Jailed IMF chief faces growing pressure to quit

NEW YORK/WASHINGTON Wed May 18, 2011 4:01am IST

IMF chief Dominique Strauss-Kahn listens as he stands before judge Melissa Jackson during his arraignment in Manhattan Criminal Court in New York,  May 16, 2011. REUTERS/Emmanuel Dunand/Pool

IMF chief Dominique Strauss-Kahn listens as he stands before judge Melissa Jackson during his arraignment in Manhattan Criminal Court in New York, May 16, 2011.

Credit: Reuters/Emmanuel Dunand/Pool

NEW YORK/WASHINGTON (Reuters) - Dominique Strauss-Kahn faced growing pressure to quit as head of the IMF, both from inside the Fund and from some European officials, even as France urged no rush to judgment.

The likely battle to succeed Strauss-Kahn, who was arrested at the weekend on charges of attempted rape and other sex crimes, escalated on Tuesday with China, Brazil and South Africa challenging Europe's long-standing grip on the International Monetary Fund's top job.

Strauss-Kahn was denied bail on Monday and sent to the city's grim Rikers Island jail, known for its gang violence. He is expected to remain there at least until his next appearance in court on Friday, when his lawyers may again seek bail.

Two IMF board sources told Reuters that the Fund's board intended to contact Strauss-Kahn in prison to see whether he plans to continue in his post.

One of the sources said it would be ideal if Strauss-Kahn resigned. A second source said that sentiment was not shared across the 24-member board, which has the authority to remove Strauss-Kahn from his post in charge of the institution that oversees the world economy.

The IMF said in a statement that it has not been in touch with the jailed chief since his arrest, but believes it would be important to do so "in due course."

In France, many Socialist leaders voiced outrage at the way Strauss-Kahn, a front runner for the French presidency, had been paraded, handcuffed and unshaven, by U.S. police after his arrest for an alleged attempted rape on a hotel maid.

But two European finance ministers questioned the viability of his continued leadership.

Asked whether the Frenchman should quit, Austrian Finance Minister Maria Fekter said: "Given the situation, that bail has been denied, he has to consider that he would otherwise do damage to the institution."

Spanish Economy Minister Elena Salgado cast doubt on Strauss-Kahn's judgment.

"It's important to ensure the stability of institutions, but we also must trust Mr Strauss-Kahn to use his best judgment. In this case at least, although in other cases, he does not seem to have done so," she told Spanish radio.

The United States has tread softly but is beginning to seek action. U.S. Treasury Secretary Timothy Geithner urged the IMF to formally appoint an interim head of the IMF. "I can't comment on the case, but he is obviously not in a position to run the IMF." Currently John Lipsky, the second in command, is in charge during Strauss-Kahn's absence but no formal interim chief has been named.

Senate Foreign Relations Committee Chairman John Kerry stop short of calling for Strauss-Kahan's resignation at this point, but he called the circumstances of the case "troubling if not damning".

"If the evidence is what it appears to be, I think it would be very difficult for him to manage" as IMF head, Kerry said.

Strauss-Kahn has been in custody since he was marched off an Air France jet on Saturday to face charges of attempting to rape a maid at a luxury New York hotel.

His lawyers have denied the charges.

CHINA, OTHERS CHALLENGE EUROPE'S HOLD OVER IMF

China said on Tuesday that the selection of the next IMF boss should be based on "fairness, transparency and merit."

This marks the first time that China, the Fund's third largest member, has weighed in early and so publicly on an IMF selection debate.

All 10 managing directors since the Fund was created in 1945 to stabilize the monetary system have been Europeans, including four Frenchmen.

China's Foreign Ministry declined to comment on the charges against Strauss-Kahn. But a spokeswoman, asked about how IMF leaders are chosen, said: "We believe that this should be based on the principles of fairness, transparency and merit."

South Africa's finance minister and a senior Brazilian government official, who asked not to be named, both said the next IMF chief should be from a developing country, pressing forward an issue to give emerging economies a greater say in world affairs.

Canada, which traditionally sides with the U.S., said on Monday that the next chief should be chosen on merit.

But some economists said there is a case for a European, who would probably be more sensitive to the plight of countries such as Greece, Portugal and Ireland, all of which have sought bailouts from the IMF and the European Union to cope with a debt crisis.

SOCIALIST SOLIDARITY IN FRANCE

In Paris, the Socialist Party's leadership staged a rare show of unity amid consternation over the probable loss of the center-left's most popular contender to unseat conservative President Nicolas Sarkozy in next April's election.

"Unity, responsibility, combativity, these are the three words which came up the most this morning," Socialist leader Martine Aubry told reporters after an emergency meeting.

"There was emotion, of course, and the shock we all feel, but it is our responsibility to be up to the task," she said.

Strauss-Kahn has neither resigned from the Washington-based IMF nor dropped out of the French race so far. But he seems bound to be sidelined by a prolonged legal case.

Sarkozy, whose approval ratings had slumped to a record low of 20 percent, received another campaign boost with news that his wife, singer and former model Carla Bruni, is expecting a child later this year.

Sarkozy urged center-right lawmakers at a closed-door breakfast to show "restraint and dignity" and refrain from comment on the Strauss-Kahn case, participants said.

The Socialists agreed they would not change the selection timetable, which calls for candidates to register by July 13 for a primary election to be held in October.

French politicians and some commentators voiced shock and anger at the judge's decision to refuse Strauss-Kahn bail.

Former Culture Minister Jack Lang called the treatment a "lynching" that had "provoked horror and aroused disgust."

The U.S. justice system, he said, was "politicized" and the judge appeared to have been determined to "make a Frenchman pay." Other senior Socialists said that displaying the IMF chief in handcuffs escorted by burly policemen violated his right to be presumed innocent until found guilty by a court.

Strauss-Kahn's legal team has denied police accounts that he fled the hotel after the alleged attack.

In a hint at the defense's strategy, his lawyer Benjamin Brafman told an initial hearing on Monday: "The evidence we believe will not be consistent with a forcible encounter."

TURMOIL

Strauss-Kahn's arrest has thrown the Fund into turmoil just as it is playing a key role in helping euro zone states like Greece and Portugal tackle debt woes.

Initial discussion of replacements for Strauss-Kahn centered around French Finance Minister Christine Lagarde. She had been quietly gathering support as a successor in anticipation that he would step aside to run for president. She may now face increased resistance to another Paris nominee in the job.

Another possible choice, former British Prime Minister Gordon Brown, appears sidelined by the opposition of his own successor in government, David Cameron. Polish central bank governor Marek Belka, a respected former prime minister with recent IMF experience, might be a European compromise figure.

A Berlin newspaper floated the names of Josef Ackermann, chief executive of Germany's private Deutsche Bank, and Thomas Mirow, a German politician who heads the European Bank for Reconstruction and Development, a public body.

But Ackermann has Swiss citizenship and lacks government experience while Mirow may lack political heft.

The most prominent emerging economy figure mentioned as a possible candidate is former Turkish Economy Minister Kemal Dervis, now at a Washington think-tank.

(Additional reporting by Michelle Nichols, Daniel Flynn, Noeleen Walder, Matt Daily, Andrew Longstreth, Brian Love, Catherine Bremer, John Irish, Gernot Heller, Emma Pinedo, Brian Winter, Stella Mapenzauswa and Evren Ballim; writing by William Schomberg, Jon Boyle and Paul Taylor; editing by Alastair Macdonald and Stella Dawson)

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