Lagarde strengthens IMF bid with Indonesia backing

JAKARTA/CAIRO Sun Jun 12, 2011 7:14pm EDT

1 of 2. French Finance Minister Christine Lagarde talks during a news conference in Cairo June 12, 2011.

Credit: Reuters/Asmaa Waguih

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JAKARTA/CAIRO (Reuters) - French Finance Minister Christine Lagarde stretched her lead in the race for the IMF's top job on Sunday when Indonesia became the first big developing economy to back her publicly.

An 11th-hour challenge from Israel's respected central bank chief Stanley Fischer, announced on Saturday, looked a long shot. Israel's finance minister conceded that the politics of the succession battle did not favor the IMF's former number-two official.

Indonesia, like many emerging economies, was previously non-committal about its choice for the next boss of the International Monetary Fund as Southeast Asian capitals discussed whether to put forward a candidate from the region.

Lagarde has secured the support of the European Union plus a handful of smaller countries but needs to secure backing from bigger emerging economies. On Sunday, she won a personal message of approval from her opposite number in Jakarta.

"Personally I support France," Finance Minister Agus Martowardojo said at an economic forum in Jakarta. "She is a very professional person. She is smart in interacting between institutions, and has high integrity and skills."

Several large emerging economies have been critical of the longstanding tradition of the IMF being led by Europeans.

But they have refrained from backing Mexican central bank governor Agustin Carstens, the only well-known challenger from an emerging economy until Fischer's announcement.

The French finance minister, who is on a world tour to drum up support, said during a Sunday stop in Cairo she had got "very affirmative" support from Egypt.

In a further boost for Lagarde, the United Arab Emirates declared its support for her on Sunday.

FISCHER'S SURPRISE MOVE

The search to fill the top job at the world's main rescue-lending agency began after Frenchman Dominique Strauss-Kahn resigned in May, charged with the attempted rape of a New York hotel maid, which he denies.

The move by Fischer was a surprise. At 67, he is two years past the age limit for applicants and the IMF would have to change those rules for him to stay in the race.

Seeking to capitalize on respect for his work as a deputy IMF managing director between 1994 and 2001 and as a former World Bank chief economist, Fischer played up his expertise advantage over Lagarde, a former corporate lawyer who does not have a formal economics background.

Fischer told the Wall Street Journal that when serious economic problems arise, IMF staffers often offer conflicting advice. "Without having that training, it's very hard to know, who's right and who's wrong. You have to have a framework to think through the problems."

Earlier on Sunday, Israeli Finance Minister Yuval Steinitz said Fischer's "chances are not great" due to politics and his age. "Were it purely professional one would be hard pressed to find a better person than Fischer," Steinitz told army radio.

Fischer was born in Zambia and holds both Israeli and U.S. citizenship. The former could pose a problem for Arab countries and the latter because the IMF job normally goes to a European on the grounds that a U.S. national already gets to fill another post, the top job at the World Bank.

Fischer's IMF record may also be questioned in Asia, where he remains associated with harsh IMF-backed austerity measures and free-market policies that several countries in the region were forced to adopt in the late 1990s in return for aid to counter a financial crisis -- including Indonesia.

The IMF board is due to choose the next managing director by June 30. The United States and the European Union hold almost enough votes jointly to choose the winning candidate.

Nonetheless, Lagarde's ability to clinch support from large developing countries is vital. In 2000, the Clinton administration blocked Germany's Caio Koch-Weser after his bid for the IMF top job failed to get broad support beyond Europe.

One potential pitfall for Lagarde is an inquiry in France into her role in a controversial compensation payment to a French businessman. Lagarde has said she has no concerns about the case.

Whoever runs the IMF may end up with more than the world's large post-recession debts to worry about, after revelations that the Washington-based IMF's sensitive databases and economic information archives may have fallen prey to cyber hackers.

CANDIDATES CRISS-CROSS GLOBE

Lagarde's latest campaign stops included Saudi Arabia on Saturday. Mexico's Carstens visited New Delhi on Friday and is due to visit Washington on Monday.

Big emerging economies such as China, India, Brazil and South Africa have demanded that Europe relinquish its 65-year grip on the IMF's top job, which should go to whoever is the best qualified candidate. But so far, only a few smaller developing countries have backed Carstens.

"There is not the capacity to build consensus among the emerging market nations behind one candidate, irrespective of who that person is, and besides that the Europeans feel very strongly," said Ian Bremmer, president of political risk consultancy Eurasia Group.

"I think it's virtually impossible to unseat Lagarde at this point."

(Additional reporting by Aditya Suharmoko and Olivia Rondonuwu in Jakarta; Steven Scheer in Jerusalem and Tova Cohen in Tel Aviv; Writing by Brian Love and William Schomberg; Editing by Matthew Jones and David Lawder)

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