Ask the Advisor: How Will IMF Chief Dominique Strauss-Kahn’s Scandal Affect World Economics

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Question: What is the International Monetary Fund and why is the Dominique Strauss-Kahn scandal getting so much media attention?

Next to the Mississippi River floods and Arnold Schwarzeneggar infidelity stories, the Dominique Strauss-Kahn scandal is at the center of media attention. Strauss-Kahn is a notable figure because he is the leader of the International Monetary Fund (IMF).

The lay person, however, is still asking, “But what is the IMF and why should I care about this story?The IMF and the World Economy

Prior to fully understanding the impact of the Strauss-Kahn scandal, let’s take a look at some points of significance about the IMF in their own words:

“The International Monetary Fund (IMF) is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

The IMF has been on the front lines of lending to countries to help boost the global economy as it suffers from a deep crisis not seen since the Great Depression.

The international community recognized that the IMF’s financial resources were as important as ever and were likely to be stretched thin before the crisis was over. With broad support from creditor countries, the Fund’s lending capacity was tripled to around $750 billion.”

The largest members (and contributors) to the IMF include the United States, the United Kingdom, Germany and France. Strauss-Kahn is French and his job was to oversee the $750 billion fund, which in the recent years has been instrumental in helping stabilize world markets after the Great Recession. Beyond the financial significance of Strauss-Kahn’s role at the IMF, he was also considered a favorite in the next run for President of France, challenging Nicolas Sarkozy.

Financial Impact Largely Psychological

In summary, Strauss-Kahn is (or perhaps we may now say was) one of the most powerful leaders in the world. The stability of the world economy is not strictly financial–the psychological impact created by uncertainty with regard to a replacement for Strauss-Kahn, both as IMF leader and for political power in France, creates negative stress on financial markets.

Above all, the press loves a scandal and they have one now, which is the largest reason for Strauss-Kahn’s presence in your chosen media outlet in recent days. The financial markets will soon shrug this off and go about its business as usual with real challenges to face.

Kent Thune is a Certified Financial Plannerâ„¢ and owner of an independent, “fee-only” investment management firm in Mount Pleasant, SC. Kent is also a freelance writer. To read more of his work or to find out how to contact Kent, please visit his blog at The Financial Philosopher. Have a question? Email AsktheAdvisor@savings.com.

Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as investmentadvice. Under no circumstances does this information represent a recommendation to buy or sell securities.

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