Monday, May 16, 2011

News Strauss-Kahn arrest plummets IMF into disarray

News Strauss-Kahn arrest plummets IMF into disarray : WASHINGTON — The arrest on sexual assault charges of the head of the International Monetary Fund has embarrassed an elite institution often resented for dictatiIng fiscal chastity to developing countries.

IMF managing director Dominique Strauss-Kahn's arrest by New York police for attempting to rape a hotel chambermaid opens a gaping hole at the institution just as it wrestles with a deep and complex financial crisis across Europe.

With the institution's leader locked up in the city's Rikers Island prison and its number two slated to leave in August, pressure was quickly building on the global last-chance sovereign lender to come up with fresh leadership.

The IMF executive board met late Monday to discuss Strauss-Kahn's situation, but made no public decision on his fate.

"The board was briefed regarding criminal charges that have been brought against the managing director during a private visit to New York City," it said in a terse statement.

"The IMF and its executive board will continue to monitor developments."

Meanwhile the Fund continued with regular business. It signed off on a 78-billion-euro ($111 billion) EU-IMF bailout for Portugal, and approved 1.58 billion euros in new assistance to debt-laden Ireland.

Strauss-Kahn was seized by police Saturday at New York's JFK airport -- where he was headed to Europe for Greek crisis talks with German chancellor Angela Merkel -- after a hotel maid said he tried to rape her and forced her to have oral sex.

Lawyers for the 62-year-old French politician told a court early Monday he was innocent, and he was jailed after a judge denied him bail.

Deputy managing director John Lipsky is filling in, but the Fund still faces a challenge replacing its top two officials in a very short period.

Last week Lipsky announced he would leave on August 31.

And few expect Strauss-Kahn -- who was at any rate considering a run for the French Presidency -- to stay on while he fights the severe charges facing him.

"Even if he were acquitted, the trial would take a while. And they are not going to wait in order to replace him," Mark Weisbrot, co-director of the Center for Economic and Policy Research, told AFP.

The IMF stands high among global institutions, as it helps debt-laden governments restructure their finances, though often dictating extremely tough reform terms and fomenting resentment in the process.

Strauss-Kahn, who became managing director in November 2007, gave the Fund a more flexible and sympathetic face, while injecting it into the middle of financial crisis that erupted in the United States and spread to other advanced countries.

He led a tripling of Fund financial resources, and carved a crucial role for it in Europe's crisis, where it has joined bailouts of Greece, Ireland and, as of Monday, Portugal.

He also helped set a new ideological tone at the Fund. At its April meeting, he underlined how it was no longer rigidly opposed to countries using capital controls defensively -- a position that in the 1990s had earned the IMF the ire of a number of developing countries which accused it of aiding the agendas of advanced economies.

He also stressed the need to consider the impact of financial adjustment policies on job creation.

"It's probably too much to say that it's a jobless recovery, but it's certainly a recovery with not enough jobs," he said of the turnaround of many economies.

Another key change came with the acceptance that the IMF and World Bank leadership would no longer be monopolized by, respectively, European and US officials.

For more than half of years since 1946 French men have led the Fund.

In recent years, though, rising economies expanded their voting power on the fund's board, and in recent months numerous names from developing economies have circulated for eventually replacing one or both of the men.

But with much of its focus on the European crisis -- where Strauss-Kahn had taken a deep personal role -- there was pressure to replace him with another European.

"We know that in the medium-term emerging countries will have a good claim to the chairmanship of the IMF and World Bank," Merkel said Monday.

But "In the current situation when the IMF is especially needed to fight the crisis in some euro states, the German government sees good reasons why there should be a good European candidate."

"I would guess that probably they would go with a European in order to do it faster and just promise all the developing countries that they'll do something up the road," said Weisbrot. "Because change in the governance of IMF has really been proceeding at a glacial pace."

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