Lagarde Leads Carstens in IMF Race as Nominations Close

Christine Lagarde, who has taken her campaign to head
the International Monetary Fund to India and China while keeping her
fans posted on Twitter, may be poised to defeat her main rival, Agustin
Carstens.

With hours before the deadline to submit
nominees, the French finance minister has the backing of European Union
countries, and Russian Prime Minister Vladimir Putin has voiced his
support. Carstens, Mexico’s central bank governor, says he’s backed by
12 Latin American nations while he hasn’t garnered endorsements from
Argentina and Brazil.

Lagarde has benefited from the failure of
emerging markets to coalesce around a candidate from their own ranks
after vowing to end a six-decade European lock on the position. She has
tried to turn attention away from her nationality by focusing on her
gender and her role in European efforts to head off a Greek
sovereign-debt default.

“There’s a wide perception that Lagarde is the
front- runner,” said Domenico Lombardi, a former IMF board official and a
senior fellow at the Brookings Institution in Washington. “She’s seen
by many of her political interlocutors as the best chance to contain the
turmoil in the euro area and avoid that it could escalate to a full
flow-blown systemic crisis.”

The next IMF chief will preside over an
institution reeling from last month’s arrest of its former managing
director, Dominique Strauss-Kahn, on charges of attempted rape. The
former French finance minister pleaded not guilty.

Biggest Shareholder

The U.S., the IMF’s single largest shareholder
with almost 17 percent of the votes, hasn’t announced support for a
candidate, and Treasury Secretary Timothy F. Geithner has said both
Lagarde and Carstens are qualified.

Backing a non-European for the IMF could mean
relinquishing U.S. control of the World Bank — an outcome members of
Congress who decide on funding for development banks are not ready to
contemplate. Under an informal agreement, an American has always headed
the World Bank, while a European has led the IMF.

Lagarde, 55, who was a partner in Chicago-based
law firm Baker & McKenzie LLP, still may face a legal setback of her
own. A French court is considering whether to investigate if Lagarde
abused her power in 2007 when she sent a case involving a supporter of
French President Nicolas Sarkozy to arbitration. Her action resulted in a
385 million-euro ($559 million) award to businessman Bernard Tapie, who
was once a minister in a Socialist French government. Lagarde has
denied wrongdoing.

After meeting today, the court said it will decide on July 8 whether to proceed with an investigation or close the file.

Emergency Loans

The IMF approved a record $91.7 billion in emergency loans last year and provides a third of bailout packages in Europe.

“The IMF job is one of the most important in the
whole world economy,” said C. Fred Bergsten, who heads the
Washington-based Peterson Institute for International Economics.
“Managing directors do make a difference.”

Grigori Marchenko, the chairman of the central
bank of Kazakhstan and a declared candidate, told the Daily Telegraph
newspaper yesterday that Lagarde’s victory was a “done deal.”

Marchenko said his country’s authorities would be
in consultations with other nations over his candidacy until the
nomination process ends. The deadline for nominations is midnight in
Washington today.

Lagarde and Carstens have embarked on world tours to lobby governments for support.

Carstens, 53, who served as IMF deputy managing
director from 2003 to 2006, will meet Indian Finance Minister Pranab
Mukherjee in New Delhi today and will be in Washington next week, before
flying to China and Japan. He’s already been to Brazil, Argentina and
Canada.

Trip to Brazil

Lagarde went to Brazil last week and is headed to
Saudi Arabia and Egypt. She has sought to reassure officials in these
countries that she will give them a bigger voice at the agency, which
lends to nations in financial distress.

“The IMF does not belong to anybody, it belongs
to the 187 members of the fund,” she told reporters yesterday in
Beijing. “Management of the fund does not belong to any particular”
nation or region. She also said she was “very positive” about her trip
to China, while adding that China’s position on her candidacy belongs to
that country’s leaders.

Yesterday she answered questions from Twitter
users, describing her strengths as “my ability to include, to build
consensus, to mediate when needed, to give confidence, and to reach out
to governments.”

Carstens, a former finance minister, has said he
expects emerging markets to support his candidacy once there is a final
list of nominees. The IMF board aims to pick a candidate by June 30.

Emerging Markets

He says emerging markets should have a greater
voice in the management of the IMF and supports the use of measures such
as capital controls and accumulation of foreign reserves to fight
excessive capital inflows to developing nations. He has criticized
European nations for publicly backing 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 said in a June 2 interview in Sao Paulo. “All the other
countries are playing by the book.”