Strauss-Kahn Resigns, Spurring Search for IMF Leader
BOB DAVIS SUDEEP REDDY
Dominique Strauss-Kahn resigned as head of the International Monetary Fund, which he is widely credited with revitalizing at a pivotal time, throwing into high gear a global race to replace him following charges that he sexually assaulted a hotel worker in New York.
WSJ's Ashby Jones reports Dominique Strauss-Kahn has resigned as managing director of the IMF. The News Hub panel also discusses possible successors for the fund's top post. (Photo by Emmanuel Durand-Pool/Getty Images)
The 62-year-old Mr. Strauss-Kahn, in a statement released by the IMF shortly after midnight Thursday in Washington, said was leaving to "protect the institution," which has been largely paralyzed since he was arrested on suspicion of attempted rape in New York on May 14. In a letter to the IMF's board, he continued to deny that the charges against him. "I want to say that I deny with the greatest possible firmness all of the allegations that have been made against me," he wrote.
"I want to devote all my strength, all my time, and all my energy to proving my innocence," Mr. Strauss-Kahn said.
The IMF under Mr. Strauss-Kahn has played a key role in handling the fallout from the global financial crisis. It has bailed out more than a dozen countries with emergency loans, and worked with the European Union—less successfully—in keeping the crisis from spreading to Western Europe. So far, Ireland, Greece and Portugal have sought loans, though Greece hasn't come close to meeting the deficit-reduction requirements the IMF and EU set as conditions for the loans.
French Finance Minister Christine Lagarde is the leading contender to replace Mr. Strauss-Kahn.
French Finance Minister Christine Lagarde is the leading contender to replace Mr. Strauss-Kahn, though others are likely to emerge from developing nations. The leaders of the Group of 20 industrial and developing nations have committed to "support new open, transparent and merit-based selection processes," but haven't detailed how that would be handled. By tradition, dating back to the founding of the institutions after World War II, a European heads the IMF and an American heads the World Bank.
The IMF said it would "communicate in the near future" about a process to pick a new managing director. For the time being the fund's No. 2 official, John Lipsky, will run the institution. Mr. Lipsky has said he will resign by the end of his term on Aug. 31. He is scheduled to give a talk on the IMF's future in Washington on Thursday.
Christine Lagarde and Dominique Strauss-Kahn at a Europe-China trade conference in Paris in June 2010.
The resignation also may weaken Mr. Strauss-Kahn's hand in negotiating with the Manhattan District Attorney over possible punishment, given that he has already made a big concession by stepping down from his IMF job.
On Thursday, Mr. Strauss-Kahn will make a bid to be released from jail, attorneys in the case say. In papers filed Wednesday in State Supreme Court in Manhattan, Mr. Strauss-Kahn's attorneys redoubled efforts to have their client released from New York City's Rikers Island jail, offering to post $1 million in cash bail and saying he had agreed to submit to around-the-clock home detention in Manhattan and electronic monitoring.
Mr. Strauss-Kahn's accuser on Wednesday testified before a grand jury, which is weighing the charges and will return Thursday, said her lawyer, Jeffrey Shapiro.
Before his arrest, Mr. Strauss-Kahn had been widely expected to leave the IMF around July to campaign for the French presidency, parlaying his stint at the IMF, where his reputation grew as a global economic leader. Those plans are now in tatters as well.
European governments Wednesday started to rally around Ms. Lagarde, a corporate lawyer who has been France's finance minister since 2007, as the fund's next chief, saying she would be best positioned to replace her compatriot and become the first woman to lead the institution. Swedish Finance Minister Anders Borg said that while the selection of an IMF chief should be open, Ms. Lagarde stood out because of her role in managing the euro zone's fiscal crisis and global financial coordination. "Madame Lagarde is one of the obvious candidates," he told the Sky News television channel.
As Dominique Strauss-Kahn remains in a New York City prison following his arrest on attempted rape charges, The White House has given the IMF orders to find a replacement as soon as possible. WSJ's David Wessel reports. (Photo by Stephen Jaffe/IMF via Getty Images)
The IMF, an organization of 187 countries, advises and lends to member nations while serving as a coordinator for global economic policies. Neither Ms. Lagarde nor her spokesman could be reached to comment. A spokesman for French President Nicolas Sarkozy couldn't be reached to comment.
Europe has a big edge in selecting an IMF chief—if it can maintain unity. European nations have 35.6% of the votes on the IMF board and a successful candidacy requires a simple majority. But other European candidates could emerge, dividing the region. Central Bank Governing Council member Nout Wellink, for instance, suggested that European Central Bank President Jean-Claude Trichet, who is retiring in October, would make a "fantastic candidate."
Dominique Strauss-Kahn is arraigned in Manhattan Criminal Court.
The U.S., which has 16.8% of the votes in the IMF, will play a big role in any selection and must weigh conflicting goals. On one hand, the U.S has traditionally had the No. 2 slot at the IMF and would like to put White House economic aide David Lipton into that job. A deal with the Europeans for the Nos. 1 and 2 slots could accomplish that. But such back-room dealing would frustrate another U.S. goal, which is to persuade developing nations, especially those in Asia, to participate more fully in international organizations.
Still, it isn't clear whether emerging economies can agree on a single candidate. Some, including Brazil, have said that it is reasonable for Europe to provide the next IMF chief—though that position could change now that Mr. Strauss-Kahn has resigned. South Africa's finance minister Pravin Gordhan forcefully argued otherwise on Wednesday.
"Institutions such as the IMF must reform so that they can become credible, and to be credible they must represent the interests and fully reflect the voices of all countries, not just a few industrialized nations," Mr. Gordhan said in a statement. A candidate from a developing country, he added, "will bring a new perspective" to the IMF.
