Bloomberg News

Carstens Criticizes Europe for Backing Lagarde to Run IMF

June 02, 2011

(Adds comments from Carstens in 13th paragraph.)

June 2 (Bloomberg) -- Mexican central bank Governor Agustin Carstens, nominated to lead the International Monetary Fund, criticized European nations for publicly backing French Finance Minister Christine Lagarde before all the candidates are known.

“I find it strange that they are advocating in some forums for an open, transparent, merit-based candidate and they have made up their minds before the candidates are on the table,” Carstens, 52, said in an interview today in Sao Paulo. “All the other countries are playing by the book.”

Carstens, who has won a single public endorsement abroad, from Uruguay, said he expects emerging markets to support his candidacy once there is a final list of nominees to serve as the IMF’s next managing director. He met with his counterpart from Brazil today before traveling to Buenos Aires in a bid to rally support among developing countries for his candidacy.

His visit to Brazil follows one by Lagarde on May 30, when she met with Finance Minister Guido Mantega. A Brazilian official said the following day that the government will privately support Lagarde in the race to succeed Dominique Strauss-Kahn as managing director.

While Carstens’ campaign is unlikely to succeed, his strong credentials as a former IMF deputy managing director are impossible to overlook and may advance his bigger goal of giving emerging markets more say in how the world economy is run, Guillermo Le Fort, a former IMF economist from Chile, said in a telephone interview.

‘Principled Stand’

“Carstens is making a principled stand,” Le Fort, who was also a director on the IMF’s board for Chile and five South American nations from 2000 to 2004, said. “If he’s successful in advancing the cause of emerging markets, the Europeans might feel red in the face and decide to hold more honest, open elections based on merit in the future.”

Any of the IMF’s 187 member nations has until June 10 to nominate candidates for the managing director’s position, the fund said in a May 20 statement. The IMF executive board, which will select a managing director by June 30, is aiming for consensus rather than a majority vote, according to the fund.

Winning Endorsements

Europeans have picked IMF heads since its founding at the end of World War II under an agreement that gives the U.S. control over the top World Bank post. U.S. Treasury Secretary Timothy F. Geithner has praised Lagarde’s qualifications without supporting a candidate, while the French minister has won endorsements from countries across Europe, including the U.K. and Germany.

Emerging economies that advocate a merit-based selection process appear unlikely to break Europe’s hold on the top job because so far they have been unable to rally around a single candidate, Arturo Porzecanski, a professor of international economics at American University in Washington, said.

“The likes of Brazil, Russia, China, India will not support one another -- never mind Mexico,” he said in a telephone interview June 1. “Emerging countries are not being supportive.”

Carstens’ trip is similar to that of a political campaign designed to gain support in emerging countries for his bid, Morris Goldstein, senior fellow at the Peterson Institute for International Economics in Washington, said in a May 31 telephone interview.

Argentina Visit

Carstens’ meeting today in Sao Paulo with central bank President Alexandre Tombini followed a meeting yesterday in Brasilia with finance chief Mantega. He’ll be traveling to Ottawa after Buenos Aires to promote his candidacy.

Brazilian officials and Carstens share the view that IMF needs to continue to reform and give developing markets more representation, the Mexican official said.

“What is clear is that we have very similar views on the challenges and the solutions that need to take place in the institution,” said Carstens about his meeting with Tombini.

Lagarde met with Mantega in Brazil before traveling to China. The French government minister has promised to remain in the campaign even as she faces legal challenges regarding her resolution of a two-decade old dispute involving a supporter of President Nicolas Sarkozy.

France’s Cour de Justice de la Republique, which oversees ministers’ actions in office, has until June 10 to decide whether to investigate whether Lagarde abused her powers in agreeing in 2007 to send the case to arbitration. It resulted in a 385 million-euro ($556 million) award to businessman Bernard Tapie.

Carstens could be building his reputation for a successful future run if his bid for the IMF top job fails this year, Kevin Gallagher, associate professor of international relations at Boston University, said in a telephone interview June 1.

‘Household Name’

“He’s trying to carve out a space for emerging markets and let people know who he is,” Gallagher said. “He’s all of a sudden become a household name in this community. Maybe five years from now the world will think that maybe it will be Carstens’ turn.”

To be sure, Carstens’ campaign isn’t necessarily doomed, according to Goldstein, who was an IMF official for 24 years.

“It’s a matter of whether he can get support first of all in the rest of the emerging market world,” he said. “If he were able to unite the emerging markets, he would have a real chance.”

--With assistance from Adriana Arai in Sao Paulo, Sandrine Rastello in Washington, Jose Enrique Arrioja in Mexico City and Arnaldo Galvao in Brasilia. Editors: Bill Faries, Adriana Arai

To contact the reporters on this story: Randall Woods in Santiago at rwoods13@bloomberg.net; Katerina Petroff in Sao Paulo at kpetroff@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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