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Portfolio > Economy & Markets

El-Erian on Strauss-Kahn Arrest: Global Risks ‘Definitely Higher’

By Janet Levaux

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PIMCO co-CEO Mohamed El-Erian said in a radio interview early Tuesday that the global economy was more vulnerable with International Monetary Fund leader Dominique Strauss-Kahn in jail on sexual assault charges.

“The risks [of instability] are definitely higher for the global economy than before the news [of the arrest] broke on Saturday,” El-Erian (left) told NPR news. “The IMF is engaged in some very delicate issues around the globe, and without Strauss-Kahn, it’s a very different IMF.”

Such matters include talks over the sovereign-debt crisis affecting peripheral euro-zone nations, as well as support for countries in the Middle East that have recently experienced political turmoil, according to El-Erian.

Strauss-Kahn, El-Erian says, has been a strong leader at the IMF during the financial crisis, and his impact should not be minimized. “The financial crisis gave the Fund an opportunity to start reasserting itself on the global stage, and Strauss-Kahn grabbed that opportunity,” he explained.

As a result of Strauss-Kahn’s assertiveness, the oversight of the world financial system by the IMF was enhanced, El-Erian argues.

El-Erian also wrote in his blog that the impact of the allegations against the Strauss-Kahn could result in Europe losing its hold on the top job of the IMF, which could result in further stress on some of Europe’s troubled economies.

The IMF temporary head, John Lipsky, an American, had already said he would step down from his regular post in August.

Europeans would like to see one of their own again lead the IMF, while emerging nations would like more of a voice.  Egypt has twice nominated El-Erian.

In terms of Strauss-Kahn’s specific contributions to the IMF, El-Erian said his political connections, capacity to inspire and ability to seize strategic opportunities were most significant.

Former IMF chief economist Simon Johnson, now at MIT, said on NPR that even without Strauss-Kahn, staff at the IMF “can keep all the balls in the air,” and he doesn’t foresee more than a limited short-term impact from the shift in leadership. 

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