A former U.S. official said the only way to block Ms. Lagarde would be for the Brics countries—Brazil, Russia, India, China and South Africa—to quickly agree on a candidate and force the U.S. and EU to respond.
China's government isn't expected to take the lead in any wheeling and dealing over a successor, said a number of prominent academics in Beijing. "I don't think Brics will sit together to find a candidate," said Peking University economist Huang Yiping. "If one country has a very strong candidate, it could look for support from the others."
Thailand's Finance Minister Korn Chatikavanij said that a candidate from the emerging market ought to run the IMF. Among the potential candidates from emerging markets, Mr. Korn said Singapore's Finance Minister Tharman Shanmugaratnam would be a good choice to take on the top job at the IMF. "He's technically very sound and he is respected within the institution," Mr. Korn said. "But there are potentially other candidates from within Southeast Asia, including [Indonesia's former finance minister] Sri Mulyani Indrawati, who is now with the World Bank. There are also strong candidates from India, China and South Korea."
A Potential Successor to Lead the Fund
Christine Lagarde's career in the private and public sectors
1956: Born in French port city of Le Havre to a university-professor father and schoolteacher mother
1981: Admitted to Paris bar; joins U.S. law firm Baker & McKenzie in Paris, specializing in corporate law
1999: Named chairman of executive committee at Baker & McKenzie
2005: Returned to France after 10 years in the U.S. to take post of trade minister in then-President Jacques Chirac's conservative administration
2007: Named finance minister in President Nicolas Sarkozy's government after a brief stint as agriculture minister
It isn't clear what ultimately persuaded Mr. Strauss-Kahn to give up his position. U.S. Treasury Secretary Tim Geithner put pressure on the IMF to make a change by calling for it to formally ratify Mr. Lipsky as acting managing director. Mr. Lipsky took on that role automatically under standard IMF procedures after Mr. Strauss-Kahn's imprisonment. But world leaders were wary of calling for Mr. Strauss-Kahn to step down while he was facing serious criminal charges out of concern for seeming to prejudice the case.
Mr. Strauss-Kahn took the helm of the IMF in September 2007 when it faced an uncertain future and probable financial losses because few countries were turning to it for loans as the global economy expanded smartly. He worked to reduce the size of the staff and shore up its finances. But he quickly ran into trouble when he was accused of abusing his position by having a sexual relationship with a female subordinate, Piroska Nagy, who was a senior official in the IMF's Africa department.
In a letter she wrote to attorney Robert Smith, who was conducting an investigation into the affair for the IMF's board, Ms. Nagy said she was confused and unsure how to respond to her boss's advances. "Despite my long professional life, I was unprepared by advances by the Managing Director of the IMF. As I told you, I felt that I was 'damned if I did and damned if I didn't.'"
Mr. Smith's report was released in October 2008 and found that the affair was consensual and that Mr. Strauss-Kahn didn't make either promises or threats to Ms. Nagy "to induce her to engage in the affair." Taking its cue from the report, the IMF board found that Mr. Strauss-Kahn committed a "serious error in judgment," but said there was no evidence of "harassment, favoritism or any other abuse of authority."
Mr. Strauss-Kahn apologized for his behavior and told the board and IMF staff that he was committed "going forward, to uphold the high standards" expected of a managing director. Despite weeks of humiliation, Mr. Strauss-Kahn was quickly able to win over the staff by helping steer the IMF so it had a major role in handling the deepening global financial crisis.
In her letter to Mr. Smith, Ms. Nagy called Mr. Strauss-Kahn "a brilliant leader with a vision for addressing the ongoing global financial crisis," but warned, "I fear he is a man with a problem that will make him ill-equipped to lead an institution where women work under his command."
With the global economy in turmoil, Mr. Strauss-Kahn helped persuade global leaders to stimulate their economies in a coordinated fashion. When countries ran into financial straits, he provided emergency loans, often without some of the detailed requirements for privatization and economic opening that the IMF had required of Latin American and Asian countries in past crises. That somewhat softer touch began to ease resentment toward the IMF in those countries.
He also improved relations with China, which had been resentful of IMF efforts to get it to raise the value of its currency, by shifting to less confrontational language and focusing on ways China could improve its growth prospects over the longer term.
As the G-20 took on a larger role in global affairs, it turned again and again to the IMF to provide research and advice. Under Mr. Strauss-Kahn, the IMF essentially became the staff of the G-20.
Mr. Strauss-Kahn, a former French finance minister, also was able to convince skeptical European leaders, especially in Germany and at the ECB, that the IMF should play a big role in bailing out EU countries that ran aground. Some EU officials thought that turning to the IMF would be a humiliating admission that their members were on a par with developing nations. Among Mr. Strauss-Kahn's strongest arguments: Much of the IMF staff was European and they had Europe's interests at heart.
Indeed, the IMF and the EU are now trying to decide what ought to be done to aid Greece, which hasn't lived up to the terms of an EU-IMF loan agreement. If the IMF cuts Greece too much slack, developing nations are bound to complain of a double standard. Mr. Strauss-Kahn won't be around now to try to finesse that political problem.
2 comments:
The IMF exists purely for the benefit of the banksters. The banksters make risky, high interest loans to countries that probably will not be able to repay them. And then when the loans go bad, the IMF arranges a bankster bailout of the country for "humanitarian" reasons. So in that sense, the IMF is a lot like Fannie and Freddie in that it enables banksters to make and profit from unsound loans (at the expense of the US and other governments). The IMF bails out EU states, but not US states. This seems very unfair. If the US government had any sense (which it doesn't), it would withdraw from the IMF immediately.
Everyone knows that the Strauss-Kahn Resigns, Spurring Search for IMF leader. The IMF under Mr. Strauss-Kahn has played a key role in handling the fallout from the global financial crisis.
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