Underdog candidate Carstens takes on IMF's European tradition
Mexico's central bank chief Agustín Carstens faces an uphill battle against French frontrunner Christine Lagarde, who this week is lobbying India, China, and Egypt for support.
Mexico city — Since launching a bid to lead the International Monetary Fund (IMF), Mexico's central bank chief, Agustín Carstens, has sparked debate about whether the fund's head should hail from an emerging nation and end more than 60 years of European dominance.
He's certainly an underdog, but after decades of Europe dictating the policies of IMF loan recipients in the developing world, his rise as a "champion" of new economies is reviving calls for the fund to better reflect global realities.
It is not the first time that a candidate from the developing world has vied for the spot, but calls this time are resonating, especially as Europe is mired in economic crisis and Brazil, Russia, India, China, and South Africa – the so-called BRICS coalition – are rising rapidly.
"I think today there is a different spirit in the air. Emerging markets know they are an increasingly dominant force in the economy," says Ousmene Mandeng, a former economist at the IMF now with the investment management company Ashmore Investment Management Limited in London.
Governance reform at the IMF is under way, and the fund is in the process of giving countries with growing economies more voting clout. And now, after former IMF head Dominique Strauss-Kahn resigned after being arrested on attempted-rape charges in New York, many see a chance to move beyond the so-called "gentleman's agreement" that has kept a European at the fund's helm while an American leads the World Bank.
Should Europe step aside?
The BRICS issued a statement condemning Europe's traditional stranglehold on the job as outdated and called on the fund to abandon "the obsolete unwritten convention that requires that the head of the IMF be necessarily from Europe."
Mario Blejer, former central banker of Argentina, says change at the top would be symbolically important, but also make sense. "Those economies have been more consistent," he says. "Mexico is doing better than Europe."
After World War II, the IMF primarily functioned as an entity for developed nations to borrow and lend money among themselves. After the system of fixed exchange rates collapsed in 1971, its role changed dramatically, becoming an institution of advanced economies that lent almost exclusively to developing countries.
The terms and conditions placed on those loans have been controversial in emerging markets, such as those in Latin America and Asia, and many countries that have seen dramatic growth complain that they still remain on the receiving end of the fund instead of setting policies.
Frontrunner Christine Lagarde
Efforts to change this, however, may be stymied this time. French Economy Minister Christine Lagarde is the front-runner for the IMF job, and Europe has rallied around her, saying it is crucial for the fund's chief to be well versed in the troubles facing the euro.
Vincent Truglia says those woes are why a European shouldn't be chosen. "Given all the problems Europe faces, the IMF should be headed by a non-European," says Mr. Truglia, former head of the Sovereign Risk Unit at Moody's and now managing director of global economic research at Granite Springs Asset Management in New York. "I don't think any European would be viewed as a fair broker."
Acknowledging that argument, Ms. Lagarde, who launched a diplomatic mission in Brazil, has touted herself not as the candidate of old Europe but of all the world. "If I was elected, I'd make sure that the diversity of members is represented at all levels," she told a press conference in Brasília.
Truglia, who has met Mr. Carstens several times, says he believes the Mexican bank chief is best suited for the job. Carstens has navigated the turbulent Mexican economy throughout his career. He was the secretary of finance in Mexico and served as deputy managing director of the IMF from 2003 to 2006. He earned his PhD in 1985 at the University of Chicago.
The emerging world has not rushed to support him. Instead of coming together to back one candidate, some nations may field their own former foreign ministers and central bankers. In India, Jayshree Sengupta, an economic analyst at the Observer Research Foundation in New Delhi, says many academics and leftists support the idea that "developing countries should definitely be represented so that it's not just a developed world cartel."
But India's position has been "lukewarm," says Ms. Sengupta. The government does not want to make a big point of it, she says, but seems to be taking the line that "maybe next time around we should have someone from the BRICS."
A BRICS candidate?
At the core of keeping an emerging country candidate from the post is the inability of those countries to form a cohesive bloc the way Europe has coalesced around Lagarde. There is the BRICS coalition, but it is a loose grouping of nations that share little ethnic or cultural similarities. Latin America has some regional bodies, but nothing that compares to the EU Commission, for example, or the Group of Eight.
The inability of the BRICS to back one candidate shows the limits of the emerging world to come together, says Oliver Stuenkel, assistant professor of International Affairs at the Fundação Getúlio Vargas, a leading business school in Brazil.
"Any candidate the [BRICS] chose would have had widespread support in the developing world," says Professor Stuenkel, "but they failed to do that, and it shows it is very difficult for the emerging world to find a common denominator."
China is not planning to field a candidate (French officials say China is supporting Lagarde).
"China is not ready," says Yi Xianrong, a financial affairs analyst at the Chinese Academy of Social Sciences, the country's top think tank. "We cannot present our own candidate to head the IMF … because China's financial system is still very young and a Chinese official would come up against a lot of practical issues he would not be able to deal with."
Candidates must be named before June 10, and the IMF says it will select a leader by the end of the month, aiming to do so through consensus but possibly through a vote. For Mr. Mandeng, the former IMF economist, Mr. Strauss-Khan's ouster is "an opportunity to reposition [the IMF] as a truly multinational institution … to re-earn the trust and reputation of being an impartial arbiter."