Lagarde Declares Candidacy to Replace Strauss-Kahn at IMF

May 25, 2011, 1:00 PM EDT By Mark Deen and Simon Kennedy

(Updates with Geithner comments in sixth paragraph.)

May 25 (Bloomberg) -- French Finance Minister Christine Lagarde declared her candidacy to head the International Monetary Fund, saying she should be judged on the basis of experience rather than nationality.

“Being a European should not be a plus and it shouldn’t be a minus,” she said at a press conference in Paris today. “I am not arguing for my candidacy because I am a European.”

The IMF executive directors representing Brazil, Russia, India, China and South Africa united yesterday to protest publicly the presumption that the fund’s next chief once again be a European. The IMF has been led by Europeans since it was set up after World War II.

Lagarde, who would succeed countryman Dominique Strauss- Kahn and become the first woman to lead the Washington-based lender to nations since its founding in 1945, now has the backing of Europe’s main economies and, according to her government, China. Brazil will also privately support her rather than her main rival, Mexican central bank governor Agustin Carstens, a Brazilian government official said.

“It’s looking like it’s almost a done deal for Lagarde,” Desmond Lachman, a former deputy director at the IMF and now a resident fellow at the American Enterprise Institute in Washington, said by telephone. “The emerging markets can’t get their act together and back one candidate.”

U.S. Role

The U.S., which may hold the decisive vote with a 16.8 stake in the fund, has not committed itself publicly. Treasury Secretary Timothy F. Geithner said today that Lagarde and Carstens are “very talented” candidates.

President Barack Obama and fellow Group of Eight leaders plan to convene tomorrow in the French resort of Deauville, where the succession at the IMF is likely to be discussed.

Poland joined the list of those backing Lagarde, PAP newswire cited Jacek Rostowski, the Polish finance minister, as saying. “Minister Lagarde’s candidacy is very good, it’s difficult to imagine a better one, and it has the full support of the Polish government,” Rostowski said today, according to PAP.

Carstens remains the Mexican government’s choice for the IMF even after Lagarde announced her candidacy, Mexican Finance Minister Ernesto Cordero said.

“They are both strong, credible candidates,” Cordero said in Paris after a meeting with Lagarde. “We agreed that what the IMF needs is an open, transparent, merit-based process.”

Developing Nations

Cordero said he wasn’t surprised that other developing nations haven’t openly supported Carstens. “It’s early in the process,” he said. “Everyone is being prudent, which is what we need at this stage.”

Lagarde, 55, has an 88 percent chance of becoming the IMF’s 11th managing director and its fifth from France, according to Dublin-based odds-maker Intrade.com. The 187-member IMF aims to pick a successor to Strauss-Kahn by the end of June, little more than a month after he resigned following his arrest in New York on charges of attempted rape and sexual assault.

A lawyer who practiced in the U.S. before entering French government in 2005, Lagarde would bring frontline experience of the sovereign-debt crisis at a time when Greece is striving to persuade investors it can avert default.

The Swiss franc climbed against all of its 16 most-traded peers, reaching a record versus the euro, on concern Greece’s debt crisis threatens the region’s economic recovery. The franc strengthened 1 percent to 1.2287 per euro at 12:20 p.m. in New York after reaching 1.2272.

U.S. Backing

“No doubt Mr. Obama will come under pressure in Deauville about all of this,” Edwin Truman, a former official at both the U.S. Treasury Department and the Federal Reserve who is now a senior fellow at the Peterson Institute for International Economics in Washington, said by telephone.

Rather than jumping on the European bandwagon, the U.S. will probably reserve its backing for Lagarde until it becomes clear she has the broad support of IMF membership, Truman said.

While the fund’s executive board has pledged to act transparently and make an appointment based on merit, European leaders have moved swiftly to support Lagarde. U.K. Chancellor of the Exchequer George Osborne praised her leadership skills during France’s current presidency of the Group of 20, while Italian Prime Minister Silvio Berlusconi called her “excellent.” Jose Barroso, the European Commission president, said he “fully endorsed” Lagarde’s candidacy in an e-mailed statement today.

China is also “favorable” on the prospect of Lagarde leading the IMF, French government spokesman Francois Baroin said yesterday. Chinese officials haven’t publicly commented on specific candidates.

Strauss-Kahn Term

In exchange for its private support for the European contender, Brazil will push for Lagarde to run the fund only until the end of next year, when Strauss-Kahn’s term would have expired, said the Brazilian official, who requested anonymity because he isn’t authorized to speak publicly about the issue.

