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Brazilian president Dilma Rousseff staunchly defended Latin American integration as she took part of the CEO forum at the 6th Summit of the Americas in Cartagena de Indias, Colombia. She blasted rich countries over their so called monetary flooding because it attempts against the industrialization of emerging nations.

The Monetary Policy Committee (MPC) yesterday announced a one percentage point increase in the policy rate to 14.5 per cent from 13.5 per cent, citing the upside risks to inflation.

Mr Kwesi Amissah-Arthur, Governor of Bank of Ghana (BOG), said at a press conference in Accra that although growth potentials remained strong, prevailing exchange rate developments could act to offset the gains made in macroeconomic stability.

“Given the current macroeconomic conditions the assessment of the Committee over the forecast horizon shows an elevated inflation profile,” he said, necessitating the need to increase the policy rate.

“The Committee was of the view that the upside risks to inflation outweigh the downside risks to growth and therefore decided to increase the policy rate by 100 basis points to 14.5 per cent,” Mr Amissah-Arthur said.

He said the BOG was also reducing the single currency Net Open Position (NOP) of banks from 15 per cent to 10 per cent and the aggregate NOP from 30 per cent to 20 per cent in a move intended to improve the supply of foreign exchange by banks to the market.

He said recent developments in the exchange rate and its possible impact on inflation as well as implication for the country’s international reserves called for decisive policy measures to stem the trend.

The cedi continued to weaken against the dollar in the foreign exchange market as a result of high demand, leading to a depreciation of 8.3 per cent against the dollar in the first quarter of the year compared to two per cent in the same period of 2011.

Mr Amissah-Arthur said the cedi had fallen due to a number of factors, including growing demand for foreign exchange to support increased economic activity due to the expansion of the economy, the changing nature of trade pattern, which was shifting towards Asia, especially China in which transactions were mostly conducted on cash basis as well as speculative activity by foreign exchange traders trying to profit from the depreciation of the currency.

The Governor said policy intervention would therefore aim at minimising the risks to inflation and growth by stemming the depreciation of the cedi in order to build reserves to levels that would be able to withstand external shocks.

“In doing this, we plan mainly to use the market mechanism to reverse the liquidity overhang.

But we will also strengthen controls to reverse the process of dollarisation in the economy,” he said, adding that the Bank was closely monitoring developments and would not hesitate to take additional measures if deemed necessary.

GNA

Ahead of monthly inflation data and the RBIs monetary policy review, stock markets are likely to be volatile in an action-packed week that will witness Q4 corporate earnings of blue-chips like Reliance Industries, analysts have said.

Investors are keenly looking forward to the central banks monetary policy review and it could be one of the trend-setters for the week ahead besides developments in the overseas markets, they added.

Markets will now keenly wait to hear from RBI on Tuesday and trade on next week could open on a cautious note. Caution is likely to prevail early next week, given inflation is data due out on Monday, along with the ongoing corporate earnings, Sharmila Joshi Head Equity Fairwealth Securities said.

As these key events unfold, markets are expected to see bouts of volatility, brokers said.

Companies such as Castrol India (April 16), IFCI (April 17), HCL Technologies (April 18) and Reliance Industries (April 20) will announce their quarterly results this week.

These results will be keenly watched and will have a further bearing the markets, a market expert said.Bonanza Portfolio Research Analyst Shanu Goel said,

After Infosys results outcome sentiments have worsened not only for the IT counters but for the general market as such. Monthly WPI inflation figure for March and RBI policy will influence the short-term trend of the market. Marketmen said there is increasing probability of monetary easing by RBI in the upcoming monetary policy.

Last week, sluggish global markets, drop in industrial growth, earthquake in Indonesia triggering tsunami fears in the Asian region and a discouraging start to the quarterly result season after disappointing performance from IT bellwether Infosys soured investor sentiments.

The BSE benchmark index Sensex fell 2.23 per cent while the Nifty lost 2.17 per cent for the week ended April 13. Industrial production grew at a slower-than-expected 4.1 per cent in February, as against 6.7 per cent in the same month last year.

WASHINGTON (Reuters) – Growth in emerging economies is slowing and the recovery in the United States could be losing some momentum, worrisome developments when European leaders have yet to complete the repairs needed to shore up monetary union.

