Lagarde, then a new guard

May 24, 2011

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THE ABRUPT need to select a replacement for the International Monetary Fund’s disgraced managing director, Dominique Strauss-Kahn of France, raises a basic question: Why must the top post at the IMF always be reserved for a European rather than a financial expert from a rising power such as China, India, Turkey, Brazil, or South Africa?

Since the fund’s founding at the end of World War II, there’s been a gentlemen’s agreement that a European would lead the IMF and an American would guide the World Bank. The world has changed, however, in the last 70 years. There were but 44 countries in the IMF in 1946; today there are 187. And though the Europeans and Americans are still the biggest contributors to the IMF, so-called emerging economies are becoming ever more important.

For the next year or two, it may well be helpful to have a European leader at the IMF, as debt woes in Greece, Ireland, and Portugal preoccupy the fund. For this period, a sensible solution would be to appoint a supremely qualified European such as the French Foreign Minister Christine Lagarde to complete the term of Strauss-Kahn, which runs until the fall of 2012, but to seek a qualified replacement outside Europe for the ensuing term. Lagarde has the experience, the financial savvy, and the political stature to manage the European bailout issues on the IMF’s agenda. And she understands that reforms are needed to keep risk-taking banks from causing another worldwide financial crisis.

The IMF’s outdated gentlemen’s agreement must go. How better to achieve that than to ask Lagarde to help rescue Europe’s ailing economies — and then to throw open the doors to the executive suite to candidates from all around the world?