She started by outlining the three C’s, a manifesto of sorts, focusing on the Fund’s connectedness, credibility, comprehensiveness and talked on increasing diversity at the Fund. Diversity in membership and the workforce in terms of gender, ethnicity and academic background so that “people are not clones of each other”. Perhaps this to avoid further criticism of group think that is said to have hindered the Fund at the time of the last financial crisis.
As expected she faced a barrage of questions on the Eurozone crisis, particularly the possibility of a Greek default and restructuring the role of the ECB and the political and social factors at play. Lagarde gave no direct answers saying:
“I’m afraid that I’m going to disappoint you because you are going to point a lot of questions on Greece and I’m going to either elude the responses, or be very sanitized in my responses, simply because the matter is under review.” The board is due to meet on Friday to consider the next tranche of lending so perhaps some illumination will be provided then?
Still, she identified the sovereign debt crisis faced by periphery European Union countries as being one of the major challenges faced by the Fund, also acknowledging that the problem extends to the advanced economies of the world.
The other challenge was that of ‘overheating’ in emerging markets, “particularly in the low-income countries, the risk of imported inflation that results from the high prices of commodities.” On this point she mentions tackling capital flows but didn’t go so far as to back the use of capital controls.
Apart from the DSK case which she, unsurprisingly, chose not to comment on, Fund governance was the other main talking point. On country representation she gave no details on a timeframe for giving more power to emerging markets beyond continuing the current process in shifting board votes in that direction. In her first day interview she stressed that it is indeed something the Fund needs to deliver on but that it requires each and every member to deliver. Well, an unmovable United States and some stubborn European governments.
In August the first deputy managing director position is up for grabs as John Lipsky steps down. She gave no word on the selection process for this post, avoiding a comment on the fact that as with her job traditionally being held by a European, the first deputy MD is always an American. Instead she talked about the addition of a fourth deputy MD role as being “not a bad idea, and i’m going to consult in the next few days on this matter.” Most expect this position to be created and to go to Zhu Min, former China central bank governor and special advisor to the MD.