Lagarde said today that if named to the job, she’ll stay in it for a full five years, unlike Strauss-Kahn or his predecessor Rodrigo de Rato. “To me, it’s essential that the whole mandate be fulfilled,” she said. “If I’m elected, I promise to complete the mandate.”

“In a large number of countries there are extremely good people,” Charles Wyplosz, director of the International Center for Money and Banking Studies in Geneva, said in a radio interview with Tom Keene on “Bloomberg Surveillance.”

“The field should be open, and I personally am very upset that the Europeans are trying to close it down and prevent any serious competition,” he said.

The IMF provided a record $91.7 billion in emergency loans last year and accounts for one-third of the euro-region’s bailout packages. Its next chief will be at the center of debates on determining an escape route for the euro out of the debt crisis, which still threatens to push Greece, Ireland and Portugal into default and raised concern about the currency’s longevity.

--With assistance from Jose Enrique Arrioja in Mexico City, Lyubov Pronina in Moscow, Gregory Viscusi in Paris, Svenja O’Donnell in London and Sandrine Rastello and Rich Miller in Washington. Editors: Kevin Costelloe, Christopher Wellisz

To contact the reporters on this story: Simon Kennedy in London at skennedy4@bloomberg.net; Mark Deen in Paris at markdeen@bloomberg.net.

To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net; Chris Wellisz at cwellisz@bloomberg.net.

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How to Replace Strauss-Kahn

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IMF’s Strauss-Kahn Charged With Attempted Rape in New York

May 15, 2011, 1:23 PM EDT By Karen Freifeld and Sandrine Rastello

(Adds IMF comment in the 11th paragraph.)

May 15 (Bloomberg) -- Dominique Strauss-Kahn, head of the International Monetary Fund and a potential candidate for the French presidency, was charged with attempted rape and a criminal sex act on a New York hotel maid, police said.

The attack allegedly occurred yesterday against a 32- year-old female at a Sofitel hotel in midtown Manhattan, according to an e-mailed statement by the New York Police Department. Strauss-Kahn, who was taken into custody aboard an Air France flight at John F. Kennedy International Airport, also was charged with unlawful imprisonment.

Strauss-Kahn, 62, denied the charges and will plead not guilty, his lawyer Benjamin Brafman said in an e-mailed statement. He is expected to appear in a Manhattan court later today.

The alleged victim is a maid at the hotel, New York Police Deputy Commissioner Paul Browne said. The assault occurred about 1 p.m. yesterday when the woman entered the $3,000-a-night suite -- Room 2806 -- Strauss-Kahn had checked into on May 13, Browne said in a telephone interview. Strauss-Kahn is alleged to have emerged from a bathroom naked and made two attempts to forcibly have sex with the maid, Browne said.

She managed to escape from the room and notified colleagues who called the police, Browne said. When officers arrived, Strauss-Kahn wasn’t there and his mobile phone had been left behind, he said.

East Harlem Cell

Strauss-Kahn was in the first-class section of an Air France flight when it was minutes from departing. He spent the night in a cell in an East Harlem police station, where the Special Victims Unit which handles sexual crimes is located, Browne said.

Strauss-Kahn had been scheduled to attend a meeting of euro area finance ministers in Brussels tomorrow. The meeting will take place as officials discuss the possible increase of a 110- billion euro ($155-billion) loan package to Greece amid concerns the country may be unable to return to markets to finance its debt next year.

“For the fund, this is terrible news at a time when its leadership needs to portray stability, wisdom, and confidence,” Bessma Momani, a professor in the department of political science at the University of Waterloo in Canada, who specializes in the IMF and its policies, said in an e-mail.

IMF ‘Fully Functioning’

The IMF “remains fully functioning and operational” following Strauss-Kahn’s arrest, the Washington-based organization said in a statement on its website today.

“Mr. Strauss-Kahn has retained legal counsel, and the IMF has no comment on the case; all inquiries will be referred to his personal lawyer and to the local authorities,” Caroline Atkinson, the director of external relations at the IMF, said in the statement.

John Lipsky, the first deputy managing director at the IMF, is in Washington and serving as acting managing director, IMF spokesman William Murray said today. The board will meet today to discuss the situation, Murray said.

New York police said Strauss-Kahn doesn’t have diplomatic immunity. The French Foreign Ministry in Paris said the IMF will have to examine what immunity Strauss-Kahn may have. A French consul visited Strauss-Kahn in detention late yesterday, ministry spokesman Bernard Valero said in a phone interview.

