IMF Board Aims to Pick Successor to Strauss-Kahn by June 30

French Finance Minister Christine Lagarde
Christine Lagarde, France's finance minister. Photographer: Munshi Ahmed/Bloomberg

The International Monetary Fund said it will aim to pick a leader to succeed Dominique Strauss-Kahn by the end of June and promised to choose the most-qualified candidate from among front-runners announced by the agency.

“The executive board has adopted a procedure that allows the selection of the next managing director to take place in an open, merit-based and transparent manner,” Shakour Shaalan, the senior member of the IMF’s 24-person board, said in a statement yesterday in Washington.

The pledge of transparency came in response to calls by Brazil, China and other developing economies for an end to Europe’s 65-year lock on the top job in favor of a selection process that is based on qualifications alone. Among the requirements for the job cited by the board is an understanding of “challenges facing the fund’s diverse global membership.”

Officials in Thailand, Russia and South Africa said the next managing director should come from a developing nation even as they failed to unite behind one candidate. By contrast, Europe has moved to maintain control of the post as officials closed ranks behind French Finance Minister Christine Lagarde.

Treasury Secretary Timothy F. Geithner said earlier that the U.S. is “prepared to support a candidate with the requisite, deep experience and leadership qualities, and who can command broad support among the fund’s membership.”

Arturo Porzecanski, a professor of international economics at American University in Washington, said he was skeptical the selection process would be based on merit alone.

‘Walking the Walk’

“In political organizations, many of them are talking the talk but not necessarily walking the walk,” Porzecanski said in a telephone interview.

Any of the IMF’s 187 member nations will be able to nominate candidates for the managing director’s position between May 23 and June 10, the agency said. The board will draw up a short list of three candidates and publicize the names.

The IMF said the board’s objective is to select the managing director by consensus. Nations have weighted votes, with the U.S. holding almost 17 percent of the total.

The procedure for a short-list “means that there’s clearly going to be a lot of horse-trading beforehand,” said Bessma Momani, a professor in at the University of Waterloo in Canada who specializes in the IMF. “They are obviously expecting a lot of names.”

German Chancellor Angela Merkel said a European is best placed to lead the IMF given the demands of the euro-area debt crisis. The IMF approved a record $91.7 billion in emergency loans last year and provides a third of the euro-area’s bailout packages.

Euro’s Problems

“Naturally the developing countries have a claim on the highest position of the IMF or World Bank, but the current situation speaks for a European candidate given the considerable problems of the euro,” Merkel told reporters in Berlin May 19.

Her chief spokesman, Steffen Seibert, said he couldn’t confirm a Handelsblatt report that the government is preparing to throw its support behind Lagarde.

The euro fell versus the dollar for the first time in five days yesterday as a policy maker for the European Central Bank said it may not be able to accept Greek sovereign debt as collateral if the bond maturities are extended.

The European currency weakened 1.1 percent to $1.4161 at 5 p.m. in New York, cutting a weekly gain to 0.3 percent, after earlier advancing to $1.4346, the strongest level since May 11. The euro sank 0.9 percent to 115.69 yen, after gaining to as much as 117.17.

Greek Rating

Greece’s credit rating yesterday was cut three levels by Fitch Ratings, which said that even a voluntary extension of its bond maturities being studied by European Union policy makers would be considered a default.

Italy and Sweden also backed Lagarde, while German Foreign Minister Guido Westerwelle said he holds her in high esteem, the first public hint of German support.

“Christine Lagarde has outstanding credentials,” Swedish Finance Minister Anders Borg said in a Bloomberg Television interview May 19. Her sex is an “advantage” since “half of the world has not been represented as managing director” of the IMF, Borg said.

Lagarde is now the “odds-on” favorite for the job after being a “20-1 outsider when betting began,” London-based bookmaker William Hill Plc said in an e-mailed statement.

Porzecanski said the choice of a European could introduce a potential conflict of interest. “If we ever need Europe’s financial problems to be handled in an impartial way, it is now,” he said. “We don’t need the IMF to be taken over by the EU.”

Thailand, Philippines

While Chinese officials haven’t publicly endorsed any candidate, Thailand and the Philippines backed Singapore Finance Minister Tharman Shanmugaratnam as a possible choice to succeed Strauss-Kahn at the IMF.

Brazilian ex-central banker Arminio Fraga, South Africa’s Trevor Manuel, India’s Montek Singh Ahluwalia and Shanmugaratnam would all make “fine candidates” to lead the IMF, Raghuram Rajan, a professor at the University of Chicago and a former chief IMF economist, wrote in the Financial Times.

Strauss-Kahn, 62, a former French finance minister, resigned IMF four days after his arrest in New York on sexual-assault charges. He was discharged from New York’s Rikers Island yesterday after being granted bail. While he has denied the accusations, he hasn’t entered a formal plea to any of the charges, which include attempted rape.

World Bank

Europeans have picked IMF heads since its founding at the end of World War II under a deal that also gives the U.S. control over the top World Bank post. The No. 2 person at the IMF has traditionally been chosen by the U.S.

John Lipsky, 64, the No. 2 official at the fund, has been named acting leader. Lipsky, a former chief economist at JPMorgan Chase & Co., is scheduled to retire in August.

Strauss-Kahn’s five-year term had 17 months remaining. In past successions, some managing directors were appointed to fresh five-year tenures.

Strauss-Kahn will receive a $250,000 severance package, IMF spokesman Bill Murray said. He earned an annual salary of $441,980 after taxes as of July 2009, plus an expense allowance of $79,120, also tax-free.

The allowance would enable him to maintain “a scale of living appropriate to your position as managing director,” according to his contract. In addition, he could be reimbursed for “reasonable” entertainment expenses as well as first-class travel.

Selection by Consensus

Lagarde, 55, declined to comment on her potential candidacy when questioned by reporters in Paris. She said that the successor to Strauss-Kahn should come from Europe.

Lagarde’s chances may hinge on how she resolved a two-decade-old dispute involving a supporter of President Nicolas Sarkozy. The Cour de Justice de la Republique, which oversees ministers’ actions in office, has until June 10 to decide whether to investigate if Lagarde abused her powers in agreeing in 2007 to send the case to arbitration. It resulted in a 385 million-euro ($551 million) award to Bernard Tapie, a former Socialist minister who endorsed Sarkozy’s presidential effort.

The matter stems from the 1993 sale of Tapie’s Adidas AG, which was handled by then-state-owned Credit Lyonnais SA. At the time, Lagarde was a partner with the Chicago-based law firm Baker & McKenzie LLP, 12 years before she joined the government. The minister has rejected accusations her decision to take the matter to arbitration and not appeal the award was a reward for Tapie’s support of Sarkozy.

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