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Lagarde’s appointment may be a missed opportunity

Marketplace Staff Jun 29, 2011

Lagarde’s appointment may be a missed opportunity

Marketplace Staff Jun 29, 2011

STEVE CHIOTAKIS: China said today it supports newly appointed International Monetary Fund chief Christine Lagarde. The French Finance Minister was appointed to the position after some jockeying among other countries including China and Mexico.

Simon Johnson is a professor at MIT and a former chief economist at the IMF. Hi Simon.

SIMON JOHNSON: How are you?

CHIOTAKIS: I’m doing well. Do you think the IMF missed an opportunity by appointing a European versus maybe someone from any emerging market?

JOHNSON: Yes I think they did. Miss Lagarde has some very strong qualifications. But she also has a conflict of interest in that the French government — where she’s finance minister right now — is up to its eyeballs in the euro zone and Greek mess.

CHIOTAKIS: Do you think Lagarde’s going to show some sort of favoritism towards Greece because she is a European?

JOHNSON: She will show favoritism towards French banks, not toward Greece.

CHIOTAKIS: Because the French banks, of course, hold so much of the Greek debt?

JOHNSON: The French banks are exposed to Greek debt directly and indirectly. But the big issue is the French banks don’t have enough capital, and the French are very worried about what would happen if French banks, or German banks or Italian banks were to collapse.

CHIOTAKIS: How far in the future do you think we’ll know if she was a good choice or a bad choice?

JOHNSON: I think you could look out about two years, see what happens in Greece, see what happens in the euro zone. If they really turn the corner, these will be indications of success. But I’m not optimistic.

CHIOTAKIS: What about beyond Lagarde’s term at the IMF? Do you think the merging market question will come up again?

JOHNSON: It’s bound to come up every time that they pick a new managing director but the emerging markets are not well organized. They don’t see themselves having converging interests. You should expect Europe to predominate at the IMF for a considerable period of time and I think that will undermine the legitimacy in the institution around the world.

CHIOTAKIS: Simon Johnson, MIT professor, former IMF chief economist. Simon thanks.

JOHNSON: Thank you.

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