Fundamental Analysis
automatically deferred to a European candidate.
It is the IMF, not the
EMF, aſter all. In much the same way that governments have for years been urging a need for transparency, communication, cooperation and global
awareness in monetary
policy and exchange of goods and services between members, the same arguments were valid when leadership deliberations were underway. Such an outcome would perhaps have been an overdue nod to the fact that the world has changed much recently and will likely continue on this path. Tat said, the European power structure and Western influence controls most of the votes on the board and the grapevine’s initial chatter that prevailing powers would ultimately back France’s Lagarde was accurate. Her participation and positive input in spearheading and rallying for financial aid to Greece were omnipresent during one of the most challenging financial eras ever when French finance minister and surely played a huge part in her appointment. Critics may say a larger question now arises, namely whether qualifications and successful longevity in her previous position will be enough to satisfy the future broader sphere and more diverse demands on her skill-set that will likely be encountered when dealing with a vaster array of issues and problems that will be found at the IMF.
Te IMF is evidently not yet ready for an ‘outsider’, not least due to the lack of consensus among the rising influence of BRICS, Africa and Arabic countries who, although entitled to be represented by a voice closer to respective homes, could not narrow the field down significantly enough to make a single and collectively popular choice, although to be fair Lagarde is an advocate for greater allocation of
FX
initial intervention; we have oſten seen how quickly currency markets run out of patience and then punish weakness.
Positively, Lagarde has a great opportunity here and sticking to her known qualities of independent thinking, forthrightness and policy initiatives could enable her tenure at the IMF to be even more successful than that as French FM, especially if the contentious issues of debt restructuring and perceived bias
to
allocating IMF resources for European usage are dealt with efficiently.
Christine Lagarde elected new managing director of the IMF
voting shares and therefore greater representation at board level for these ‘emerging market’ nations.
Aſter the inevitable honeymoon period and potential for a small rally in the Euro, some very interesting times and topics are still ahead, not least because the IMF has provided around 100 billion EUR or approximately 30% of Greek aid to date. What happens if the wheels come off in Greece and bondholders take a haircut? If mishandled, Lagarde could easily become at best unpopular and at worst a scapegoat, given her heavy
T he o r et ic a l ly , establishment of the most positive credentials of legitimate leadership may be achieved by an ironic twist of fate: in its role as what some might call a lender of last resort, the IMF is bound to
enforce its loan conditions on nations that have made use of the facility.
By drawing attention to certain inefficiencies (standing up to other European leaders) from a greater position of power, Lagarde at the IMF’s helm could, if necessary, authorise withdrawal of funding to nations that do not adhere to repayment
schedules and/or fiscal
discipline, which although a long- shot, is definitely a possibility based on austerity riots, already happening on the streets of Greece - and we’re only at the beginning of the process.
FX TRADER MAGAZINE July - September 2011 9
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