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Good Luck Mr. Lipsky, You Will Need It: Economist

The gravitas that the IMF needs to hold when walking into a nation's finance ministry or central bank and demand sacrifice for the social good is diminished by the allegations regarding the personal conduct of its managing director, according to Carl Weinberg, the chief economist at Capital Economics.

IMF head Dominique Strauss-Kahn
Jewel Samad | AFP | Getty Images
IMF head Dominique Strauss-Kahn

“We say this not in moral judgment but rather as a matter of fact,” said Weinberg in a research note following news that Dominique Strauss-Khan would spend the night on Riker’s Islandafter being refused bail on charges of sexual crimes involving a New York chamber maid. “The job of shepherding miscreant governments onto a stable financial path through the IMF mechanism is now a lot more difficult,” he added.

With John Lipsky, an American, now running the IMF and its talks with the EU and Greece Weinberg expects Europeans to lay claim to the IMF’s top job following years of informal agreement that have seen America and the EU share the running of the World Bank and IMF.

“There may well be fireworks in this transition,” said Weinberg. “Not only is there no obvious European candidate to take over the IMF, but we also expect claims from emerging market governments that it is their turn for a chance to lead the fund.”

Given the fact that emerging markets hold most of the world's hard currency reserves Weinberg feels they have a case, given the global growth dynamic.

With talks ongoing in Brussels about how to deal with Greece, Weinberg is again warning that failure to restructure now will lead to a disorderly default in the future.

“We can only wish Mr. Lipsky good luck in explaining investment banking fundamentals to EU leadership before their refusal to restructure brings down the European financial system,” Weinberg said.

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