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Dominique Strauss-Kahn resigned as leader of the International Monetary Fund (IMF) late Wednesday night, triggering a global battle between developed economies and emerging markets to find a new IMF managing director.
Strauss-Kahn, who was arrested May 14 on sexual assault charges, said in a statement released yesterday (Thursday) morning that he felt "compelled" to resign.
"I want to protect this institution which I have served with honor and devotion, and especially – especially – I want to devote all my strength, all my time, and all my energy to proving my innocence," Strauss-Kahn wrote.
Strauss-Kahn took over the managing director role in 2007 and has played a key part in navigating economies through the aftermath of the global financial crisis. The IMF has used emergency loans to bail out more than a dozen countries, including debt-laden Greece.
The IMF said John Lipsky, the IMF's first deputy managing director, will assume the vacated role until it's filled. Lipsky has been the acting managing director since Strauss-Kahn's arrest over the weekend.
Now the search is on for a new IMF managing director, and so far candidates have emerged from all over the globe. And the IMF must not delay in naming a replacement.
"Time is of the essence," Julie Chon, a senior fellow at the Washington-based Atlantic Council and former adviser to the U.S. Senate Banking Committee, told Bloomberg News. "The longer the IMF allows the specter of uncertainty to hang over its leadership, the more exposed it becomes to the jittery actions of sovereign debt and foreign-exchange traders who have been speculating on what the leadership vacuum means for their portfolios."
Any IMF member can submit a nomination. The IMF's 24-member executive board, representing 187 member countries, is in charge of picking the new leader. It tries to choose by consensus, but if an agreement can't be reached it goes to a vote.
Votes are weighted to represent each country or region's share of the global economy, although some weights haven't kept up with emerging markets' rapid growth. European nations have a total of about 35.6% of the vote, giving their top candidate a good shot.
So far, French Finance Minister Christine Lagarde is the front-runner for the position of managing director. She stands out because of her headline role in helping manage the Eurozone's debt crisis. The Financial Times named Lagarde the best finance minister in Europe in 2009. She would be the first female to assume the managing director position.
"Madame Lagarde is one of the obvious candidates," said Swedish Finance Minister Anders Borg. "I would argue that [she] has outstanding credentials."
Many European Union leaders, including German Chancellor Angela Merkel, think the region's sovereign debt crisis requires an EU candidate. They say the urgent need to fix their countries' spiraling debt will be the IMF's main concern.
"Naturally the developing countries have a claim on the highest position at the IMF or World Bank, but the current situation, given the considerable problems of the euro, speaks for a European candidate," said Merkel.
However, Lagarde may not be that candidate, as she faces legal problems that could remove her from consideration. She is being investigated for wrongdoing in the awarding of damages to controversial French businessman Bernard Tapie, and the court has yet to deliver a decision.
Emerging economies argue that the European IMF dominance should change and countries in Asia and Africa need more representation. Emerging markets are a bigger part of the global economy than they were a few years ago and are more affected now by IMF decisions.
"Institutions such as the IMF must reform so that they can become credible, and to be credible they must represent the interests and fully reflect the voices of all countries, not just a few industrialized nations," South African Finance Minister Pravin Gordhan said in a statement.
Gordhan voiced support for Trevor Manuel, head of South Africa's National Planning Commission. Manuel served as the South African finance minister before Gordhan, who calls him "highly respected in the world."
Asian leaders echoed the sentiment. They said Asian finance leaders were well qualified to handle economic crises and the vacancy presented a key opportunity for the region.
"A new brand of leadership will send a positive signal that the IMF is indeed responsive to the changing world," Philippine Finance Secretary Cesar Purisima told Bloomberg. "Wherein Asia increasingly plays a major role as a growth driver of the global economy, there is no time more fitting than now for an Asian leader to take the helm."
Asian candidates include Singapore's Finance Minister Tharman Shanmugaratnam. He's the current chairman of the IMF's International Monetary and Financial Committee, and was described by Thai Finance Minister Korn Chatikavanij as "one of the most capable, technically sound, well rounded and experienced finance ministers in the world."
The interest of developing economies to nominate replacements signals the increasing importance these countries hold in the global economy. Still, their success at seeing a non-European leader at the IMF relies on their ability to unite against a strong European vote. Many analysts doubted emerging markets' ability to combine their votes for just one candidate.
A big question is how the United States will cast its 16.8% of the vote. With a European official leading the IMF, the United States has traditionally filled the No. 2 spot – and would like to continue that arrangement. But voting against emerging economies could strain relations between with those countries.
U.S. Treasury Secretary Timothy Geithner yesterday called for an open selection process to quickly replace the vacant spot. Many Group of 20 (G20) leaders like Geithner have supported more open and transparent processes for choosing international financial institution leaders.
"The most important thing is to move decisively to appoint the best qualified person for the job," said Australian Treasurer Wayne Swan, through a spokesman. "Uncertainty around a new managing director of the IMF is not in the interests of the global economy or the institution itself."
News and Related Story Links:
- International Monetary Fund:
IMF Managing Director Dominique Strauss-Kahn Resigns
- Bloomberg News:
Strauss-Kahn Quites IMF as Global Succession Contest Begins
- BBC News:
How the IMF chooses a new leader
- The Wall Street Journal:
IMF Succession Battle Mounts