Israel’s Fischer out of IMF race

France’s finance minister Christine Lagarde, right, is supported by European bloc and other important nations [Reuters]

The International Monetary Fund has shortlisted Christine Lagarde, the French finance minister, and Agustin Carstens, Mexico’s central bank chief,  for the IMF’s top job, disqualifying the Bank of Israel’s Stanley Fischer because of his age.

In a surprise move, the IMF board failed to support changing the IMF’s rules, which would have allowed 67-year-old Fischer to run, board officials told the Reuters news agency on Monday. IMF rules carry an age limit of 65 for a first-time managing director.

An official statement by the 24-member IMF board confirmed it would consider two candidates and made no mention of Fischer.

“The Executive Board will meet with the candidates in Washington DC and, thereafter, meet to discuss the strengths of the candidates and make a selection,” it said in a statement.

Likely winner

Front-runner Lagarde is backed by the European Union and a handful of smaller countries. Carstens has the support of a dozen Latin American countries in one of the most hotly contests races in IMF history, which the IMF reportedly aims to conclude by the end of June.

Lagarde, 55, consolidated her lead over the weekend by receiving endorsements from Indonesia and Egypt, a sign that her support extends beyond Europe.

Carstens acknowledged on Monday in Washington that he was a long-shot candidate and he knew chances were “quite high” that Lagarde would get the job left vacant by Dominique Strauss-Kahn, who was arrested in May on sexual assault charges.

The US Treasury said on Monday it had not yet endorsed a candidate, although it is widely expected Washington will back Lagarde to head the global financial institution.

Latin underdog

Carstens said on Monday that the next leader of the IMF, which lends money to countries in financial difficulty, should not be European because those nations are borrowing heavily from the organization.

During a speech at the Peterson Institute for International Economics, a Washington think tank, Carstens said it was important for developing countries to have a choice in the election.

He made the point that Lagarde’s candidacy would create “conflicts of interest” because Greece, Ireland and Portugal are borrowing heavily from the Fund.

And while he may not succeed, he said he hoped his candidacy would pave the way for emerging market candidates in the future.

“If we want to have an open and unbiased process, we need to present candidates,” he told an audience of more than 100 policymakers and economists.

He also met with Treasury Secretary Timothy Geithner earlier in the day, but said Geithner did not endorse his candidacy.

“The writing is on the wall,” Eswar Prasad, an economist at Cornell University and former IMF official, said. “I don’t see any plausible scenario where Carstens can rally enough support to get the job.”

In fact, some speculate that Carstens could be laying the groundwork for a future run at the job, or another top position.

“A credible run … would certainly raise his profile in global policy circles and improve his chances of heading other major international institutions,” Prasad said.

Geographic competition

A European has traditionally headed the IMF and an American has led its sister organization, the World Bank.

Developing countries have long complained about the arrangement, which dates back to the end of World War Two.

China, India and Brazil, three of the fastest growing nations in the world, have also complained that the IMF process for choosing its leader should be more open. Still, none of those countries is backing Carstens.

In fact, China, India and Brazil have declined to publicly endorse any candidate so far. Analysts cite several reasons why the three developing nations have resisted.

China and India are historical rivals and are without many common interests, even though they are at similar stages of development.

And Brazil is vying to be an alternative to the United States and regards Mexico as a close US ally, Domenico Lombardi, a senior fellow at the Brookings Institution and former IMF official, said.

“Emerging countries have failed to coalesce as a unified group behind a candidate,” Lombardi said.

Many have accepted that Lagarde will win and instead are looking to extract promises from her in exchange for their votes, he added.

For example, China would like to see one of its officials, Zhu Min, appointed as a top deputy at the Fund.

Min is currently a special adviser to the IMF managing director. Lagarde expressed support for giving Min a leading role during a visit to Beijing last week.