Markets weigh possible Strauss-Kahn successors

LONDON – With the head of the International Monetary Fund sitting in jail, the global financial community was abuzz with speculation Tuesday of who would replace Dominique Strauss-Kahn, if and when he quits following his arrest on sexual assault charges.

A number of names were touted as potential candidates but the final choice will largely hinge on whether the U.S. and the European Union continue their arrangement to split the jobs of the two Washington DC-based sister organizations — the International Monetary Fund and the World Bank.

Since World War II, a European has headed the Fund while the U.S. has grabbed the top job at the World Bank.

Simon Johnson, a professor at MIT's Sloan School of Management and a former IMF chief economist, said there's no guarantee the U.S. will continue to want the World Bank leadership, and may back the nomination of an official from a big developing nation such as China. That would raise questions about Europe's claim over the IMF.

"A brilliant move on behalf of the Americans would be to get China more involved in the development process," Johnson said. "The Europeans need to line their ducks up; they want this more than ever."

For European leaders, the thought of giving up their traditional claim to nominate the IMF chief would cause concern as one of the fund's main jobs now is to help solve Europe's debt crisis.

Strauss-Kahn has been viewed favorably for his leadership in handling the eurozone's troubles. His tenure as France's finance minister when the euro was created in 1999, gave him insights into how Europe ticks.

On Monday, German Chancellor Angela Merkel sought to dampen speculation that the next leader of the IMF should come from the developing world. "I think that, in the current phase, in which we have a lot of discussions connected to the euro, there are good reasons for Europe also to have good candidates available," Merkel said.

Analysts say Merkel's comments suggest Europe will try to get a European at the head of the IMF one more time before handing the next term to someone from a developing country.

Possible Europeans touted at the moment include France's finance minister Christine Lagarde, the former head of the German central bank Axel Weber, the head of Europe's bailout fund Klaus Regling, and Peer Steinbrueck, a former German finance minister.

"They need a heavyweight and they need a European heavyweight," said Jan Randolph, head of sovereign risk analysis at IHS Global Insight.

If Europe agrees to let someone outside the continent take the IMF helm, the list of candidates could include Turkey's finance minister Kemal Dervis, his counterpart in Singapore Tharman Shanmugaratnam and Poland's central bank chief Marek Belka.

Others tipped include Trevor Manuel, South Africa's former finance minister, Mexico's central bank governor Agustin Carstens, former Brazilian central bank president Arminio Fraga and China's Min Zhu, a special advisor to Strauss-Kahn.

Although Strauss-Kahn has not said anything about his future at the IMF, experts say it's a matter of time before he leaves.

He is currently in a prison cell following his weekend arrest in New York for allegedly attempting to rape a maid in a Manhattan hotel. He is due to appear next in court on May 20.

Austria's finance minister Maria Fekter was the first to suggest that Strauss-Kahn should resign as uncertainty over his future might damage the fund at a crucial time.

"Considering the situation, that bail was denied, he has to figure out for himself, that he is hurting the institution," Maria Fekter told journalists as she arrived at a meeting of European finance ministers in Brussels.

Though the IMF says it's business as usual, it clearly needs leadership during these difficult times, particularly as Europe's debt crisis shows few signs of abating. Greece, in particularly, is widely tipped to need more international aid.

However Strauss-Kahn's incident develops, the IMF was likely already preparing for his succession, as he had been widely expected to quit later this year to launch a bid for the French presidency in 2012.

____

Steinhauser contributed from Brussels.