the basket of currencies underpinning its Special Drawing Rights.
In addition, Lagarde displayed impressive political dexterity in finally persuading Republicans and Democrats in the US Congress to pass governance reforms that not only bolster the IMF’s firepower to fight financial crises, but also more accurately reflect changing global economic dynamics. The BRIC countries, for example, are now among the IMF’s top ten shareholders.
On Greece, Lagarde made some characteristically blunt – some would say clumsy –comments last year. But she is not near the top of the list of those responsible for the economic pain endured by Greeks, and her tenure at the IMF makes abundantly clear that no managing director in history has done more to lead the Fund in efforts to alleviate the suffering of people in crisis.
Finally, the French charges against Lagarde were filed over the objection of the country’s prosecutor-general, and her involvement in the case appears tangential at best.
The world badly needs a leader dedicated to making the world a safer and more prosperous place. Lagarde has shown that she is such a leader, committed to making the IMF fit for the twenty-first century. She deserves the chance to finish what she started. - Project Syndicate