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.
US 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 US 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.
GEITHNER’S CALL
“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.
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European officials defended their 65-year lock on the top job at the Washington-based lender.
Finance ministers from Sweden to Spain say there’s a need for a European as Strauss-Kahn’s potential successor while the region contends with a sovereign-debt crisis.
South African and South Korean officials have called for an emerging markets candidate for the job, while Brazil indicated it won’t push for the switch. China’s government asked for a “fair and transparent process.”
STARK WARNING TO GREECE
The IMF warned on Wednesday that Greece's drive to shore up its troubled finances would fail unless it sharply accelerated reforms, and the ECB hit back at suggestions a debt restructuring might be the solution.
European finance ministers broke a taboo this week and acknowledged for the first time that some form of restructuring might be required to ease Greece’s debt burden, which at 150 percent of annual output is among the highest in the world.
They have said they could ask private creditors to agree to a voluntary extension of the maturities on their Greek debt but have also made clear that the priority is to ensure an acceleration of Greek reforms.
“The programme will not remain on track without a determined reinvigoration of structural reforms in the coming months,” Poul Thomsen, an IMF envoy who is monitoring Greek economic progress, told a conference in Athens on Wednesday.
“Unless we see this invigoration, I think the programme will run off track,” he said, in one of the strongest warnings to Greece since it sealed the rescue one year ago.
Prime Minister George Papandreou's government has struggled to rein in rampant tax dodging and is under acute pressure to begin selling off state assets to help Greece meet fiscal targets tied to last year’s ¤110-billion EU/IMF bailout.
LAGARDE
“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’s Finance Minister Christine Lagarde, Goldstein said. Former UK 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, sidestepping questions on whether he would back such a bid.