Israel's Fischer to challenge Lagarde for IMF head

By Steven Scheer and Maayan Lubell

JERUSALEM (Reuters) - Bank of Israel Governor Stanley Fischer said Saturday he would run for the top job at the International Monetary Fund, presenting a potential serious challenge to front-runner Christine Lagarde.

Lagarde, the French Finance Minister, told her Saudi Arabian counterpart earlier in the day that tackling sovereign debt troubles would be a priority of the IMF if she led the Washington-based rescue lender.

Fischer, also competing with Mexican central bank chief Agustin Carstens, had said the IMF post was one of the best jobs in the international system but was noncommittal on a bid until Saturday.

Israeli Finance Minister Yuval Steinitz, Israel's representative at the IMF, said he would support and aid Fischer's candidacy.

The job has been vacated by Frenchman Dominique Strauss-Kahn, who resigned after his arrest on May 14 on charges of attempting to rape a New York hotel maid.

Fischer, 67, would be a serious contender to Lagarde. But the IMF would have to change its rules that no one should be appointed to the post over the age of 65 and that no one should hold the post beyond the age of 70.

Fischer, a former deputy managing director of the IMF and ex vice chairman of Citigroup, also holds Israeli citizenship, which could pose a problem for Arab countries.

LAGARDE SEEKS SAUDI SUPPORT

Lagarde was in Saudi Arabia Saturday as part of a world tour to drum up support among emerging market economies.

"There are specific issues to deal with and clearly some of the sovereign debt crisis issues are one of the priorities at the moment," Lagarde told Reuters on the sidelines of a meeting with Saudi Arabia's Finance Minister Ibrahim Alassaf in Jeddah.

"I will certainly look at one of the purposes of the fund which is to restore stability."

Lagarde is backed by the European Union and a handful of smaller countries from Georgia to Mauritius. Paris is hopeful that Washington and Beijing will also stand behind her.

Fischer, though, is popular in the United States and was Federal Reserve Chairman Ben Bernanke's thesis advisor.

Brazil, Latin America's biggest economy, is leaning toward supporting Lagarde but has not yet made up its mind, officials said Friday.

A Reuters poll of economists from all over the world, published in May, found 32 of 56 saw Lagarde, who is backed by the European Union, as the favorite, although Fischer won the most votes as "best suited" for the job.

Fischer, who just started his second year of a second five-year term as Israel's central bank chief, has been widely credited with helping Israel's economy weather the global financial crisis by starting to lower Israeli interest rates sharply in 2008. He has since raised rates 10 times to contain inflation.

One potential pitfall for Lagarde is a legal investigation into her role in a 2008 arbitration payout to a French businessman.

A top French court Friday put off until July 8 its decision on whether to open a formal inquiry into allegations by opposition left-wing deputies that she abused her authority in approving a 285 million-euro payout to a businessman friend of President Nicolas Sarkozy.

(Additional reporting by Tova Cohen in Tel Aviv; Editing by Andrew Heavens)