The situation forms a vulnerable backdrop for finance officials from the worlds leading economies, who gather in Washington this week for the Group of 20/International Monetary Fund/World Bank meetings.

The managing director of the IMF, Christine Lagarde, has offered this blunt description: The risks remain high; the situation fragile.

Stock markets have rallied the past few months on relief that Europe averted a major financial crisis at the turn of the year. Credit goes to the European Central Bank for pumping money into debt markets, Greece for striking a debt restructuring deal after long and torturous negotiations, and to Italy, Spain and Portugal for embracing tough budgetary reforms.

But these actions have restored only a tentative calm.

A surge in Spains 10-year bond yields last week to test the 6 percent level last reached at the height of the euro zone debt crisis in 2011 – a sign that investors are demanding higher returns to compensate for perceived risk – has underscored this fragility. Spains government bond auction on Thursday of two-year and 10-year debt will offer a fresh test of confidence in its economy.

The concern is that European Union leaders have imposed too-rapid budget cuts on its deeply indebted members, stifling growth today while doing too little to put the building blocks in place to ensure healthy growth tomorrow. This leaves the euro zone vulnerable to further market attacks.

It is very important to avoid a vicious cycle of economic contraction and budget cutting, said Charles Dallara, managing director of the Institute of International Finance, which represents big global banks.

EU leaders have taken two important steps so far. They have agreed on a new budgetary framework for EU members and set up a $930 billion rescue fund to handle future sovereign crises.

But bankers and the IMF say what is needed next if Europe wants to break the vicious cycle of financial contagion is for leaders to lay out a clear road map toward fiscal integration for the euro zone in the medium term, and the ECB to make clear it will keep interest rates low in the short term.

Germany has resisted those steps, and even plans to take the simpler steps toward fiscal union, such as issuing common euro-zone bonds, are highly unlikely ahead of French elections and an Irish referendum on the EUs new fiscal treaty this spring.

RIPPLES WIDEN

Meanwhile, growth has ground to a halt in France, and damage has spilled into the emerging economies of Eastern Europe, whose export industries are closely tied to euro zone markets. Eastern European banks, many of which are owned by Western European institutions, also are cutting back sharply on credit supply, deepening the regions woes.

China, the worlds second largest economy, is feeling the pain as well. Its exports to the European Union, Chinas largest market, shrank by over 1 percent in the first quarter. That contributed to Chinas disappointing growth in gross domestic product in the first quarter of 8.1 percent, the slowest pace in almost three years and down from 8.9 percent in the fourth quarter.

Brazil, which had been one of the worlds fastest growing economies, is also is facing a sharp slowdown. Growth tumbled last year to 2.7 percent, less than half its 2010 pace, and the government has cut taxes, launched fresh attempts to weaken its currency, and the central bank is cutting interest rates aggressively to shore up growth.

The outlook for the United States, the worlds biggest economy, was muddied after jobs creation in March came in at only half the pace seen in the prior month, denting optimism that US growth was poised to accelerate. More data this week could provide some clarity. Retail sales for March, to be released on Monday, and industrial output and housing data, out on Tuesday, are all expected to show modest growth continuing.

The IMFs verdict on the global economy will be released on Tuesday. That will be followed by the meeting of the Group of 7 rich nations on Thursday. The G20 finance ministers and central bankers meet on Friday, and Europe is bound to face pressure to show some willingness to move eventually toward fiscal union.

At the same time, a major battle is brewing over bolstering IMF resources. The international lender, concerned that Europe will not act quickly enough to prevent another sovereign debt crisis from erupting on its shores, wants more firepower to help countries fight financial crises.

The IMF is seeking up to $600 billion from its members. But its funding request appears to be getting whittled down in size and swept into a bigger battle by emerging economies demanding greater voting power at the IMF, commensurate with their growing economic clout.

Their case gains potency as the World Bank, the IMFs sister organization, looks poised to reject a Nigerian candidate to as its new head. The US candidate, Jim Yong Kim, a Korean-American health expert, appears almost certain to win the post when the World Bank board meets on Monday, holding fast to the long-held tradition of having an American at the helm of the World Bank and a European at the helm of the IMF.

These fights will add to uncertainty over whether world leaders can draw a firm line under the financial crisis.

I think politics may prevent much progress over the next few months, said Marc Chandler, global currency strategist at Brown Brothers Harriman.

