Strauss-Kahn seems on way out, one way or another

(Reuters)

WASHINGTON – Confined to a jail cell, his reputation in tatters and facing serious criminal charges, Dominique Strauss-Kahn is almost certainly on his way out as head of the International Monetary Fund.

The main question is whether he'll go willingly.

Complex legal and institutional negotiations are set to take place in coming days as the IMF aims to resolve the crisis as smoothly as possible. Yet Strauss-Kahn may have the opposite incentive: Holding on a little longer could play to his financial advantage, while resigning too soon could feed a public perception of guilt.

"He is obviously not in a position to run the IMF," Treasury Secretary Timothy Geithner said Tuesday in New York, where Strauss-Kahn is being held on charges that he sexually assaulted and tried to rape a hotel maid.

Geithner's blunt assessment will likely escalate the pressure on Strauss-Kahn to step down. The Frenchman, who has led the IMF for more than three years, has already survived a reprimand for having had an improper relationship with a subordinate.

"I can't think of a corporate executive in today's world who could survive this situation," said Robert Bennett, the lawyer who represented President Bill Clinton in the Monica Lewinsky affair and Paul Wolfowitz before he resigned from the World Bank, the IMF's sister institution, in 2007.

"Think of this as a company. They would say: 'We'll lose customers, the media will kill us, the women's movement will go crazy and whatever the claims he might have, we'll look responsible if we get rid of this guy.'"

Strauss-Kahn has said nothing about his future at the IMF, and the fund has said little in return. IMF spokesman William Murray said Tuesday that the organization hasn't even spoken with Strauss-Kahn since his arrest Sunday, but "it will be important to be in contact with him in due course." Strauss-Kahn's lawyers have contested the charges against him.

The race to succeed Strauss-Kahn, 62, has stepped up, along with the pressure on him to resign.

In Brussels, Austrian Finance Minister Maria Fekter called on Strauss-Kahn to step aside so he wouldn't damage the fund. Her Spanish counterpart, Elena Salgado, spoke of solidarity with the woman Strauss-Kahn is accused of assaulting.

"Considering the situation, that bail was denied, he has to figure out for himself that he is hurting the institution," Fekter said Tuesday before a meeting of European finance ministers.

And countries further afield began pressing that any discussions over his successor not be restricted to Europe.

"We shouldn't think about countries or regions," Tovar Nunes, a spokesman for the Brazilian foreign ministry, told The Associated Press.

Even if granted bail, Strauss-Kahn would hardly be effective without the right to travel, along with being forced to wear an electronic ankle bracelet and have his phone conversations monitored.

Bennett said Strauss-Kahn's lawyers know this and will seek to make a deal advantageous to their client.

"Stepping down is a point you have as a defense lawyer to strike a better deal," he told the AP, citing likely unresolved issues over discretionary pay and other financial benefits.

Other legal experts weren't so sure, suggesting that a leave of absence might be the best way out of the crisis. That would allow the IMF to ease out Strauss-Kahn in a quieter manner at a later stage and the Frenchman to save face as he prepares his legal defense.

"From a perception standing, his resignation wouldn't be a wise move," said Edward Flaherty, an American lawyer in Geneva who represented the female accuser of former Dutch prime minister and U.N. refugee chief Ruud Lubbers of sexual harassment in 2004. Lubbers later resigned from his U.N. post. "Legally, it has no bearing. But perception is very important in criminal cases. You don't resign if you are not guilty."

Yet a leave of absence would mean the organization would lack steady leadership while it faces a major crisis in Europe.

Among possible replacements for Strauss-Kahn are at least four fellow Europeans: French 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.

Candidates from elsewhere include Turkey's former finance minister, Kemal Dervis; Singapore's finance chief Tharman Shanmugaratnam; and Indian economist Montek Singh Ahluwalia.

Other possibilities 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 adviser to Strauss-Kahn.

Min declined to comment on any scenarios. "I have meetings all day," he told The AP.

The questions over Strauss-Kahn's future are laying bare long-standing complaints over the stewardship of the global agency. Developing countries have griped for years about the voting system of the IMF. In particular, they have chafed over a gentleman's agreement that's ensured a European head of the IMF and an American head of the World Bank since their creation just after World War II.

The IMF focuses on providing emergency loans and ensuring stability in the international financial system. The World Bank funds projects in developing countries.

China, India, Brazil and other emerging economies are increasingly driving worldwide growth. They also emerged as forces of stability after the U.S. financial crisis kicked off a global recession and European debt crises rattled financial markets. And they want a greater say in managing the international economy.

European leaders would resist the notion of giving up their traditional claim to nominate the IMF chief. That's especially true now because solving the debt crises in European countries such as Greece and Portugal has emerged as one of the institution's chief responsibilities. Strauss-Kahn, a former French finance minister, has been praised for his leadership in handling the 17-nation eurozone's troubles.

Though the IMF's board doesn't want to rush to judgment, it faces rising pressure. Officials acknowledge it will be increasingly difficult for Strauss-Kahn to remain in the job if he is denied a bail a second time Friday. To oust him, the 24-member board could call a vote.

"The longer it drags out, the uglier it gets, the weaker Europe's position is going to be," said Eswar Prasad, an economics professor at Cornell and former IMF official.

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AP Business Writer Pan Pylas contributed to this report from London.