Nations need Lagarde’s leadership at IMF

On Monday, France’s Law Court of the Republic, a special court established solely for the prosecution of ministers, found International Monetary Fund Managing Director Christine Lagarde guilty of negligence for actions and omissions taken while Finance Minister almost a decade ago.

 In spite of the ruling, the court declined to impose a penalty. The verdict raised the possibility that a year of establishment upheavals might carry into 2017.

Hours later, however, the IMF’s executive board, which represents the Fund’s member countries, reaffirmed its “full confidence” in Lagarde, praising her “outstanding leadership”, citing their respect and trust in her.

The board avoided even the explicit mention of the actual verdict, alluding instead to “recent developments in the legal proceedings in France.”  It was right to do so. Her conviction in a French political court over a domestic political dispute should not derail the efforts of one of the world’s few true leaders with a proven track record of success.  

As managing director for the past five years, Lagarde has been a ubiquitous presence on the world stage. Her aura of confidence and competence has provided a reassuring calm amidst global crises and economic uncertainty.  

{mosads}With the world veering dangerously towards nationalism, populism and skeptical of the benefits of multilateralism, Lagarde’s leadership stands out as a model of independence, competence and integrity. 

The first woman to lead the IMF, Lagarde successfully restored the its credibility following the scandal that forced her predecessor, Dominque Strauss-Kahn, to resign. Her tenure has been marked by an enhancing of the IMF’s role, both as a global lender of last resort and as an economic policy leader.

Lagarde accelerated the IMF’s evolution from the rigid orthodox protector of the so-called “Washington Consensus” to a nuanced economic approach that takes into account new areas of consideration.

Among her initiatives has been a greater emphasis on the economic benefits of women’s empowerment. Lagarde has also helped explore spillover impacts of one country’s decisions on its neighbors and how to balance the rights of individuals, institutions, countries and private creditors in distressed, over-leveraged countries.  

Lagarde has personified global leadership at a time when such qualities have been in short supply. A lawyer, not a trained economist, Lagarde’s tenure has been characterized by a fine balance between hardcore economics and political reality.

Even among those who disagree with her, there has been a sense that Lagarde has been an honest broker, attempting to re-establish equal treatment for countries from regions outside the European continent.

While controversial and unpopular in Greece, Lagarde’s approach to the troubled EU member reflects a far greater adherence to established IMF policy than was the case when she took on the director role.

No longer is the IMF under siege for subordinating its policies to political pressure from European partners. Instead, the IMF has been criticized for adhering too closely to those policies, protecting the integrity of its resources, and for not allowing traditional political pressures to influence its decision-making.

Such behavior would be to the detriment of the people bearing the costs and pain of economic adjustment. 

When the IMF enters into a financial program for a member country in economic distress, its presence is supposed to catalyze market confidence that the country’s economy will be put back on track. This, the theory goes, should provide reassurance to investors, making them more willing to open capital market access for that country.  

Upon taking the helm of the IMF, Christine Lagarde found an institution that had very low credibility with markets and member countries. Instead of catalyzing confidence, an IMF program raised questions with investors unsure if they were worse off as a result of IMF involvement.  

Under Lagarde’s leadership, the IMF has regained stature and has largely returned to serving as a positive catalyst for markets and countries.   

Had the IMF executive board provided anything less than its unqualified support, there would likely have been continuing questions about her standing and ability to speak for the institution. Ministers and markets might well have found her weakened and her credibility no longer indisputable.

The IMF’s ability to speak as an independent economic expert agency would be susceptible to political challenge. The stain on Lagarde’s previously unblemished record might still give IMF antagonists some support. More likely, however, the board’s support will allow her and the institution to move on largely unscathed. 

Since its inception, the IMF has been led by a managing director from Europe. This practice originates from a tacit agreement between the U.S. and the EU that European leadership at the IMF is mirrored by U.S. leadership at the IMF’s sister institution — the World Bank.  

Over the past decades, the rise of emerging markets outside Europe and the U.S. has led to increasing pressures to seek merit-based leadership at both agencies, regardless of nationality. In spite of these pressures, Lagarde was re-appointed to a second term last year without opposition.  

Had she not been re-appointed, a new selection process, especially one that took place without adequate diplomatic preparation, would have likely exposed deep national frictions and posed a risk of international instability.  

A new search would likely have resulted in an ugly leadership battle between member states unable to put aside national differences and agree on a successor. This, in turn, would lead to potential paralysis of the IMF’s ability to fulfill its role as stabilizer of the global economy.

A de facto leaderless IMF would have been particularly dangerous as the world enters an uncertain 2017 with heightened global trade, economic, financial and political risks.   

There will be those who see the board’s decision to support Lagarde as the establishment simply protecting one of their own.  But, in providing a strong and unambiguous voice of support for her leadership role, the IMF’s executive board provided markets, member countries and the institution itself with a vote for stability over politics.  

Rather than letting a domestic French political battle sidetrack the recent progress made by the IMF and its leader, the board’s support could provide welcome closure to any lingering uncertainty.  

What could have been a destabilizing event will now be little more than a footnote in the history of the IMF archives. When the board said that they, “look forward to continuing to work with the Managing Director to address the difficult challenges facing the global economy,” it was not simply hyperbole.  

Lagarde has inspired the confidence and trust of countries around the world and for good reason. Her continuing leadership will benefit everyone. 

Douglas Rediker is a Non-Resident Senior Fellow at the Brookings Institution. He previously represented the U.S. on the Executive Board of the IMF.

The views expressed by contributors are their own and not the views of The Hill.