Global Policy Forum

Europe Aims to Keep IMF Job After Strauss-Kahn

IMF Managing Director Dominique Strauss-Kahn stands accused of attempted rape and a string of other serious charges for allegedly sexually assaulting a maid in a Manhattan luxury hotel. Already speculation has turned to who will replace him. In the past big developing countries like Brazil, China, and India have argued for more equity in power arrangements at both the IMF and World Bank. Traditionally, the World Bank is run by an American while the IMF is headed by a European. Europe remains mired in a sovereign debt crisis, which EU leaders have used to argue for maintenance of the status quo.

By Sandrine Rastello

May 18, 2011

European officials closed ranks to defend their hold on the International Monetary Fund's top job as pressure mounted on the agency's jailed leader, Dominique Strauss-Kahn, to step down.

U.S. Treasury Secretary Timothy F. Geithner said the IMF needs to formally name an interim leader because Strauss-Kahn is "obviously not in a position" to run the fund. Austrian Finance Minister Maria Fekter told reporters in Brussels yesterday that Strauss-Kahn "risks damaging the IMF," and Senator Mark Kirk, a Republican from Illinois, sought his resignation.

At stake is leadership of an institution that approved a record $91.7 billion in emergency loans last year and provides a third of bailout packages in Europe. Strauss-Kahn's arrest may give emerging markets, the drivers of global growth, momentum to their push to end a postwar deal under which a European heads the fund and the U.S. picks the World Bank president.

"There is no lack of talent -- whether in Europe or the emerging markets -- to replace Strauss-Kahn," said Joseph Tan, the Singapore-based chief economist for Asia at Credit Suisse Private Bank. "There has been a gradual shift of economic power and representation to emerging markets but institutions like the IMF and the World Bank are still centered heavily in the West."

The charges that Strauss-Kahn, 62, sexually assaulted a maid in a midtown Manhattan hotel over the weekend started the rounds of speculation on a possible successor. His lawyer denies the claims and says the IMF chief will plead not guilty.

Geithner's Call

"It's important that the board of the IMF formally put in place for an interim period somebody to act as managing director," Geithner, who previously worked at the fund, told an audience in New York yesterday. He said "you want the IMF to have the capacity to be helpful" in the context of global financial issues, in Europe in particular.

European officials rushed to defend their 65-year lock on the top job at the Washington-based lender.

Finance ministers from Sweden to Spain say there's a need for a European as Strauss-Kahn's potential successor while the region contends with a sovereign-debt crisis. South African and South Korean officials have called for an emerging markets candidate for the job, while Brazil indicated it won't push for the switch. China's government asked for a "fair and transparent process."

"If they are serious about this and they really think it's time for them to put forward a candidate and get the job then they have to get moving," said Morris Goldstein, a fellow at the Peterson Institute for International Economics in Washington who was an IMF official for 24 years. "If they do nothing and wait and wait and wait it will again be a European."

Lagarde, Brown

The name most frequently cited for a European candidacy is France's Finance Minister Christine Lagarde, Goldstein said. Former U.K. Prime Minister Gordon Brown has told friends he has global support for his candidacy, the Financial Times reported.

German Chancellor Angela Merkel said May 16 there are "good reasons" for Europe to keep the top job. She was echoed that day by Belgian Finance Minister Didier Reynders, and by his counterparts Anders Borg of Sweden, Jan Kees de Jager of the Netherlands and Elena Salgado of Spain yesterday.

Strauss-Khan, a former finance minister and possible contender for the French presidency, was arrested May 14 and later ordered held without bail as a flight risk. The next court date is scheduled for May 20.

The IMF chief had been scheduled to attend a meeting of European finance ministers in Brussels addressing the euro-area debt crisis. Ministers approved May 16 a 78 billion-euro ($111 billion) bailout for Portugal and stepped up pressure on Greece to narrow its deficit and sell assets to win improved aid terms.

Europe's Case

"We are in a very difficult European situation and it's quite natural that we would have a strong European influence in the IMF," Sweden's Borg told reporters in Brussels.

For the first time since the arrest, officials started suggesting he should resign. Salgado said Strauss-Kahn should show "his best judgment" when asked whether he should step down.

The U.S. currently accounts for 16.8 percent of votes at the IMF. Germany, France and the U.K. together have 14.4 percent.

Officials in developing nations showed no sign of unity to back a single candidate, even after BRIC countries have pushed in recent years to boost the say of emerging markets in the IMF and World Bank. BRIC members are Brazil, Russia, India and China.

China's Take

The process to select Strauss-Kahn's replacement should be "fair, transparent" and aimed at finding the best person for the job, China's Foreign Ministry spokeswoman Jiang Yu said.

Brazilian President Dilma Rousseff's administration has no intention of using the current crisis to push for an emerging market candidate to lead the fund, according to two government officials who couldn't be named because they're not authorized to speak publicly on the matter.

"I am rooting so that this situation resolves itself in a positive way" for Strauss-Kahn, Brazilian Finance Minister Guido Mantega said in an interview yesterday on Globo television. While Brazil would like to see a merit-based system used to select the IMF chief, Strauss-Kahn has been an ally of Brazil and other emerging markets seeking greater representation at the lender, he said.

South African Finance Minister Pravin Gordhan said a candidate from a developing country should be given the opportunity to get the job. Bank of Korea Governor Kim Choong Soo echoed that sentiment today in Seoul, saying: "I hope this will be an opportunity for a country in the emerging economies to take the post."

List of Candidates

Goldstein, the Peterson Institute fellow, said there are several potential candidates from emerging markets, including Singapore Finance Minister Tharman Shanmugaratnam, former Turkish Economic Minister Kemal Dervis and India's Montek Singh Ahluwalia, currently the deputy chairman of the nation's Planning Commission. Turkish Finance Minister Mehmet Simsek said there's no reason he couldn't do the job.

Europeans don't see why they should give up the position if Americans don't signal they're ready to yield the World Bank's presidency or the No. 2 job at the IMF, Sweden's Borg also indicated yesterday.

"If there should be some dancing here, there should be at least two who are part of the tango," Borg said. John Lipsky, a U.S. citizen who has been the No. 2 IMF official and is scheduled to retire in August, has taken over as acting managing director.

Germany may also want to push a German national or someone "at least friendly to traditional German views," said Fredrik Erixon, director of the Brussels-based European Centre for International Political Economy.

"The growing question among politicians in Berlin is why aren't there any Germans in top economic positions," he said. "If Merkel agreed not to put forward a German she would be seen as internally weak."


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