WASHINGTON (Reuters) - Christine Lagarde looks set for the plush corner suite at the IMF headquarters but unlike most of the Europeans who cruised into the top job, she has hard bargaining to do with emerging economies first.
Developing nations that want their growing economic prowess reflected in their clout at the International Monetary Fund have won only modest increases so far.
Before his downfall in May, Dominique Strauss-Kahn oversaw a shift in voting power that gave emerging markets greater say at the global lender but not as much as they had wanted.
He named a Chinese special adviser, a step short of giving Beijing a coveted deputy managing director post.
Lagarde, may have to go further.
“Christine Lagarde must not be handed a blank check,” said one senior official from a developing country, who acknowledged she is likely to succeed Strauss-Kahn as managing director.
“If she wants the support of developing countries, she must commit to continue reforming the institution.”
Lagarde, the French finance minister, has the political muscle to keep up pressure on European leaders to deal with the continent’s debt crisis — a key asset for the top IMF job in the current economic environment.
Strauss-Kahn, a former French finance minister, quit last month to fight sexual assault charges and his successor is due to be chosen by June 30.
While Lagarde is seen as the favorite, due to the expected support of Washington as well as Europe, the race has already been one of the most hotly contested in IMF history.
In past races, candidates from emerging economies have kept low profiles and did not crisscross the world to seek support actively as Mexican central bank chief Agustin Carstens has done in recent weeks.
The surprise candidacy of Stanley Fischer, the Zambian-born head of Israel’s central bank who is highly respected by emerging markets, combined with that of Carstens, adds to pressure on Lagarde to pay heed to developing nations.
The support of the United States and the European Union would put her within a whisker of the majority she needs, but Washington is expected to want Lagarde to show broad support from developing economies, too. So far, most emerging economies remain on the fence about their intentions.
While Lagarde has enormous political strengths, both Carstens and Fischer are technically stronger and have more experience and knowledge from working at the IMF.
Fischer, at age 67, exceeds the age limit of 65 for first-time IMF managing directors, but that hurdle is not seen as insurmountable.
Emerging economies’ main demand is for a voting system that better reflects their growing clout in the world economy.
That would require agreement on a simpler methodology for calculating members’ voting power, based on their weight and role in the world economy, changes that would come at the expense of many smaller European countries.
Belgium, for example, carries more weight at the IMF than Turkey, an economy roughly three times bigger.
Reforming voting rights would also mean tackling the thorny issue of Europe’s dominance on the IMF’s 24-member board.
Shifts in power away from overrepresented countries in 2008 and 2010 were largely focused on boosting China’s voting power.
A deal sealed last year allowed China to move into third position behind the United States and Japan but at the expense of some developing countries such as South Africa. They now want that corrected alongside further increases in votes.
Emerging economies also want more IMF lending instruments designed for their needs, including a short-term liquidity facility that countries with sound economic policies could tap when global credit markets are under strain.
Furthermore, countries such as Brazil, which have seen a surge in private capital flows, want to see the IMF pay closer attention to the source of the hot money that they blame on near-zero interest rates in the United States.
China and others have long criticized the fund for not being even-handed when it comes to rich nations that all too often dismiss IMF advice.
High on China’s wish list is a greater role for its currency in the world financial system by adding it to a basket of currencies that the IMF administers. Doing that won’t be easy, however, because the renminbi is not widely traded and freely convertible— both requirements for being part of the basket.
For all their demands for more power, developing countries still find it difficult to convince their officials of stature to become candidates in a process still dominated by Europe.
“There is also no doubt that there is a perception that the system is not seen as a level playing field,” said Amar Battacharya, director of the Group of 24, an intergovernmental grouping of emerging markets and developing countries.
As long as the gentleman’s agreement between the United States and Europe continues — under which a U.S. national runs the World Bank while a European heads the IMF — developing nations will struggle to convince candidates to step forward.
Former Turkish Finance Minister Kemal Dervis, who had strong backing from emerging markets, ruled himself out of the race early on. Indonesia sized up support for former Finance Minister Sri Mulyani Indrawati, who is now at the World Bank. And Colombia considered Jose Antonio Ocampo. a former finance minister and ex-UN under-secretary general for economic and social affairs.
“This birthright is not enough,” former South African Finance Minister Trevor Manuel said as he quashed speculation that he might announce a last-minute bid on Friday, the deadline for applications for the IMF job.
The Obama administration, while pressing for changes that would give rising emerging powers like China, India and Brazil a greater role in the IMF, has shown no sign of giving up its claim on the World Bank’s top job.
U.S. Secretary of State Hillary Clinton on Friday denied a Reuters report that she was in talks to replace current President Robert Zoellick when his term expires in mid-2012. The report added to frustrations among emerging market economies that these jobs are stitched up in advance.
Senior officials from developing nations argue it is unrealistic to expect such a diverse group of countries from different political and cultural backgrounds to speak as one.
But until they do, some argue, the dominance of Europe over the IMF, in partnership with the United States, won’t end.
“If we don’t present candidates we will never get where we want to be,” Mexico’s Carstens told an audience in Washington on Monday as he pressed his case to run the IMF.
Editing by William Schomberg and Leslie Adler