France's Christine Lagarde tapped as IMF head

WASHINGTON - French Finance Minister Christine Lagarde has been chosen to lead the International Monetary Fund. She will become the first female managing director of the global lending organization.

Lagarde's selection became all but assured when the Obama administration endorsed her earlier Tuesday. Hours later, the IMF's 24-member board voted to appoint her to the position. She had also won support from Europe, China and Russia.

Lagarde takes over at a tumultuous time. Europe's debt crisis is intensifying. Emerging nations want a greater voice at the IMF. And the organization's reputation has been tarred by a scandal involving Dominique Strauss-Kahn, whom she replaces as leader.

Strauss-Kahn resigned last month after being charged with sexually assaulting a New York City hotel housekeeper.

In a statement, Geithner says Lagarde's "exceptional talent and broad experience" will provide invaluable leadership for the bank at a critical time for the global economy. He said he is encouraged by the broad support Lagarde has among the fund's membership.

Lagarde was opposed by Agustin Carstens, a Mexican central banker whose candidacy never caught fire, even among developing countries.

Lagarde's selection will likely provoke protests from developing countries. Under an informal arrangement dating to the end of World War II, a European has always lead the IMF and an American has run its sister organization, the World Bank. The United States also names the IMF's top deputy. Developing nations have pushed to open the positions to candidates outside the United States and Europe.

Analysts say Europe and the United States aren't willing to give up their privileges. And key developing countries, such as China, India and Brazil, tend to regard each other as rivals rather than allies. Carstens complained that he was at a disadvantage from the start because European officials moved quickly to close ranks behind Lagarde.

Jan Randolph, director of sovereign risk at IHS Global Insight, said that despite being a European, Lagarde might end up being a strong advocate for handing more power at the IMF to developing economies.

"She went out of her way on her road show to say, 'I'm actually your best candidate for change,'" he said.

Randolph said she could prove she's ready to shake things up by pushing for a deputy that comes from a developing country.

"We'll be interested to see whether the deputy positions will be released from this horse trading," he said. "We might see a loosening of this stitch-up."

Lagarde, 55, led the Chicago-based law firm Baker & McKenzie before entering French politics in 2005.

Her supporters have argued that a European should lead the fund because Greece, Ireland and Portugal are now among the IMF's biggest borrowers. Lagarde helped lead negotiations for a bailout package last year that combined European Union and IMF funds in a pool to aid highly indebted European countries.

Marchel Alexandrovich, an economist with Jefferies International Limited, Lagarde's nomination would reassure markets since it will ensure that the EU and the IMF will be "pulling in the same direction."

He added that Lagarde's familiarity with the European crisis would be an asset. "You're getting an insider," he said.

On the other hand, some experts argue that Europe's leaders have been too timid in responding to the crisis and have been discredited by their failure to solve it for good.

With Greece requiring a second rescue package a year after it received its first, Lagarde's leadership in handling the debt crisis may no longer be a selling point for her candidacy.

Eswar Prasad, an economics professor at Cornell University and a former IMF official, said Lagarde's biggest challenge will be to show that she doesn't favor European countries.

"She will have to assert her independence from the European position and advance a broader view," Prasad said. "Whether she can cast off the baggage she brings with her is an open and important question."

Greek officials are now calling for a second bailout package to be completed by the fall, even though Greece has failed to make promised deficit cuts.

With Lagarde nominated, French President Nicolas Sarkozy is expected to name a replacement for her as finance minister as early as Wednesday, at the weekly Cabinet meeting.