But Strauss-Kahn had unusual stature in making the case that the IMF—and European countries—should give easier terms to Greece, Portugal, and Ireland in hopes of averting a greater catastrophe, such as another wave of banking failures.
“Anybody else would face the accusation that the Fund somehow is soft on Europeans in ways that it was never soft on Asians and Latin Americans in their crises,” says an international financial official who has long followed DSK’s career and the resolution of international financial crises going back to the 1980s. “DSK is perceived as having done a tremendous job ensuring that emerging markets caught in the financial crisis of 2008 could get quick new credit facilities. He was a bit of hero, and he had some good chits. Nobody was going to stand up against him. It gets very difficult for the next managing director. And in the medium term have this gap” of leadership.
Indeed, in the vacuum of leadership at the IMF—one that could linger for months—the future of the Fund itself could be decided. The European nations, consumed with their economic crisis, will want to follow tradition and quickly appoint another European head, according to the postwar Bretton Woods tradition by which Americans have run the World Bank and Europeans have been permitted to select the IMF managing director.
But after the scandal that ousted Paul Wolfowitz as head of the World Bank in 2007, an insurrection against what Mohamed El-Erian of Pimco called a “feudal system” has been growing among emerging-market economies.
In line with the wishes of its new international partner, the Group of 20 nations, the IMF had already been shifting away from the old postwar system of leadership. Now those cries for change are likely to be louder, setting up a prolonged confrontation between Europe and emerging markets in which U.S. Treasury Secretary Timothy Geithner may have to play broker. Lobbying is already under way by candidates from China, Turkey, and other emerging countries. Strauss-Kahn is the third European head to depart before his term was up.
In some ways the Fund is losing its greatest champion at a time when its reputation has never been higher—at least outside of libertarians in the United States. “When Strauss-Kahn arrived in November 2007,” Kevin Muehring wrote in Institutional Investor magazine last September, “the Fund seemed to be fading into irrelevance: Developing countries didn't need its money, and the big industrial powers routinely ignored its advice. But using his economic instincts and political acumen, [DSK] moved quickly to restore the Fund to its role as a linchpin of international economic policy coordination and crisis management.”
But today the man who made the IMF a linchpin sits in a cell on Rikers Island, and the future of the global economy looks even more uncertain.
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