(Editing by Leslie Adler)

BEIJING (Reuters) – Chinas weekend reform of its currency regime nails shut the coffin on the last remains of doubt about whether the worlds second biggest economy has successfully steered a course past a hard economic landing.

Investors were questioning whether the worst sequential slowdown in Chinas economy since the 2008-09 global financial crisis could enter a sixth quarter after data on Friday revealed the weakest three months of annual growth in three years and a run rate below the official 7.5 percent 2012 target.

Shifting the yuan trading rules is about the strongest signal Beijing could give that growth downside has diminished and potential pitfalls are manageable. Few reforms are as replete with risk as tinkering with the currency because faith in its soundness directly correlates to economic stability.

For everybody who thought China was heading for a hard landing, its over. This move says they are comfortable with the direction the economy is moving in, Paul Markowski, president of New York-based MES Advisers and a long-time investment adviser to Chinas monetary authorities, told Reuters.

International investors are certainly in need of something to calm concerns about the health of the global economy after asset markets worldwide were rattled on Friday by a combination of below-par Chinese growth data and renewed fears of contagion risks in the debt-plagued euro zone.

Timing, politics and diplomacy are all in focus after Saturdays milestone step towards turning the yuan into a global currency that doubled the size of its trading band against the dollar to 1 percent.

But the economics of the move, predicted by a Reuters poll four weeks ago, are the most crucial for the 200 million or so jobs in Chinas vast factory sector that analysts estimate directly depend on foreign trade.

COMFORTABLE CONFIDENCE

Reform says Beijing is comfortable with the yuans value and that exporters have sufficient strength to cope with the government relaxing its grip. As the financial crisis deepened in 2008, China squeezed tightly on the yuan to shield the economy as international trade ground to a halt.

It implies confidence that rebounding March indicators in the first-quarter GDP data – such as a jump in steel production, vehicle output, machinery and cement production and a recovery in sales of household electronic appliances – suggest that the floor in economic activity has broad foundations.

So does a huge bounce in new bank lending in March – 25 percent ahead of economists forecasts at 1.01 trillion yuan – that signals monetary easing since the autumn, creating an estimated 800 billion yuan of new credit, is being put to work.

Bear in mind that the last time growth was this low, in the second quarter of 2009, Beijing was busy rolling out 4 trillion yuan ($635 billion) of stimulus to support the ailing economy and encouraging local authorities to go on a borrowing binge.

The lessons from that episode though have been hard learned, requiring a two-year policy tightening campaign to fight the inflationary effects of the stimulus and creating a 10.7 trillion yuan legacy of local government debt to be cleaned up.

This time Beijing is taking a different route to stability.

This is all about creating macroeconomic flexibility in an economy that, by the end of the decade, is likely to be on a growth trajectory down towards 5 percent and where that flexibility is going to be needed even more, Markowski said.

UNSUSTAINABLE WITHOUT REFORM

Economists believe that a tightly-controlled export and investment-driven growth model that has delivered three decades of double digit expansion, lifted 600 million people out of poverty, and turned China into the worlds single biggest source of economic growth and the Number 1 exporter, is unsustainable.

So too does the government, wary that a wealth gap is widening, asset bubbles are inflating and foreign demand for goods from Chinas vast factory sector is becoming less reliable, fuelling economic risks that undermine the social stability on which the Communist Party claims the right to rule.

The International Monetary Fund hailed Saturdays move as underlining Chinas commitment to rebalance the economy towards domestic consumption and giving market forces more freedom.

Premier Wen Jiabao last month staked his political legacy on the need for structural reforms to rebalance Chinas economy, while Li Keqiang, widely expected to succeed Wen early next year, told a forum last month that reforms cannot be delayed.

Beijing is actively pursuing a slower growth strategy to deliver them, with an official target at an eight-year low to create room for structural policy shifts, particularly on prices it sets, without sparking a surge in inflation.

Economic stability is the most crucial part of the plan.

The move may partially help clear away the doubt on whether China could manage to steer a soft landing and make global investors more clear about Chinas reform roadmap, said Dong Xianan, chief economist at Peking First Advisory in Beijing.

The fundamentals of Chinas economy have shifted, particularly with respect to its huge accumulation of foreign capital over the last decade that has given it the worlds largest store of foreign reserves, worth $3.3 trillion.

