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Friday, May 27, 2011

EDITORIAL

Ripples from an arrest

The arrest of Mr. Dominique Strauss-Kahn, the head of the International Monetary Fund (IMF), on charges of sexual assault in New York City has been the occasion for all sorts of salacious gossip and speculation.

It has prompted the usual arguments about the differences in French and American culture — legal, journalistic and sexual — and the inevitable dark musings about conspiracies.

We leave those ruminations to the professionals; instead we will focus on the implications of Mr. Strauss-Kahn's predicament for both international economic governance and French politics. After his arrest, Mr. Strauss-Kahn resigned his position as managing director of the IMF.

But his troubles come amid a growing clamor for reform of international economic institutions. Emerging nations argue that the two key bodies, the World Bank and the IMF, are redoubts of Western imperialism, with their two top positions reserved for Americans and Europeans, respectively.

With emerging economies assuming an ever-greater role in the generation of global wealth and growth, the reservation of those positions smacks of a colonial mentality — to say nothing of the poor performance of Western economic policy makers in recent years. They have not demonstrated any inherent superiority for the job.

Europeans counter that the crisis in the eurozone requires that another European replace Mr. Strauss-Kahn. The difficulties in Greece, Spain, Ireland and Portugal put a premium on having an office holder who is comfortable talking to the heads of those governments, along with the European Central Bank, as they struggle to deal with those situations.

For the traditionalists who make this argument, Ms. Christine LaGarde, France's finance minister, is the best candidate to replace Mr. Stauss-Kahn.

Of course, this argument could have been used with equal force 14 years ago, when Asia was trying to deal with its own financial crisis. Then, there was no concern about special relationships being needed to ensure that the IMF's work was successful.

In fact, historically it has been argued that this sort of coziness between bankers and borrowers (to put the relationship bluntly) would be subject to abuse. It was far better to have someone distant from the particularities of a given situation, who could be objective to ensure that the IMF's funds were put to the best possible use.

Ms. LaGarde is most likely to get the post, hypocrisies notwithstanding. Europeans may disagree a great deal, but they will band together to safeguard their prerequisites. And it is unlikely that emerging economies can unite around a single alternative candidate, even though there are plenty of good choices, such as Singapore's finance minister, Mr. Tharam Shanmugaratnam, Mr. Trevor Manuel, a former South African finance minister, and the former head of Brazil's central bank, Mr. Arminio Fraga.

Mr. Haruhiko Kuroda, the former Japanese vice finance minister and the current president of the Asian Development Bank, should be among the choices. He has all the right credentials, having helped create a currency swap scheme among Asian countries during the Asian crisis over a decade ago; he is not an emerging economy candidate, but he would break Europe's iron grip on the post.

No matter who ultimately takes the post, however, it is time to reassess some of the "givens" in international economic governance.

Mr. Strauss-Kahn's situation also transforms French politics. Until his arrest, he was expected to win the Socialist Party nomination to run for the office of president of France next year.With President Nicholas Sarkozy's popularity plummeting, the Socialist frontrunner's chances looked especially good in the April 2012 ballot.

If, as many anticipate, this ends Mr. Strauss-Kahn's election prospects, Mr. Francoise Hollande, a longtime party leader, looks set to replace him as the Socialist candidate.

Mr. Strauss-Kahn's departure from the election changes the election dynamics. He was expected to win a comfortable victory over any challenger: His "champagne socialism" was supposed to appeal to the center, and his successes at the IMF would confer the international status that would have made him a shoo-in.

Mr. Hollande, far more enamored with traditional socialist policies, will not have it so easy. Even so, if Mr. Sarkozy cannot engineer a rebound in the pools, he will pose little challenge next April. But Mr. Hollande will face a tough runoff against Ms. Martine Le Pen of the National Front, daughter of the rightwing firebrand, Mr. Jean Marie Le Pen.

Mr. LePen made it to the runoff in 2002, when he squared off against (and lost to) incumbent President Jacques Chirac. His presence in the second round shocked many observers as Mr. Le Pen's positions were unapologetically nationalistic and xenophobic.

His daughter shares many of those views but she is a shrewder and more polished politician. She has managed to avoid the cruder expressions of those views without veering too far from their substance. She is an unlikely winner in next year's campaign, but election dynamics are radically altered with Mr. Strauss-Kahn out of the picture.

Of course, there may be more surprises to come between now and that ballot.



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