French Presidency

Strauss-Kahn, a former French finance minister and member of France’s opposition Socialist Party, has consistently been among the most popular possible candidates to contest France’s 2012 presidential election, opinion polls show.

President Nicolas Sarkozy would have trailed Strauss-Kahn by 5 percentage points in the first round of the presidential voting if the election had been held at the end of last month, a CSA poll for 20 Minutes newspaper, BFM Television and RMC radio showed April 28.

Strauss-Kahn, whose term at the IMF expires next year, has in the past several months declined to say whether he was planning to run for office. The vote will be held in April and May 2012.

Any prospect of getting elected has now has vanished, said Laurent Dubois of the Paris Political Studies Institute. “It’s a tsunami,” Dubois said in a phone interview. “There is no way he can recover from this and run for president.”

Wife’s Support

This is the second time since he took the helm of the IMF in November 2007 that Strauss-Kahn has faced allegations of misconduct.

In 2008, he had a relationship with Piroska Nagy, a female economist at the IMF, who quit in August of that year. An investigation by the IMF board, released in October 2008, concluded that while he had made a “serious error of judgment,” he shouldn’t be fired.

Strauss-Kahn apologized to his staff and family, which includes his third wife, French television journalist Anne Sinclair, and four children from his previous marriages.

Sinclair today said she doesn’t “for a second” believe the accusations against her husband, Agence France-Presse reported, citing a statement from her.

Last month, officials from the Group of 24, which includes Brazil, China and Mexico, repeated a call for “an open, transparent, merit-based process” for choosing the heads of the World Bank and IMF, “without regard to nationality.” The IMF job is traditionally held by a European, while an American leads the World Bank.

Financial Crisis

Strauss-Kahn took the helm of the IMF in November 2007, following his loss in the primaries of the French Socialist Party ahead of the 2007 presidential elections.

Strauss-Kahn, who succeeded Spain’s Rodrigo Rato, has helped reshape the agency’s mission and restore its relevance. When he arrived, its emergency lending dropped to $58.7 million in 2006 from $66.4 billion in 2002. Among his first moves there was to cut about 400 jobs.

The global financial panic triggered by the bankruptcy of Lehman Brothers Holdings Inc. in September 2008 restored the Washington-based IMF’s relevance as its emergency loans soared to a record of $91.7 billion last year from $1.1 billion in 2007.

Strauss-Kahn gained backing from the Group of 20 to triple the IMF’s resources, and the group has over the past two years given the agency a host of new missions to help avoid another crisis. The IMF is helping the G-20 single out countries whose policies threaten global growth, and has also submitted proposals to fortify the international monetary system.

European Debt Crisis

More recently, he played a key role in efforts to stem the European debt crisis which started last year in Greece, with a pledge to contribute about a third of future bailouts in the region by the European Union. The IMF has co-funded aid packages to Greece and Ireland. He was due to meet with German Chancellor Angela Merkel today.

Under Strauss-Kahn, the IMF also approved a plan that will make China the third-strongest voice in the 187-member organization, founded in 1945, while weakening Europe’s influence to make room for emerging countries.

Strauss-Kahn has juggled careers as an economics professor, lawyer and Socialist politician. He holds a law degree and a doctorate in economics from the University of Paris.

In 1986, he was elected to the National Assembly and served as industry minister from 1991 to 1993. He returned to office as finance minister under Premier Lionel Jospin in 1997. He cut France’s budget deficit to below 3 percent in 1999, the level required for euro membership.

In November 1999, he resigned as finance minister after magistrates began an investigation into financial irregularities at MNEF, a French student insurance group. The probe covered an allegation that the company had paid him about $100,000 from 1994 to 1996 for legal work on a property deal that he never performed. Strauss-Kahn denied wrongdoing and was cleared by a Paris court in November 2001.

--With assistance from Albertina Torsoli, Helene Fouquet, Vidya Root and James Hertling in Paris. Editors: Sylvia Wier, David E. Rovella

To contact the reporters on this story: Karen Freifeld in Manhattan Criminal Court at kfreifeld@bloomberg.net; Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editor responsible for this story: Mike Hytha at mhytha@bloomberg.net; Christopher Wellisz at cwellisz@bloomberg.net

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Strauss-Kahn Arrest Overshadows Greek Crisis Discussions

May 15, 2011, 12:42 PM EDT By Jennifer Ryan

(Updates with German finance minister comment in 10th paragraph.)

