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Markets weigh possible Strauss-Kahn successors

By Pan Pylas

Associated Press

Published: Tuesday, May 17 2011 12:15 p.m. MDT

FILE - In this Thursday, March 25, 2010 file photo Zhu Min, deputy governor of the Peoples Bank of China (PBOC), speaks at the luncheon of the Credit Suisse Asian Investment Conference in Hong Kong. The global financial community was abuzz with speculation Tuesday May 17, 2011, about who would eventually replace Dominique Strauss-Kahn as head of the International Monetary Fund. With Strauss-Kahn jailed in New York on sex crime charges, the prevailing view in the markets and in policymaking circles is that it's only a matter of time before he quits or is forced out by the IMF board.

Kin Cheung, file, Associated Press

LONDON — The global financial community was abuzz with speculation Tuesday about who would eventually replace Dominique Strauss-Kahn as head of the International Monetary Fund.

With Strauss-Kahn jailed in New York on sex crime charges, the prevailing view in the markets and in policymaking circles is that it's only a matter of time before he quits or is forced out by the IMF board.

Even before his arrest Sunday, Strauss-Kahn was widely expected to resign from the IMF later this year to pursue the French presidency in 2012.

A number of names were touted as potential candidates but the final choice will largely hinge on whether the U.S. and the European Union continue their arrangement of splitting the jobs of the two Washington D.C.-based sister organizations — the International Monetary Fund and the World Bank. The IMF focuses on stability in the international financial system, while the World Bank funds projects in developing countries.

Since World War II, a European has headed the IMF while the U.S. has grabbed the top job at the World Bank. This arrangement might be in peril as developing nations such as China and Brazil become more potent forces in the world economy.

Simon Johnson, a professor at MIT's Sloan School of Management and a former IMF chief economist, said there's no guarantee the U.S. will continue to want the World Bank leadership, and may back the nomination of an official from a big developing nation such as China. That would raise questions about Europe's claim to the IMF leadership.

"A brilliant move on behalf of the Americans would be to get China more involved in the development process," Johnson said. "The Europeans need to line their ducks up; they want this more than ever."

European leaders would blanche at the thought of giving up their traditional claim to nominate the IMF chief, as one of the fund's main jobs now is to help solve Europe's debt crisis. Strauss-Kahn, France's finance minister when the euro currency was created in 1999, has been viewed favorably for his leadership in handling the 17-nation eurozone's troubles.

Managing directors serve five-year terms. Countries nominate candidates, and they are elected by the organization's 24-member executive board, which represents the 187 member nations. The United States and Europe, as leading donors, have much greater weight than smaller countries.

Possible Europeans touted at the moment to lead the IMF include French Finance Minister Christine Lagarde, the former head of the German central bank Axel Weber, the head of Europe's bailout fund Klaus Regling, and Peer Steinbrueck, a former German finance minister. Marek Belka, the head of Poland's central bank who also worked as the director of the IMF's Europe sector, took himself out of the running Tuesday.

"They need a heavyweight and they need a European heavyweight," said Jan Randolph, head of sovereign risk analysis at IHS Global Insight.

If Europe agrees to let someone outside the continent take the IMF helm, the list of candidates could include Turkey's former finance minister Kemal Dervis or Singapore's finance chief Tharman Shanmugaratnam.

Others tipped include Trevor Manuel, South Africa's former finance minister, Mexico's central bank governor Agustin Carstens, former Brazilian central bank president Arminio Fraga and China's Min Zhu, a special adviser to Strauss-Kahn.

German Chancellor Angela Merkel on Monday sought to dampen speculation that the next leader of the IMF should come from the developing world.

"I think that, in the current phase, in which we have a lot of discussions connected to the euro, there are good reasons for Europe also to have good candidates available," Merkel said.

Analysts say Merkel's comments suggest Europe will try to get a European at the head of the IMF one more time before possibly handing the next term to someone from a developing country.

Although Strauss-Kahn has not said anything about his future at the IMF, experts say it's a matter of time before he leaves. He was denied bail and is currently in a New York prison following his weekend arrest for allegedly attempting to rape a maid in a Manhattan hotel. He is due to appear next in court on May 20.

Austria's finance minister Maria Fekter was the first to suggest that Strauss-Kahn should resign as uncertainty over his future might damage the fund at a crucial time.

"Considering the situation, that bail was denied, he has to figure out for himself, that he is hurting the institution," Maria Fekter told journalists Tuesday as she arrived at a meeting of European finance ministers in Brussels.

The IMF has said it's business as usual despite the arrest and installed a deputy to lead while Strauss-Kahn is indisposed. But Europe's debt crisis is showing few signs of abating and Greece, in particular, is widely tipped to need more international aid.

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Gabriele Steinhauser in Brussels and Chris Rugaber in Washington contributed to this report.

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