France's Finance Minister Christine Lagarde, smiles during a press conference of France's President Nicolas Sarkozy at the Elysee Palace, Monday, June 27, 2011.Michel Euler/The Associated Press
The International Monetary Fund chose French Finance Minister Christine Lagarde as its next managing director, continuing the tradition of appointing a European to run the world's premier financial institution.
Ms. Lagarde, 55, benefited from the universal support of the members of the European Union, which maintain influence at the fund that is disproportionate to their reduced share of the global economy.
Public endorsements from China and the United States over the past 24 hours showed she had majority backing ahead of a meeting of the IMF's executive board on Tuesday to choose between two candidates for the post of managing director: Ms. Lagarde and Mexican central bank chief Agustin Carstens.
"The executive board agreed that both were well qualified candidates and the objective was to select one by consensus," the IMF said in a statement. "Based on the candidate profile that had been established, the executive board, after considering all relevant information on the candidacies, proceeded to select Ms. Lagarde by consensus."
There was little suspense in the announcement.
U.S. Treasury Secretary Timothy Geithner broke his silence on the campaign Tuesday morning, putting the weight of the IMF's largest shareholder behind his French counterpart.
"I am pleased to announce our decision to support Christine Lagarde to head the International Monetary Fund," Mr. Geithner said in a statement. "Minister Lagarde's exceptional talent and broad experience will provide invaluable leadership for this indispensable institution at a critical time for the global economy."
The United States controls 17 per cent of the IMF's voting shares. That makes the U.S. the only country with an effective veto because most major decisions require 85 per cent of total voting shares, or quota.
For a brief moment, there was a chance the IMF would be led by a non-European for this first time in its history. When former managing director Dominique Strauss-Kahn resigned last month to fight charges in New York of sexual assault, some observers said Europe's time had passed. The continent is struggling with a debt crisis, and the circumstances of Mr. Strauss-Kahn's departure were a blow to the fund's reputation and morale.
But European nations coalesced around Ms. Lagarde before the nomination process finished, giving her the backing of about a third of the votes at the IMF before the contest even began. Along the way, Ms. Lagarde picked up support from Egypt and some African countries. On Monday, China's central bank governor Zhou Xiaochuan indicated in an interview with Dow Jones in London that his country would back Ms. Lagarde.
"We are encouraged by the broad support she has secured among the Fund's membership, including from the emerging economies," Mr. Geithner said in the statement.
Europe, the U.S., China and Egypt control about 55 per cent of the votes on the IMF's board. Pan-African support would add another 4.8 per cent of the votes to Ms. Lagarde's tally.
Ahead of Tuesday's decisive board meeting, Mr. Carstens had received public backing from Australia, Canada and Mexico. Those countries control about 12 per cent of the votes. Notably, two big Latin American countries, Brazil and Argentina, opted against public endorsements of Mr. Carstens.
"I also want to commend my friend, Agustin Carstens, on his strong and very credible candidacy," Mr. Geithner's statement said.
Technically, the IMF's governing board is independent, but in practice executive directors do the bidding of the governments that dispatched them to Washington. So a surprise at Tuesday's meeting was possible, but extremely improbable. The board's agreement to select Ms. Lagarde by consensus, rather than a vote, was an attempt to avoid hurt feelings and any appearance of division.
Yet hurt feelings and division exist.
From the time of the IMF's creation after the Second World War, the U.S. and Europe have used their superior clout to dictate who controls the world's major economic institutions. With the backing the White House, a European has always controlled the IMF; in turn, the U.S. has used European support to select the No. 2 at the fund and the president of the World Bank.
The U.S. will deny it publicly, but many will characterize the decision to back Ms. Lagarde as an endorsement of the status quo. That rankles because the U.S. and Europe's leading countries are signatories of a two-year-old pledge by the Group of 20 nations to ensure the leaders of the world's financial institutions are chosen on merit, not nationality. It was widely assumed that the next leader of the IMF would be a non-European.
"Credibility will be her biggest challenge," said Wendy Dobson, a former associate deputy minister at the Canadian Finance Department who now leads the Institute for International Business at the University of Toronto's Rotman School of Management. "There is no question she is up to the job, but reaching out is going to be very important."
Ms. Lagarde knows this. She set up a Twitter account and visited Africa, Brazil, India and China to build support for her candidacy, promising not only to ensure emerging markets and poorer countries have a fair say in the fund's decisions, but also to get more of their nationals in the IMF's top jobs. Ms. Lagarde also emphasized her gender, stressing the symbolic value in selecting the first woman to lead an institution where 80 per cent of the managers are men.
"Diversity will strengthen legitimacy, but will also reinforce effectiveness," Ms. Lagarde said in a statement to the board last week before she was interviewed for the job. "This is an area where progress will be achieved, should I be elected."