If IMF's Strauss-Kahn Steps Down, Who Takes Over?

IMF chief Dominique Strauss-Kahn remains in custody in New York charged with the attempted rape of a hotel maid. It's almost certain Strauss-Kahn will not remain head of the IMF, and that creates a considerable leadership vacuum at a delicate time for the global economy.

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STEVE INSKEEP, host:

IT'S MORNING EDITION from NPR News. Good morning, I'm Steve Inskeep.

RENEE MONTAGNE, host:

And I'm Renee Montagne.

The man who heads the International Monetary Fund, Dominique Strauss-Kahn, spent the night in New York but not at the kind of place he's accustomed to. Over the weekend, he was at a luxury hotel, the Sofitel, in a suite.

INSKEEP: This morning he's at the Rikers Island jail. Strauss-Kahn has been charged with seven crimes, including attempted rape, sexual abuse and unlawful imprisonment for his alleged attack on a maid at the hotel where he was staying. Yesterday a judge denied bail to the 62-year-old who until this past weekend was considered a frontrunner for the presidency of France.

MONTAGNE: Strauss-Kahn's lawyers say he is innocent. Still, no matter what the outcome of the case, it's almost certain he will not remain head of the IMF.

As NPR's John Ydstie reports, that creates a considerable leadership vacuum at a delicate time for the global economy.

JOHN YDSTIE: Dominique Strauss-Kahn's personal reputation may be irreparably harmed, but he created an impressive record of accomplishment at the IMF, says Eswar Prasad, a former IMF official who is now fellow at the Brookings Institution.

Mr. ESWAR PRASAD (Brookings Institution): Among senior international policymakers like finance ministers and central bank governors, Dominique Strauss-Kahn really had the status of a rock star.

YDSTIE: Mohamed El-Erian, CEO of PIMCO, the giant bond fund, says Strauss-Kahn was effective because of his political connections, his capacity to inspire, and his ability to seize opportunities.

Mr. MOHAMED EL-ERIAN (CEO, PIMCO): And the financial crisis gave the fund an opportunity to start re-asserting itself on the global stage, and Mr. Strauss-Kahn grabbed that opportunity.

YDSTIE: Under Strauss-Kahn the IMF's resources were multiplied and its oversight of the world financial system was enhanced. But now, says El-Erian, the allegations against Strauss-Kahn have put the IMF and the global economy at risk.

Mr. EL-ERIAN: I think the risks for the global economy are definitely higher than they were before the news broke out on Saturday. The IMF is engaged in some very delicate issues around the globe, and without Mr. Strauss-Kahn it's a different IMF.

YDSTIE: Among those issues: the sovereign debt problems in European countries like Greece; also the need for the IMF's support in countries in the Middle East like Egypt, which are undergoing fundamental transformations.

Simon Johnson, a former chief economist at the IMF, is confident the institution's staff can still meet those challenges.

Professor SIMON JOHNSON (MIT Sloan School of Management): I think the short term impact is actually quite limited. There's a lot of very good people at the IMF who are really on top of the details, and obviously there are sensitive negotiations going on, for example, with Greece this week. But I think that they can certainly keep all the various balls in the air.

YDSTIE: A White House spokesman says the Obama administration believes the IMF can continue to execute its mission effectively.

John Lipsky, the deputy managing director of the fund, has been appointed to be interim leader. But Lipsky had previously announced he would leave the fund in August. Eswar Prasad says that situation will create a ferocious battle between Europe and emerging market nations like China and India over who should lead the fund. In the past, the IMF's leaders have always been European, says Prasad.

Mr. PRASAD: And in fact, the German chancellor just fired the opening salvo in that battle, saying right not there is a very good reason why the top job should once again go to a European.

YDSTIE: Presumably because of Europe's ongoing debt crisis. Prasad says Strauss-Kahn made sure conditions on the European debtors weren't too stringent.

Simon Johnson, now a professor at MIT, says if an IMF leader were chosen from among emerging market country candidates, it could make things tougher for European debtors.

Prof. JOHNSON: Their attitude, I think, would be less lenient than the leading Europeans.

YDSTIE: That said, Johnson believes it is time for an emerging market candidate to be given an equal chance to lead the International Monetary Fund.

John Ydstie, NPR News, Washington.

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