Chinas current account surplus dropped from about 10 percent of GDP in 2007 to 2.7 percent in 2011 and is likely to remain subdued while its two biggest trading partners – the European Union and the United States – struggle respectively with recession risks and anaemic growth.

A surplus between 2.5 and 4 percent of GDP is, according to a model backed by the influential Peterson Institute for International Economics, an indication that a currency has reached its fair, or equilibrium, value. Chinas top officials have used that term a lot recently.

That only serves to reinforce the view that Beijing is satisfied it has the policies in place to ensure that even if annual growth in 2012 does end up being its slowest in a decade, it sets the scene for better quality growth in the decade ahead.

And it implies confidence that the incremental introduction of more currency flexibility will not knock economic activity off track near term as the risk of a hard landing has gone.

As long as the current modest easing is carried out – with the budget deficit increasing by almost 1 percent of GDP and new bank lending reaching at least 8 trillion – we think growth will rebound in Q2 sequentially and average 8.5 percent for 2012 as a whole, analysts at UBS said in a note to clients.

(Reporting by Nick Edwards; Editing by Emily Kaiser)

(The views expressed in this column are the author’s own and do not represent those of Reuters)

Nifty moved in the narrow range of 5,200-5,300 for the entire week and closed near the lower end, down 2 percent. Decline in industrial production (IIP), weak global markets along with tsunami fears in the Asian region dampened the investor sentiment.

March 2012 quarter result season took off on a pathetic note after Infosys results came in sharply below street expectations but in line with the our weak estimates.

However, the cracker came in from the weak guidance of 8-10 percent revenue (USD terms) growth for FY13. The management also warned of an uncertain macro environment and cautious spending patterns of clients.

Although the stock has already corrected 13 percent post the results, we do not see any major upside trigger for the stock in the near term. The best seems to be behind Infosys and the guidance will result in re-rating of the company.

IIP for February 2012 rose by a smaller-than-expected 4.1 percent, with the government also sharply revising downward the growth numbers for January 2012 to 1.14 percent from 6.8 percent citing wrong data inputs. However, this is not the first time that the government agencies have reported incorrect data. One may recollect that in December 2011, export data for April-October period were overstated by as much as $8.8 billion. Such errors in reporting key macro data has further dented the government’s image which is already reeling under severe criticism due to various scams and policy paralysis.

With poor IIP data, there is an increased speculation that the Reserve Bank of India (RBI) may have to cut rates by at least 25 basis points this month to boost confidence.

However, we believe it is not going to be an easy task for the RBI to reduce rates especially when WPI inflation is still not within its comfort zone. Brent crude oil price, though corrected marginally, is still hovering near $120 a barrel. Upside risks to inflation remain high if oil marketing companies finally increase fuel prices. On the contrary, if they don’t, we face a higher than manageable subsidy burden and its consequences.

Disappointing Chinese economic data and renewed concerns over Spains rising borrowing costs dragged the US indices over the weekend and we may see our markets opening on a weak note as a result.

Markets this week are expected to react to various results and more importantly on the outcome of the policy review. As such a 25 basis point rate cut after dismal IIP data has already been discounted by the markets, so we may not see sharp reactions on the upside. On the flip side, the markets are expected to react negatively if there is no rate cut. Hence the risk-reward ratio seems skewed on the negative side.

The General Anti-Avoidance Rules (GAAR) issue is still haunting the Foreign Institutional Investors who have slowed down their investments substantially. It would be an uphill task to rebuild the confidence as more time passes by and we hope the government acts sooner than later.

Investors will look for the guidance provided by the management to gauge the earnings outlook. Crisil, Castrol, MindTree, IFCI, HDFC Bank, HCL Tech, Ambuja Cements, ACC, IndusInd Bank, Hindustan Zinc, Cairn India are some of the key companies declaring their results this week.

Airline shares like SpiceJet, Kingfisher and Jet Airways will be watched as the cabinet is likely to meet this week to consider the proposal to let foreign airlines buy stake in local carriers.

The euro zone structural outlook will inevitably be an important focus area with concerns that conditions within Spain will deteriorate further. Any negative news might have a ripple effect on the Indian equity markets.

