The Rock Star Who Heads the International Monetary Fund
WHY YOU SHOULD CARE
Because when the IMF does its job of promoting global economic stability well, we’re all better off.
By Steven Butler
She doesn’t eat meat. Doesn’t smoke. Doesn’t drink booze. Sounds positively un-French for a Frenchwoman, non? Catnaps on demand. Perhaps that’s the secret of how Christine Lagarde manages to jet around the world, emerging perfectly coiffed, fashionably dressed — think Chanel suits and Hermès scarves — with a ready smile even when, as the first female managing director of the International Monetary Fund, she delivers a typical eat-your-spinach message to the miscreants of global finance.
That’s her job. Lagarde, 59, is continuing the now quaint tradition that a European shall always lead this institution, founded just after World War II in an effort to prevent a repeat of the global financial contagion that caused the Great Depression. Today, its 188 member countries can marshal a war chest in excess of $1.2 trillion. Europeans get to top the Fund, while an American always heads the World Bank, which focuses on economic development. But talk about anachronisms: Europeans — with their continent facing a money crisis all of its own making — telling the Chinese or the Indians how to manage their affairs?
That tradition could easily come to an end, unless Lagarde dispatches her legal troubles in France, where a court has just chosen to proceed to trial with a complex case that charges her with negligence during her time as France’s finance minister. (Lagarde denies any wrongdoing.) Speaking in Washington, D.C., in October, Lagarde was unusually dour, her smile sometimes looking more like the baring of teeth. She wore gold hoop earrings, not-quite-sensible heels and a black pantsuit as she surveyed the wreckage of the world economy: hottest year on record, 60 million displaced people, global trade slowing, commodity prices plunging, financial markets jumping up and down. “It could be even much worse,” she said in crisply accented English, mentioning collapsing markets in 2008, as she warned of the “new mediocre,” a possible extended period of slow global growth.
The IMF head resembles a knuckle-rapping principal: lending desperate countries cash — but only if they eat their spinach, which can mean cutting government spending during an economic downturn.
Lagarde, who wasn’t made available to comment by the IMF, established her chops early after taking office in 2011, blasting European banks while citing a need for “urgent recapitalization” — meaning shareholders had to cough up money to prevent bank collapses as Greece teetered on the edge of insolvency. Edwin Truman, senior fellow at the Peterson Institute for International Economics, says the criticism Lagarde endured from Europe over the speech earned her street cred in far-flung places like China and South America as “not just an apologist for Europe.” And she’s still throwing darts at Europe, having recently called for the continent’s bank to get rid of more than $1 trillion of bad loans.
The IMF head resembles a knuckle-rapping principal: lending desperate countries cash — but only if they eat their spinach, which can mean cutting government spending during an economic downturn. It’s a controversial approach, especially during the 1997 Asian financial crisis, when the measure was applied to governments that were never profligate. “Even as evidence of the policy’s failure mounted — the IMF barely blinked, delivering the same medicine to each ailing nation that showed up on its doorstep,” wrote Nobel Prize–winning economist Joseph Stiglitz in The New Republic just after the crisis.
Fast-forward to 2015, and Lagarde, with her splash of white hair and a steely-yet-sympathetic expression, is in the hot seat over Greece, which critics like Desmond Lachman, a fellow at the American Enterprise Institute, say is choking on the same old bad medicine. Sure, Lagarde’s signature accomplishments include a broadening of the IMF’s agenda to include issues like gender equality and wasteful energy spending — something Nancy Birdsall, president of the Center for Global Development, calls “a breakthrough.” For years, she struggled in a futile attempt to get the U.S. Congress to endorse an IMF reform agenda originally proposed in 2010 that would have given a bigger voice to emerging powers, especially China. “I don’t think I’ve spared efforts to make the case,” she has said. Now, miraculously, the measure was slipped into the latest appropriations bill, turning it to a victory. Maybe she’ll eventually win with her strong call to cut Greek debt, even though German Chancellor Angela Merkel has prevailed so far with a loud nein.
But Lagarde is used to the hot seat. She came to the IMF, headquartered on Pennsylvania Avenue just up the street from the White House, straight from Paris, after serving four years as France’s minister of finance and economy — another first for a woman — under Nicolas Sarkozy’s conservative government. In some ways, though, she’s a transatlantic hybrid: Her father was a university English teacher, while her mother taught school, and she grew up in Normandy, away from Paris-centered nationalism. Perhaps she acquired her self-discipline as a member of the French national synchronized swimming team. Now, the divorced mother of two grown sons is back in her old stomping grounds, having long ago won a scholarship to spend a year of high school in a D.C. suburb before interning on Capitol Hill, then, after attending a Paris law school, eventually becoming chair of America’s largest law firm, Chicago-based Baker & McKenzie (yes, another female first).
More recently, at the IMF, Lagarde hasn’t made many “bad steps,” Truman says, but he seems concerned that “she’s a little more focused on public relations than substance.” Her Fund has also backed flawed lending programs in Greece and Ukraine that may trigger significant financial losses, Lachman says, and he worries that these will “seriously damage the IMF’s credibility.” What’s more, Lachman suggests that the IMF’s narrow mission has been the source of its great influence and that Lagarde’s move to expand it might “dilute” that.
But for the woman whose face once graced the covers of Forbes and Vogue — in the same month — the future may be the most enticing prospect of all. Popular back home, Lagarde recently (and predictably) demurred when asked if she would run for president in France’s 2017 election. There’s definitely a precedent — see, par example, her predecessor, Dominique Strauss-Kahn, once considered a leading candidate for the French presidency. That is, until his career unraveled in sex-related scandals. And nothing is less French than that.