Strauss-Kahn's deputy is to retire in August, leaving a power gap at the top of the institution, writes LARA MARLOWEin Washington
THE ARREST of the International Monetary Fund’s managing director Dominique Strauss-Kahn could not have come at a worse time for the fund or for the European countries who have become the IMF’s chief clients.
Strauss-Kahn played the role of mediator between debt-strapped European countries and the rest of the EU.
Under his stewardship, the fund went from lending chiefly to developing countries to shoring up European economies after the collapse of Lehman Brothers plunged the developed world into crisis. In 2006, before his arrival, the IMF lent only $59.7 million. He expanded that to a record $91.7 billion last year.
Strauss-Kahn was deeply involved in the bailouts for Greece, Ireland and Portugal. Whether out of residual left-wing conviction or political expediency, he opposed attempts by northern European countries to impose more stringent conditions on Greece, arguing that severe austerity would prevent the economy from recovering. The IMF provided about one-third of Greece’s original €110 billion bailout, and Strauss-Kahn was negotiating additional funds for Greece when the scandal broke.
The IMF, which provided €22.5 billion of Ireland’s €85 billion bailout package, was seen to be more sympathetic to Irish taxpayers than hardline EU officials.
IMF headquarters is maintaining a business as usual facade, “fully functioning and operational”, in the words of its spokeswoman. The first deputy managing director John Lipsky has taken over in Strauss-Kahn’s absence. Poul Thomsen, the senior executive in charge of Greece has been meeting Greek and European officials for the past week, and two IMF experts have been stationed inside the Greek finance ministry for the past year.
Lipsky knows the Greek crisis well, having overseen the logistics of the Greek programme. A former banker at JP Morgan and Salomon Brothers, he is methodical and pragmatic, but more low-key and less politically astute than Strauss-Kahn. A US citizen, he is close to officials at the Treasury and Federal Reserve, but lacks Strauss-Kahn’s knowledge of Europe.
Furthermore, Lipsky announced only last week that he intends to retire when his term ends in August. The fund must now replace its two top-ranking officials in the midst of economic crisis and scandal. Strauss-Kahn was expected to leave the IMF soon to stand for president of France. But the manner of his departure changes the perception of the institution, diminishes its clout and alters the dynamics of the transition. Strauss-Kahn’s resignation is expected at any moment.
The IMF now faces calls for accountability on two counts. An editorial in the Wall Street Journalyesterday said the fund's board "should do some soul-searching about the pass it previously gave Strauss-Kahn" for his 2008 affair with a subordinate. It was "a black mark on the IMF that it chose to overlook his previous sexual behaviour", the Journalsaid.
Strauss-Kahn’s departure is also expected to prompt new demands from emerging economies like China, India and Brazil for more power within the fund. Under an understanding dating back to the creation of the IMF in 1945, the head of the fund is a European, while the US retains leadership of the World Bank. The emerging countries say these appointments should be based on merit rather than nationality.
Anticipating calls for the appointment of a non-European to the fund, the German Chancellor Angela Merkel said yesterday that although developing countries should have a claim to both posts “in the medium term” at present “there are good reasons for Europe to have good candidates ready”. Only one European name, that of French finance minister Christine Lagarde, is among those mentioned here as a possible successor to Strauss-Kahn. Other potential candidates are from China, South Africa and Turkey.