BRICS’ stated position was that the election of IMF Managing Director should be merit-based, irrespective of nationality, and both Ms. Lagarde and Mr. Carstens lobbied for support visiting major emerging countries. But BRICs did not collectively sponsor a candidate. The United States moved in her favour once it was known that Ms. Lagarde had broad support from the Fund’s 187 member-countries including from emerging economies, notably Brazil and China.

US Treasury Secretary Mr Timothy Geithner said Minister Lagarde’s “exceptional talent and broad experience will provide invaluable leadership for this indispensable institution (IMF) at a critical time for the global economy. We are encouraged by the broad support she has secured among the Fund’s membership, including from the emerging economies”. Finance Minister Mr Pranab Mukherjee, on a visit to Washington, joined in extending greetings to her and spoke of “expectations” that under her leadership, the IMF would “ effectively and fairly deal with the serious challenges” for the global economy and carry forward the process of governance reforms. India looks forward to working with her in her new assignment, he said.

For her part, Lagarde has promised emerging nations to raise their profile in the Fund with the reform process under way. Ms. Lagarde (55), is the first woman to head IMF since its inception in 1944 and the eleventh European to hold that office, after the resignation of her countryman, Mr Dominique Strauss-Kahn, who steered the IMF through the global crisis and helped shape reform to give greater voice and representation to emerging and other developing nations to reflect their current weights in the global economy. These are due to come into effect after this year’s annual meetings of Fund/Bank in September.

After her election, Ms. Lagarde announced she would make it her “overriding goal that our institution continues to serve its entire membership with the same focus and spirit”, and that “it must be relevant, responsive, effective and legitimate, to achieve stronger and sustainable growth, macroeconomic stability and a better future for all”. She allayed concerns that she could be Euro-centric, having been strongly sponsored by the major euro powers, which made no secret of their keenness to have a European to head the Fund while they tackled the sovereign debt crisis in some countries threatening the stability of euro and the 16-member euro-zone itself.

”I am not here to represent the interest of any given region of the world, but rather the entire membership, in full accordance with the Fund’s mission as laid out in the Articles of Agreement” she had earlier told the Executive Board as a candidate. But Lagarde’s immediate attention would inevitably turn to the IMF-backed EU effort to keep debt-trapped Greek economy afloat. She urged the Greek Government to move quickly to push through the austerity measures and called on the political opposition to support the party in power “in a spirit of national unity”. Mass protests in Athens notwithstanding, Greece has voted the package to become eligible to draw fresh support.

As Finance Minister, Lagarde was a major player in negotiating the bailout for Greece in 2010 for a total of 110 billion euros, including IMF’s involvement. But Lagarde has remained opposed to any major restructuring of its debt (142 per cent of GDP) while the budget deficit is 10 per cent. Greece has sought a second bail-out from the rest of Europe and IMF possibly on the same scale as in 2010. IMF had only recently warned EU that failure to take decisive action could spread tensions to the core of euro area with spillover to global economy.

IMF, drawn into the looming sovereign debt crisis first in Greece last year, and later in similar fashion to assist fiscally-stressed Ireland and Portugal, had made lending commitments totaling 110 billion dollars till June 2011. Lagarde, given her political skills and expertise, would be taking care not to appear to be more of a manager of European problems than those of the world. She knows the Fund “has a lot on its plate” with an uneven world recovery, the reopening of global imbalances, potentially destabilizing capital flows, unemployment, rising inflation, and difficult country cases.

Priorities that await her in the Fund as she begins chairing the Executive Board are difficult policy choices needed to help global recovery, easing the euro area crisis and improving IMF legitimacy and effectiveness. Lagarde is also keen to ensure equal opportunities at the Fund and diversity in all its facets, gender-wise, academic and geographic and says ‘this is an area where progress will be achieved”. US has named its candidate for one of the three Deputy Managing Directors, usually held by Americans, while China expects its senior staff member in the Fund would be promoted.

Economists in Washington think-tanks feel emerging nations missed an opportunity to change the “old order” of European always heading the Fund. Mr Arvind Subramanian, a senior fellow at the Petersen Institute, said if China, Brazil and India and some others had thrown their weight behind Mr Carstens, US would have been in difficult situation to endorse Ms. Lagarde. Although the emerging nations lost this round, according to Mr Easwar Prasad at the Brookings Institution, Ms Lagarde’s victory may well turn out to be a good outcome for them, given her strategic and political skills.

Mr Prasad says as an immediate priority, Ms. Lagarde has to reset the IMF’s engagement with the debt crisis in Greece “in a manner that avoids a blow-up but doesn’t smack of favoritism”. After playing a key role in dealing with the European debt crisis earlier, “it remains an open question whether she can shed that baggage” and can take “a fresh and more objective perspective”. But her longer-term challenge is to rebuild the emerging markets’ trust in the IMF, firstly ensuring quick implementation of the agreed shifts in voting share and representation on executive board and, secondly, by pushing for more aggressive reforms to bring representation at the institution more in line with existing economic realities on the ground.

Ms. Lagarde will be called upon to address lingering threats to financial system stability and contain potential repercussions to the global economy and also strengthen multilateral surveillance of the Fund. IMF has just completed G-20-mandated Mutual Assessment Process for five major economies – China, EU, Japan, UK and USA – on how far these economies have progressed toward meeting the shared objectives of strong, sustained and balanced growth. At the Next G-20 Summit in Cannes under the French Presidency, IMF is also due to present “spillover” reports, based on indicative guidelines, for reduction of global imbalances. (IPA Service)