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For Lagarde, the Promise and Peril of IMF Continuity

Martin S. Edwards Wednesday, June 29, 2011

The public commentary on the International Monetary Fund's search for a new managing director to replace Dominique Strauss-Kahn consistently stressed the need for a non-European to be selected in order to relegitimize the IMF. Now that French Finance Minister Christine Lagarde has been named to the job, one could understandably expect the fund to slide into irrelevance. Whether this is the case, however, depends less on the actual selection process and more on how Lagarde handles the day-to-day operations of the fund once she takes over. Maintaining some continuity with the fund's Strauss-Kahn era, while breaking with it on Greece, may hold the key to boosting the IMF's legitimacy.

The case for pessimism is based on the idea that the BRICS countries -- Brazil, Russia, India, China and South Africa -- will disengage from the IMF, having seen their hopes for a non-European managing director dashed. Nothing could be further from the truth. Brazil, Russia, India and China contributed a combined $80 billion dollars to the fund's coffers in 2009 and have a vested interest in ensuring its pre-eminence. Though the BRICS countries do not need the fund to lend to them, they do need a strong IMF that will both smooth out economic crises and ensure reforms in the developed world. Disengagement would reduce their voice in the fund's operations, jeopardizing both their markets and their investments. ...

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