The Nifty has so far respected the 200-DMA on weekly closing basis and is still trading in a range. This week may turn out to be decisive for the markets and we may see Nifty breaking down especially if the monetary policy is not favourable.

In case of a rate cut as per market expectation, we could see a short rally to 5,300/5,350 levels but that would be difficult to hold, considering the macro economic scenario and dull outlook on the global front.  The odds are in favour of a decline to 5,000-5,050 levels.

Ms. Christine Lagarde, Managing Director of the International Monetary Fund (IMF), has said that despite recent improvements in the global economic outlook, more work is required to support the still fragile recovery.”We have seen some improvement in the economic climate. But let me also underline this point: the risks remain high; the situation fragile.”

She called on policymakers to take this “opportunity to push on and take the further actions that are certainly needed to keep the crisis at bay and finally put it behind us.” Policy actions in Europe and elsewhere have helped to reduce vulnerabilities.

“The steps taken by the Europeans in recent months are a timely reminder of the power of policy resolve and action. Through that hard work, we have earned a bit of time to think through and to actively pursue what still needs to be done,” Ms. Lagarde said in a speech at the Brookings Institution in Washington, DC

Given the risks posed by sovereign and financial stresses, European policymakers should “keep up and build on” their efforts, including through strong country-level policies, support from the European Central Bank, repairing the banking system, and fiscal integration. “The much expected decision of Euro Area Ministers to strengthen the European financial firewall has also been crucial,” she said.

In today’s interconnected global economy, however, Ms. Lagarde noted that a stronger European firewall can only ever be part of the solution. A stronger global firewall will help complete the “circle of protection” for every country, including those not immediately affected by the crisis.

Ryan Avent directs us to David Beckwork and the following excerpt from Federal Reserve Governor Janet Yellens recent speech:

Importantly, resource utilization rates have been so low since late 2008 that a variety of simple rules have been calling for a federal funds rate substantially below zero, which of course is not possible. Consequently, the actual setting of the target funds rate has been persistently tighter than such rules would have recommended. The FOMCs unconventional policy actionsincluding our large-scale asset purchase programshave surely helped fill this policy gap but, in my judgment, have not entirely compensated for the zero-bound constraint on conventional policy. In effect, there has been a significant shortfall in the overall amount of monetary policy stimulus since early 2009 relative to the prescriptions of the simple rules that Ive described {italics added}.

The in my judgement clause is important.  Not only do the simply rules say more easing is needed, but she agrees with that position.  Beckworth sees hope in this paragraph:

Finally, a prominent Fed official acknowledges what Market Monetarists have been saying for some time: over the past 3 years the Fed has failed to adequately ease monetary policy and thus has passively tightened.

Avent sees another opportunity to urge for additional stimulus:

One wants to scream, try overshooting for once. Try overshooting for once! Try it! Try pushing inflation up above 2% for a while and see if you cant generate enough growth to soak up some slack in the economy, thereby greatly reducing the risk that any little headwind that comes along knocks the economy back below stall speed. Try it! There is no way that a year of 3% inflation is bad enough to justify this pitiful hiccuping recovery. Try overshooting!

I find myself just plain frustrated, especially if you read further.  Yellen later says:

Risk-management considerations strengthen the case for maintaining a highly accommodative policy stance longer than might otherwise be considered appropriate. In particular, the FOMC has considerable latitude to withdraw policy accommodation if the economic recovery were to proceed much faster than expected or if inflation were to come in higher.

So far so goodplenty of room to keep the monetary spigots open.  But it begs the question of why shouldnt the Fed be doing more right now if Yellen thinks there remains a policy gap and risk-management considerations give the go-ahead for more policy? Then comes the pivot:

The current economic outlook is associated with significant risks in both directions.

Ugh.  After arguing for more stimulus, Yellen follows up with the fair and balanced approach to economic forecasting:

 In particular, we know that recoveries from financial crises are commonly prolonged, and I remain concerned that the headwinds that have been restraining the recovery could lead to a longer period of sluggish growth and high unemployment than is embodied in the consensus forecastsPotential upside surprises to the outlook include the possibility that the recovery has greater underlying momentum than is incorporated in consensus forecasts.

