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Jim Rickards: Strauss-Kahn Is a Cause for Concern

Wall Street continues to digest the implications of the arrest of International Monetary Fund Managing Director Dominique Strauss-Kahn.

John Lipsky, the fund's number two man, is now in the big seat but for how long? Succession is already being debated. So is the potential impact on the bailouts of Greece and Ireland.

I asked Jim Rickards, Senior Managing Director of Market Intelligence at Tangent Capital, about the key questions many of my contacts are talking about in the wake of this alleged sex scandal.

LL: The- Arrest of IMF chief, Dominique Strauss-Kahn, is raising questions about the organization‘s leadership amid European debt crisis. Are you concerned?

JR: Yes, this is cause for concern. Of course, the IMF will be able to continue its technical work as before and acting leadership has been put in place. However, bailout negotiations are delicate processes where a lot is based on trust and confidence in the people doing the negotiations. Not everything can be put in writing and verbal assurances about how things will play out are common. Dominique Strauss-Kahn has been a key player in every phase of this crisis starting with the Washington G20 summit in November 2008. By removing him, the players will need to start over on certain aspects and build new bridges. Also some confidence in the IMF itself has been lost.

This is not a fatal blow to the bailout process but it is a setback at the worst possible time.

LL: Will these sexual assault charges hamper global efforts to prevent Europe’s debt crisis from spinning out of control?

JR: It is certainly a setback for reasons of trust and confidence. The IMF has the technical expertise and the financial resources to participate in the bailouts of the European periphery of Greece, Ireland, Portugal and possibly others. However, leadership and familiarity with the players and institutional knowledge of past promises are all key ingredients and that has been lost.

LL: Strauss-Kahn has been a big advocate for aiding Greece, Ireland and Portugal. The IMF said Monday the arrest will have no impact on the current EU or IMF bailout programs.

JR:. All of the key players from Germany to the ECB, IMF and the U.S. all agree on the necessity of these bailouts. The Strauss-Kahn situation is a setback to the process but does not change the necessity. However, the entire situation is so delicate that even a setback is dangerous because these situations can easily tip out of control. This is a critical week. I'm sure all of the key players including the IMF faces at the table replacing Strauss-Kahn will be exerting extra effort to make this a success. We'll see how the markets vote over the course of this week.

LL: What are your sources telling you as this situation is unfolding?

JR: In the short run, the bailout process will continue as before because good momentum had already been established. It will be more difficult but it will continue. Longer run the key issue is the replacement for Strauss-Kahn. The tradition of a European head of the IMF is just a tradition and not a rule. Emerging markets have been looking for a larger voice in the IMF and here is a chance for the IMF Executive Board to show they are serious. There's a lot of talk about Arminio Fraga because he's a Princeton-trained economist, former Central Bank head and he comes from Brazil which is one of the BRICS.

It's unlikely we'll see a Russian or Chinese at this stage. Definitely not an American although Mohamed El-Arian is well-qualified. Arminio Fraga is a front-runner. If it's not Arminio, look for someone from Japan, South Korea or Egypt.

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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."

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