May 15 (Bloomberg) -- International Monetary Fund Managing Director Dominique Strauss-Kahn’s arrest is an embarrassment that won’t derail attempts to bolster aid for Greece as officials head to Brussels for crisis talks, economists said.

Strauss-Kahn, 62, had been scheduled to meet German Chancellor Angela Merkel today and then attend discussions with euro-area finance ministers in Brussels tomorrow as officials consider further support to stave off a Greek default. He has been charged with attempted rape and a criminal sex act on a woman in a New York hotel. Strauss-Kahn denies the charges.

“Its incredibly embarrassing, and not the IMF’s or Dominique Strauss-Kahn’s finest hour, but I don’t think this ought to undermine what’s going on,” Peter Westaway, chief European economist at Nomura International Plc in London, said in an interview. “I don’t think it will affect negotiations on Greece. In the end, issues for Greece and policy making are more important than that and they’ll carry on.”

European officials are working to prevent the region’s first default as Greek ministers plead for terms to be relaxed on 110 billion-euros ($155 billion) of aid from the IMF and European Union in a debt crisis that has also engulfed Ireland and Portugal. Economists said that talks to reconsider Greece’s aid terms are taking place between institutions rather than individuals and so can endure such turmoil.

“It’s not a fatal blow to the Greek situation,” James Nixon, chief European economist at Societe Generale in London, said in an interview. “Any of these negotiations are larger than a single person.”

EU-Led Aid

The Greek government said in a statement that it “operates institutionally and continues without interruption implementing the program for the country to exit the crisis.” The EU has led efforts to aid Greece and has contributed two-thirds of the funds committed to the rescue of the nation’s economy.

“The IMF will have high level representation at tomorrow’s eurogroup meeting, independently of Dominique Strauss-Kahn,” Guy Schuller, spokesman of Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of finance ministers of the 17 nations that share the euro, said in a statement.

Greece is seeking an extension to the loans and has argued Europe should issue common bonds to stem the region’s fiscal crisis. Eighty-five percent of those surveyed last week in a Bloomberg Global Poll said the country won’t honor its debts, with majorities predicting the same fate for Portugal and Ireland.

Greek Position

Greek Prime Minister George Papandreou on May 13 opposed a debt restructuring, appealing to claims made by the IMF that the country’s debt “is sustainable.” Germany opposes a common-bond issue, saying such a move would weaken member states’ incentives to cut their deficits.

It’s too early to say whether Greece needs more help with its debt crisis, though “extra measures” may be needed if the country can’t return to financial markets next year as planned under the European-led aid program agreed last year, German Finance Minister Wolfgang Schaeuble said in an interview with ARD television in Berlin.

It’s “disappointing” that Strauss-Kahn’s meeting with Merkel is cancelled because the IMF had been pressing for stronger measures that may involve the possibility of a restructuring of Greek debt, Societe General’s Nixon said.

“The meeting could have been quite important in injecting some realism in the discussions and presumably now that voice won’t be heard,” he said. “The IMF have been pushing for a more realistic position, and presumably the gravity of that voice has been lost.”

‘Leadership Vacuum’

Eswar Prasad, a senior fellow at the Brookings Institution in Washington, said that Strauss-Kahn’s arrest may still unsettle investors at a time of tension because of the region’s debt crisis.

“Just the perception that DSK’s departure could create a leadership vacuum at the IMF and shift the institution’s attitude towards Greece and other weak European countries may be enough to roil markets and raise uncertainty at a vulnerable time for the euro zone,” he said.

Hotel Incident

The charges against Strauss-Kahn stem from an incident that allegedly occurred yesterday against a 32-year-old female at a Sofitel hotel in midtown Manhattan, the New York Police Department said in an e-mailed statement early today. He will appear in a Manhattan court later today, police Deputy Commissioner Paul Browne told BBC television in an interview.

Strauss-Kahn played a key role in efforts to stem the European debt crisis which started last year in Greece, with a pledge to contribute about a third of future bailouts in the region by the EU. His term at the IMF is scheduled to expire next year. Speculation in France had mounted that he would leave early to stand for president.

The charges against him won’t affect moves to extend aid to Portugal, which is implementing austerity measures to qualify for an international aid package of as much as 78 billion euros from the EU and IMF, said Gilles Moec, European economist at Deutsche Bank AG.

“The progress can continue and there should not be a change in its dynamics,” he said in an interview.

--With assistance from Marta Marino in London, Sandrine Rastello in Washington, Stephanie Bodoni in Luxembourg, Tony Czuczka in Berlin and Maria Petrakis in Athens. Editors: Craig Stirling, John Fraher

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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