IMF Set to Stick with Old Guard; City FOCUS

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Byline: Alex Brummer

THE scandal which has erupted around International Monetary Fund managing director Dominique Strauss-Kahn presages a new period of uncertainty for the Washington-based emergency lender and policy adviser. The global financial panic and recession which brought such misery to people around the world in terms of higher unemployment and squeezed living standards gave the IMF a new lease of life.

Strauss-Kahn, a former French finance minister and economics professor, was the right man at the right place at the right time.

A domineering figure, with a sharp intellect and tongue, he managed to position the IMF at the centre of the crisis, first responding to countries - mainly in Eastern Europe - hit by the banking panic and more recently injecting the Fund into the euroland sovereign debt catastrophe.

His political clout within Europe, particularly a close relationship with German chancellor Angela Merkel, allowed the Fund to punch above its weight in complex negotiations from which it could easily have been excluded.

It had always been expected that Strauss-Kahn, known as DSK in France and at the Fund, would step down soon to run for the French presidency.

But his political future hangs in the balance after he was yesterday charged with attacking and attempting to rape a hotel maid in a New York hotel at the weekend.

Speculation about potential successors was the talk of the corridors at the spring meeting of the Fund in April when Gordon Brown was mentioned as a possible successor, but one unacceptable to the British government.

Chancellor George Osborne was thought to favour French finance minister Christine Lagarde.

Matters at the Fund have been complicated by two developments. Last week the senior managing director John Lipsky, the former chief economist at JP Morgan Chase, announced he would not seek a second term in the job and would be leaving in August.

Lipsky, who has played a key role in the detailed negotiations with Greece, Ireland and Portugal, now finds himself in charge.

The second factor is much more organisational. One of DSK's triumphs - actually encouraged by Gordon Brown's reinvention of the G20 - was reform of the way the IMF is run. Essentially DSK persuaded 'Old Europe' to relinquish some of its shareholding and voting power at the Fund so as to give more control to the BRIC economies - Brazil, Russia, India and China.

As part of the deal it was agreed that in future there would be an 'open contest' for managing director - involving all nationalities - instead of the default European choice.

Europeans have headed the IMF since its foundation at Bretton Woods in 1944 with French candidates holding the top job more than any other country. …