U.S. Treasury Secretary Timothy F. Geithner says France’s Christine Lagarde and Mexico’s Agustin Carstens are both qualified to run the International Monetary Fund. He may have little choice but to support Lagarde.

Under an unwritten agreement that dates back to the end of World War II, the IMF has always been led by a European while the World Bank has been headed by an American. Backing a non- European for the IMF could mean relinquishing U.S. control of the World Bank -- an outcome members of Congress who decide on funding for development banks are not ready to contemplate.
“For the sake of influencing policy and lending, as well as maintaining congressional support, it is very important that the World Bank continue to be led by an American,” Representative Nita Lowey of New York, the top Democrat on the House Appropriations Committee panel that oversees foreign-aid spending, said in an e-mail. Congress has yet to approve the Treasury Department’s $3.4 billion international aid budget for next year, which includes funding for the World Bank.
“We would like to see the U.S. continue to play and have a leadership role in these institutions,” Representative Robert Dold, an Illinois Republican and vice chairman of the Financial Services Committee panel that oversees development banks, said in an interview.
The World Bank, headed by former U.S. Trade Representative Robert Zoellick, finances projects in developing nations, including $1.5 billion in loans to help improve India’s rural roads last year. The IMF provides emergency loans to countries in financial distress, committing about $105 billion in aid to Portugal, Greece and Ireland. The U.S. also controls the No. 2 job at the IMF, now held by John Lipsky, a former JPMorgan Chase & Co. executive.
--------------’Very talented’
Geithner on May 25 said Lagarde, the French finance minister, and Mexican central bank Governor Carstens are both “very talented” candidates to replace Dominique Strauss-Kahn at the IMF. He also said the U.S., the fund’s largest shareholder with 17 percent, will play a “significant” role in choosing a successor to Strauss-Kahn, who resigned after his arrest on charges of attempted rape and sexual assault.
“Congress is certainly watching this election process very closely,” Tim Adams, a former Treasury undersecretary and now managing director at the Lindsey Group, an investment consulting firm based in Fairfax, Virginia, said in an interview. “They will want to ensure that the U.S. representation at both the fund and the bank remain at its current levels.”
Lipsky’s position will also be up for grabs when his term as first deputy managing director ends in August, and the U.S. will probably get a guarantee from Europeans to keep the No. 2 post if Lagarde gets the top job, said Nancy Birdsall, president of the Washington-based Center for Global Development, an aid research group.
--------------Failing to coalesce
Emerging market leaders such as Brazilian Finance Minister Guido Mantega have questioned the division of leadership posts at the two agencies, saying the choice should be made on the basis of merit, not nationality. Yet emerging economies have failed to coalesce around Carstens or another candidate, while European nations have closed ranks behind Lagarde.
Candidates for the post also include Grigori Marchenko, chairman of the central bank of Kazakhstan. Countries have until the end of this week to nominate a candidate. The IMF has said it’s aiming to make a choice by June 30.
Geithner has pushed to increase the influence of emerging economies such as China and Brazil at the fund. On May 20, he said the U.S. will back an IMF leader who has “broad support” and stressed the importance of an “open process.”
The U.S. also supported having the Group of 20 nations replace the G-8 as the main forum for global economic coordination, in recognition of a shift in power from rich countries to emerging markets.
“The U.S. is certainly champion of reform of the system,” said C. Fred Bergsten, who heads the Washington-based Peterson Institute for International Economics in Washington. “On the other hand, the U.S. has its traditional interest in keeping the World Bank job for an American.”
The major development banks obtained capital increases from their shareholders after boosting emergency loans during the global financial crisis. The U.S. Congress has yet to approve $1.8 billion for the World Bank, the Inter-American Development Bank, the Asian Development Bank and the African Development Bank for coming years.
(Source: Bloomberg)