Urgent challenges facing new IMF head Lagarde

28th June 2011, Comments 0 comments

Several urgent issues will demand immediate attention when France's Christine Lagarde, named Tuesday to be head of the International Monetary Fund, takes up the post on July 5:

- Greece: The IMF's credibility rests on the successful rescue of Greece, where it made its largest-ever commitment: 30 billion euros ($42.8 billion) of the total 110-billion-euro joint IMF-European Union program. The bailout has faltered and needs shoring up to prevent a Greek sovereign default; critics say the IMF plan was poorly designed and reflected a leadership overly committed toward protecting the eurozone. Lagarde, deeply involved in the rescue as French finance minister, will have to step backward to deal with Europe's problems from a tougher neutral stance.

- The first "spillover reports": The IMF will publish beginning in July much-awaited analyses of the dangers to the global economic system posed by imbalances and risky policies in the largest economies -- the United States, China, Japan, Britain and the eurozone. Lagarde, personally tied closely to the eurozone problems, will need to ensure the reports are straighforward, honest and credible.

- Egypt: Apparently fearing the political risk of tough IMF reform conditions, Egypt has turned back a $3 billion, one-year loan from the Fund. But many think its economy, ravaged by years of bad policies and this year's democratic uprising, deeply needs IMF and international aid. Lagarde will have to balance a desire to help a key Arab country undergoing a deep political transformation with the need to uphold IMF reform principles.

- The international financial system: the IMF this year is expected to review and strengthen its surveillance of risks in the global economy, especially of those economies with the largest systemic risks. The review will also cover what action the Fund takes to address those risks. That could put the new executive director on a collision course with China, whose huge surpluses and deeply undervalued currency are seen as a new and different threat compared to the traditional weaknesses the IMF has focused on in the past.

© 2011 AFP

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