She concludes with:

In summary, I expect the economic recovery to continueindeed, to strengthen somewhat over time. Even so, over the next several years, I anticipate that we will fall far short in achieving our maximum employment objective, and I expect inflation to remain at or below the FOMCs longer-run goal of 2 percent. A range of considerations, including those relating to uncertainty and asymmetric risks, must inform ones judgment on the appropriate stance of policy. As I explained, a variety of analytical tools, including optimal control techniques and simple policy rules, can serve as useful benchmarks. Based on such analysis, I consider a highly accommodative policy stance to be appropriate in present circumstances. But considerable uncertainty surrounds the outlook, and I remain prepared to adjust my policy views in response to incoming information. In particular, further easing actions could be warranted if the recovery proceeds at a slower-than-expected pace, while a significant acceleration in the pace of recovery could call for an earlier beginning to the process of policy firming than the FOMC currently anticipates.

Yellen lays out the case for additional stimulus, making clear that the Fed is falling short in efforts to compensate for the zero bound, and then, almost inexplicably, concludes that the current policy stance is appropriate and should only be altered on the basis of incoming data.  How this conclusion follows from her analysis of the situation is beyond me.  After all, if you believe that the Fed is falling short of its mark, why dont you explicitly call on the Fed to do more now?  Why do we need to wait for evidence of slower-than-expected growth when you have already acknowledged general disappointment with the state of the economy as well as policy?

Say what you will about the likes of Minneapolis Federal Reserve President Narayana Kocherlakota.  I might not agree with his view of the economy, but at least he is willing to push a policy position that is consistent with that view.  From his most recent speech:

 My own belief is that we will need to initiate our somewhat lengthy exit strategy sometime in the next six to nine months or so, and that conditions will warrant raising rates sometime in 2013 or, possibly, late 2012.

Kocherlakota sees tightening sooner than later as the natural extension of his economic forecast, and he says so.  The natural extension of Yellens view is to push for additional easing now, but she just cant bring herself to say it.  What is holding her back?  My guess:  Yellen might want to ease further, but knows Federal Reserve Chairman Ben Bernanke wont push for it, and thus she doesnt want to send an erroneous signal about the direction of monetary policy.

Bottom Line:  I admit that I am a little frustrated with the doves among Federal Reserve policymakers, as they appear to believe that additional easing is appropriate, but they just cant bring themselves to actually say so.  Instead, they tend to fall back on simply justifying the current policy stance.  Why?  Possibly because they are good soldiers following Bernankes lead.

This post originally appeared at Tim Duys Fed Watch and is posted with permission.

NEW YORK (TheStreet) — Ron Paul has staked his presidential hopes on a few key issues, among the most prominent being monetary policy.

The International Monetary Funds executive board is scheduled to meet tomorrow and decide who to appoint as its new managing director. It is almost certain that Frances Christine Lagarde will emerge the winner. There are useful lessons and observations to be derived from this event.

Let us begin by recalling how it all started. On May 14, then IMF managing director Dominique Strauss-Kahn was arrested at New Yorks JFK International Airport on sexual assault charges. He resigned from the IMF on May 18. Media reports immediately surfaced of Ms Christine Lagarde as a prime candidate to replace him. By May 20 – two days after Strauss-Kahn quit – Ms Lagarde had apparently secured the backing of heavyweight Germany, and by May 25, the European Union had endorsed Ms Lagarde as its official candidate for the IMF post.

All these manoeuvres occurred within only nine days of Strauss-Kahns arrest. The comment from Mr John Lipsky (the American No 2 at the IMF) that Ms Lagarde was an excellent choice even suggested that the Europeans may have lined up tentative United States backing for her early in the process. That the Europeans were able to coalesce around Ms Lagarde and bring the US on board so quickly is testimony to the institutional strength of their union.

In contrast, throughout this same period, the rest of the world appeared to have barely begun to mobilise themselves. Apart from ringside exhortations for a transparent and merit-based selection process, emerging and non-European countries failed to quickly put up candidates to take on Ms Lagarde. In the end, there was only one competitor against her – Mexicos Agustin Carstens.

BARE-KNUCKLED POLITICS

Seeing how these events unfolded, a Lagarde win should surprise nobody. Here are some reasons why:

– Merit is good, but politics decide the winner. Arguments for an objective merit-based selection process were but a sideshow and red herring. An effective IMF managing director is part CEO, part technocrat and part politician/statesman, among other things. How can one even begin to objectively assess candidates based on such subjective criteria? Technical and professional competencies get you a candidates shortlist at best. Who gets appointed is ultimately a function of bare-knuckled politics, which the Europeans played very well in this case.

