FACTBOX-Lagarde faces challenges as she takes IMF helm

Tue Jul 5, 2011 12:30pm EDT

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 July 5 (Reuters) - Christine Lagarde takes the reins of the
International Monetary Fund on Tuesday at a time of concern
over the European debt crisis, demands for more power from
developing economies, rising commodity prices and inflation
pressures in economies around the world.
 Following are challenges Lagarde, a former French finance
minister, will have to deal with in her first months as IMF
managing director:
 EUROPEAN DEBT CRISIS:
 Emerging market countries have urged Lagarde not to put too
much of her focus on Europe but her immediate attention will be
on working with the EU to ensure Greece does not default.
 European finance ministers approved a 12 billion euro
installment of Greece's bailout over the weekend. The IMF has
to approve its portion of the loan, which is about 3 billion
euros, and its board is expected to meet on July 8.
 Lagarde will have her hands full negotiating a second
bailout for Greece, which is likely to include additional IMF
funding. She will have to convince IMF member nations that
coming to the rescue of Greece again is vital for the world
economy. See upcoming important dates for Greece
[ID:nL6E7I30FI]
 She also faces the possibility of a second bailout for
Ireland if the country is unable to return to the markets as
planned in 2013.
 In another eurozone country, Portugal's new center-right
government has vowed to meet its IMF-EU bailout goals early.
 ECONOMIC SPILLOVER REPORTS:
 The IMF is set to release the first of several so-called
spillover reports this month looking at how policies of
systemically important countries affect each other. It will
start with the United States.
 The reports are part of a broader effort to strengthen the
IMF's policing of economies. Emerging market countries have
called for closer policy scrutiny by the fund of advanced
economies, which have often dismissed IMF advice in the past.
 One lesson from the global financial crisis was the fund's
failure to draw attention to reckless bank lending in the
United States.
 In the reports, the IMF will assess possible causes of the
surge in private capital into emerging markets. Countries such
as Brazil have blamed near-zero U.S. interest rates for fueling
speculative flows that are stoking inflation.
 MORE VOTING POWER FOR DEVELOPING COUNTRIES:
 The selection process for the managing director highlighted
an imbalance of voting power at the IMF that favors advanced
economies, with the United States and Europe together holding
nearly 50 percent of votes.
 Developing nations have long called for more say in the
institution. Voting reforms were approved in 2008 and 2010, but
developing countries argue they did not go far enough.
 Lagarde will have to show early on that she heard the calls
of developing countries for greater voting power, starting with
ensuring that reforms agreed in 2010 are implemented.
 She will also have to press ahead with a review of a
complex formula for calculating members' voting shares. The aim
is to simplify the methodology of the formula, which takes into
account such factors as the size of an economy, trade and
foreign exchange reserves.
 Despite what is likely to be Lagarde's focus on giving
emerging markets greater say at the IMF, she is unlikely to
stand in the way of a long-standing practice under which an
American holds the No. 2 IMF job.
 The current first deputy managing director, John Lipsky,
plans to step down when his term ends at the end of August.
Sources have said the United States is considering proposing
White House adviser David Lipton for the job. [ID:nN17202421]
 RISING INFLATION PRESSURES:
 The IMF will want to use its policy advice to help
spearhead a drive against inflation as the global economy
continues its recovery from the 2007-2009 financial crisis.
 Inflation pressures have already been on the rise, with
emerging economies in particular facing pressure.
 The higher costs of food and fuel have hit poorer countries
hard, increasing hunger and malnutrition and contributing to
social unrest.
 MIDDLE EAST AND NORTH AFRICA:
 The role the IMF can play in advising governments on
reforms and how to fight high unemployment will be at the
forefront of Lagarde's role in the region, which has seen mass
protests that have upended governments.
 While the IMF has said it stands ready to help, no
government in the region has requested IMF financing. Last
month, Egypt decided against an IMF program after initially
agreeing to one.
 GROUP OF 20 AGENDA:
 Lagarde is no newcomer to the G20. France is this year's
chair and as finance minister, Lagarde was at the forefront of
G20 efforts to reform the international monetary system.
 In particular, China has been pushing for greater
acceptance of its currency, the yuan, and wants to see it
included in an IMF basket of currencies, including the dollar,
yen, pound sterling and euro, that could serve as alternative
to the dollar as a global reserve currency.
 The IMF has been central in providing analysis on pressing
economic issues facing the G20 major economies. It has led an
innovation dubbed the Mutual Assessment Program under which G20
nations will rate one another's economic performance.
 (Reporting by Lesley Wroughton; Editing by Andrea Ricci)


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