Europe aims to keep IMF job after Strauss-Kahn

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 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.”
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 Group AG’s private-banking division. “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” on global financial
issues, particularly in Europe.

European officials defended 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.”

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.

Brown hasn’t asked the British government to back him for
the IMF role, Chancellor of the Exchequer George Osborne said yesterday,
sidestepping questions on whether he would back such a bid. Prime Minister
David Cameron said last month that Brown might not make the “most appropriate”
IMF head because the job needs someone who “understands the danger of excessive

Lagarde may face legal challenges of her own. Jean-Louis
Nadal, the public prosecutor attached to France’s highest appeals court, this
month requested a judicial inquiry into whether Lagarde abused her powers in
reaching a settlement with businessman Bernard Tapie. Lagarde pledged
cooperation while saying the allegations are without foundation.

‘Good Reasons’

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

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.

“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

‘Best Judgment’

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

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.

Merit System?

“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.”


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.”


Dominique Strauss-Kahn, managing director of the International Monetary Fund.
Photographer: Richard Drew/Pool via Bloomberg

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