IMF head expected to be arraigned

International Monetary Fund Managing Director Dominique Strauss-Kahn, before his arrest, leaves the Second Annual Conference of International Monetary Fund held on May 10, 2011.

UPDATED INTERVIEW

STEVE CHIOTAKIS: The head of the International Monetary Fund awaits arraignment in New York this morning on sexual assault charges. Dominique Strauss-Kahn was arrested over the weekend. He was expected at a meeting today among Euro-zone countries to finalize plans for Portugal's bailout and to determine whether Greece might need another one too.

Reporter Christopher Werth is following the story from London and he's with us now. Good Morning Chris.

CHRISTOPHER WERTH: Hi.

CHIOTAKIS: So what impact could Strauss-Kahn's absence have?

WERTH: Well, the impact could be significant here. I mean Dominique Strauss-Kahn has led the IMF in such a way that supported European leaders in preventing default of sovereign debt and bank debt in Greece, Ireland and Portugal. It's important to remember that these bailouts are actually loans that these countries have to pay back. That prevents banks in places like Germany that bought Greek debts from taking losses on those investments. But there may be some division within the IMF over whether these bailouts are working. It's being said his staff at the IMF are actually in favor of allowing these countries to restructure, or default on the money they owe. With Strauss-Kahn absent, there's a question over whether the IMF could begin to lean in that direction.

CHIOTAKIS: Now, obviously Chris, these are just charges, but what happens if Strauss-Kahn is forced to leave his position at the IMF?

WERTH: Then we could see some big changes in the way the IMF and even the World Bank work. When these institutions were set up after the Second World War, it was something of a gentlemen's agreement that the World Bank would always be led by an American, and the IMF by a European. But Martin Wolf of the Financial Times says with emerging economies like China and Brazil now as big creditors to the IMF, that could change.

MARTIN WOLF: There's a lot of pressure to have a non-European head and a non-European head may be very much less friendly towards these deals. And that could create quite a massive conflict among the membership.

And Steve, you know last month a group of countries including China and Brazil called on the head of the IMF to be chosen by merit instead of by nationality.

CHIOTAKIS: Alright, Christopher Werth in London. Thanks.

WERTH: Hey, thanks Steve.


ORIGINAL REPORT

JEREMY HOBSON: The head of the International Monetary Fund, Dominique Strauss-Kahn, is expected to be arraigned in New York this morning. He was arrested over the weekend and charged with sexually assaulting a maid at a Manhattan hotel.

Strauss Kahn is a key player in bailout negotiations for European countries like Greece and Spain, which are currently asking for help with their debt.

Christopher Werth has this report now from London.


CHRISTOPHER WERTH: Needless to say, the meetings in Brussels will go on without the IMF chief, who's been instrumental in negotiating bailouts for Europe's troubled economies. His absence could make a big difference today.

Andrew Lilico is with Europe Economics. He says there's been a growing divide within the IMF over whether those bailouts are working. He says while Strauss-Kahn worked hard to prevent default on sovereign debt for countries like Greece, IMF staff has wanted to force bank bondholder into sharing the losses.

ANDREW LILICO: With Dominique Strauss-Kahn gone, I think that it's plausible that the cracks begin to show in the public face here. So that this IMF technical staff view that bond holders should be allowed to lose money becomes more public.

And Strauss-Kahn's departure could shake up who heads the IMF as well. That job has traditionally gone to a European. But big creditors to the IMF like Brazil might want to see that change.

In London I'm Christopher Werth for Marketplace.

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