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Decoding Lagarde: New IMF chief keeps her opinions guarded (sort of) in her debut

The silver brooch and signature scarf, in a bright shade of purple, certainly set Christine Lagarde apart from the dark-suited men who ran the International Monetary Fund before her. But it took only a day on the job for the quick-witted lawyer to lapse into fund-speak, the IMF lingo that masquerades generalization as revealing commentary. Yet at a few points in her inaugural news conference Wednesday she gave away more than it seemed. Here is a thumbnail analysis:

Has the European Central Bank been overstating the economic damage if Greece or other troubled European countries restructure their debt?

What she said:

“It does not hurt to maybe be overly concerned, but to try to anticipate consequences of any of the measures being considered — we have been burnt once [by the 2008 economic crisis]. Better be shy this time.”

What it means:

Many economists feel Greece and perhaps other European nations will never be on a sound footing unless they restructure what they owe to bondholders in a default. The European Central Bank has been opposed to this idea and said a default might ruin Europe’s economy. The IMF has, depending on the circumstances, supported defaults and restructurings in other countries. While Lagarde arrives having pledged fealty only to the IMF, and with a promise to be tough on Europe, it looks as if she has imported the ECB line into the IMF’s executive suite.

As a lawyer without academic training in economics and finance, is Lagarde qualified to guide the IMF and its large corps of PhD economists and financial technicians?

What she said:

“I am not going to brag about my qualifications or lack of qualifications. The proof of the pudding is in the eating, and we will see how it goes. . . . Without being too poetic about it, not all conductors know how to play the piano, the harp, the violin or the cello. I will try to be a good conductor.”

What it means:

Without overtly announcing it, Lagarde redefined the job of managing director from a sort of academic first-among-equals to an in-house referee. She acknowledged she would not be able to “second guess” the technical work of the staff but would ask questions and try to be more inclusive in seeking the opinions of different staff members, not just the ranking people with whom her predecessor, Dominique Strauss-Kahn, kept in closest contact. Squaring that with the IMF’s hierarchical culture may be a challenge, and her lack of formal economic training risks making her a captive of the advice she gets.

Given the issues raised by former managing director Dominique Strauss-Kahn’s arrest, what changes might be ahead for IMF staffing policies?

What she said:

Diversity “should be reflected in our employment policy, in our training policy, in the way in which we build teams, in the way which we organize recruitment so that people are not clones of each other.”

What it means:

The larger developing nations, particularly in Asia, complain that the Western developed economies don’t credit their expertise and are not open to their advice. Those countries were key to Lagarde’s selection as managing director. Some of Lagarde’s most extensive comments were on diversity, but instead of emphasizing conventional issues, such as hiring more women or people of different races, she said she wants to make the fund a more intellectually diverse place. Interpret this as a call for fewer Ivy League wonks and more graduates from top universities in China, India, Brazil and elsewhere in the developing world.

What about the state of the world economy?

What she said:

“We are facing a landscape that is in a better shape than two years ago but with clearly an uneven process of recovery and specific issues of a divided nature given the division we are seeing between the advanced economies on the one hand, the emerging markets on the other, and with the least developed or low-income countries, however we want to call them, with specific issues and yet a path to recovery that is obviously pronounced.”

What it means:

Lagarde stumbled most when she delved too deep into the IMF’s liturgy, its rhetorical summation of the state of the world. In this and other comments, what Lagarde gives away is no secret. The fate of the developed world, and particularly Europe, is now the fund’s preeminent concern and the center of the greatest risks to global economic stability. There are problems in the developing nations, but they are less systemically threatening. As for the poorest countries, don’t expect their situations to change anytime soon.

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