May 18 (Bloomberg) -- 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.
“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.
Jean-Francois Cope, the head of France’s Union For a Popular Movement ruling party, today said Strauss-Kahn was no longer in the capacity to do his job.
“I don’t see how he can do his job of IMF chief,” he told reporters in Paris. “So, consequently, the issue will have to be solved in the coming days.”
Finance ministers from Sweden to Spain say there’s a need for a European as Strauss-Kahn’s potential successor as the region contends with a sovereign-debt crisis.
South African, Russian and South Korean officials have called for a candidate from an emerging market, 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 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. 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 debt.”
Not ‘Right Man’
Sweden’s Finance Minister Anders Borg today said Brown “is not the right man” for the position.
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.
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 Borg of Sweden, Jan Kees de Jager of the Netherlands and Elena Salgado of Spain yesterday.
Strauss-Kahn, 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. A bail hearing is scheduled for tomorrow. The next court date had initially been expected to take place on 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 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.
Lack of Unity
Officials in developing nations showed little sign of unity to back a single candidate, even after BRIC countries have pushed in recent years to boost the input of emerging markets in the IMF and World Bank. BRIC members are Brazil, Russia, India and China.
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.
Mantega, in a letter to Group of 20 nations, said that IMF members shouldn’t make a “precipitated” decision about who will succeed Strauss-Kahn at the helm of the IMF, and whoever is chosen should represent the “greatest number” of member-nations and continue the work of giving a bigger voice to emerging market nations.
South African Finance Minister Pravin Gordhan in an interview today said Trevor Manuel, his predecessor, is “highly respected in the world” and that the country is already in talks with other developing economies on a possible candidate.
Bank of Korea Governor Kim Choong Soo in Seoul today said he hoped “this will be an opportunity for a country in the emerging economies to take the post.”
Emerging markets “have every right to compete for leading positions in international organizations,” Russia’s central bank Deputy Chairman Sergei Shvetsov said. His country in 2007 nominated a former Czech prime minister to counter Strauss-Kahn’s candidacy.
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