– It pays to have friends who are ready. Ms Lagardes appointment as IMF head was practically a done deal from the outset. It is a fait accompli not because she is the consensus European candidate. Her strength lies in being the only candidate who, from the moment of Strauss-Kahns resignation, was already backed by a group of sizeable countries. Having that backing – European or otherwise – means she has already secured a chunk of votes and will need only a handful more to cross the finishing line.

– Move fast to win. Speed and momentum are key to Ms Lagardes triumph. Being the earlier candidate allowed Ms Lagarde to frame the policy debate and election agenda. Comments which followed hers risked sounding like either copies of her ideas or gratuitous electioneering rebuttals. Ms Lagarde was able to move quickly with European support because that continent has had over 50 years of regional integration, with established institutions in Brussels and other decision-making mechanisms.

WHAT NEXT FOR EMERGING ECONOMIES?

If other regions or countries want to be taken seriously in these matters, they need to build strong European-like collaboration structures that enable rapid decision-making when opportunities arise. That should be the longer term aim of regional integration initiatives like ASEAN.

Until then, emerging economies will no doubt continue to focus on achieving targeted and incremental gains that chip away at the G-7s domination of IMF governance. Chinas approach on this is instructive.

As the second-largest economy in the world, China should be an important player in IMF governance. Its influence is, however, hampered by an aversion to awkward questions about its economic policies, not least on the value of the yuan. Hence its relatively low public profile on headline issues like IMF leadership succession.

But China has been making gains behind the scenes. Under Strauss-Kahns reign, former Peoples Bank of China deputy governor Zhu Min was appointed to a new special adviser position in the IMF managing directors office. This was probably Strauss-Kahns payback to the Chinese for backing his candidacy in 2007.

Now that China has supported Ms Lagarde in the recent race, we should expect to see Mr Zhus position elevated to the deputy managing director level under a Lagarde-led IMF. That would signal a rise in Chinas status in the IMF and in international economic affairs.

There may be room yet for emerging economies to use similar tactics to gradually alter the balance of power in the IMF. For instance, one of the greatest obstacles to IMF governance reform is that nationality considerations dictate not just who becomes the managing director. There is also the rule that an American will be the first deputy managing director and a Japanese will be one of two deputy managing directors.

The remaining deputy managing director position is rotated among other regions, with the current occupant being Ms Nemak Shafik of Egypt. It is obvious that all nations vested with these positions would want to maintain the status quo in this system. Attacking the package as a whole would require considerable political effort.

To use the small gains analogy, emerging economies could try dividing and conquering, ie to zero in on contesting one position at a time, while assuring other interested countries that their positions would not be affected.

The danger of this approach, however, is that these small achievements can seem like scraps from the G-7 table. Countries and observers have long argued for more immediate and dramatic reforms. Strauss-Kahns resignation has presented a golden opportunity to change the IMF in a big way. That opportunity will, with Ms Lagardes appointment, be wasted.

All is NOT LOST

Having gone the wrong way, can the IMF turn back?

Some emerging economies will see a Lagarde appointment as another reason to turn their backs on international collaboration and go their own way. That would be unfortunate.

The world – including emerging economies – needs the IMF; it is the only forum available to facilitate joint action by countries to address the risks that accompany modern financial and economic integration. However, for the institution to be effective, its governance structure must reflect modern economic realities. The process leading to Ms Lagardes prospective appointment was hardly a step in this direction.

But all is not lost just yet. Mr John Lipsky, the IMFs No 2 and a US appointee, had previously announced that he would be stepping down in end-August. Might this be another chance to remake the institution? Regardless, emerging economies should start caucusing now and surface some strong consensus candidates to give the US nominee a serious fight.

As for the traditional G-7 powers, it is rare indeed that history would present an opportunity to right a wrong within such a short span of time. For all that has been said about increasing the voice and representation of emerging economies in the IMF, let it not be business as usual again when it comes to sharing real power.

Ho Seng Chee is a council member of the Singapore Institute of International Affairs He was a staff member of the IMF from 1997 to 2008.