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QUEST MEANS BUSINESS

Strauss-Khan Denied Bail; BP Struggles to Save Rosneft Deal

Aired May 16, 2011 - 14:00:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, HOST, QUEST MEANS BUSINESS: Tonight Dominique Strauss- Khan denied bail and the judge says the IMF chief is a flight risk. What's taken place, a blow to Brussels, a major meeting on debt and reform left without one of the chief rescuers.

And another big story for your attention: BP struggles to save its landmark deal with Rosneft. The time is ticking.

I'm Richard Quest. A busy hour, I mean business.

Good evening.

As you will expect, tonight, our lead story Dominique Strauss-Kahn, the head of the IMF, remains in a New York jail having been accused of attempted rape amongst other sexual charges. Now despite offering the court a $1-million surety bond, the judge has called him a flight risk and denied bail.

The financial world has been reeling from the news and is wondering what comes next. Now one of the lynchpins of the global economic and the recovery program has been removed.

Our coverage is comprehensive, as you would also expect. We are in Brussels, where the arrest and absence of Strauss-Kahn has left the Euro Zone finance ministers meeting seriously weakened. And we are in New York were Strauss-Kahn has just appeared before that judge. We begin our coverage in New York and our correspondent there is Richard Roth.

It was a long and impassioned plea for bail. But the judge, even though there were reasons to grant bail, was having none of it.

RICHARD ROTH, CNN SENIOR CORRESPONDENT: That's right. The judge feared flight risk by Dominique Strauss-Kahn. And in this amazing, stunning even going on with this case, was remained to further custody. And other high-profile, celebrated court case in New York. But many New Yorkers had never heard of Dominique Strauss-Kahn. They are getting their fill from the tabloid newspapers and other reporting on the lurid details of this case.

The prosecutor in this court told the judge that Dominique Strauss- Kahn was headed to the JFK flight, would have taken off and never come back, and thus needed to be held while other evidence is gathered.

(BEGIN VIDEO CLIP)

JOHN MCCONNELL, NEW YORK ASST. DISTRICT ATTORNEY: In (UNINTELLIGIBLE) of the case, as it now stands, and the potential for additional evidence to be generated, the defendant has additional motivation to flee.

We also know that the defendant has personal, political, and financial resources to, in fact, flee a day in court. He is a person of means, sophistication, by all appearances he has the resources to evade capture and prosecution, were he to be released.

(END VIDEO CLIP)

ROTH: The criminal complaint filed by the prosecutor's office alleges several significant counts of sexual abuse, assault against this hotel maid, in a Times Square hotel, in a luxury suite. According to the criminal complaint Strauss-Kahn shut the door to his hotel room, thereby preventing the victim, a member of the hotel cleaning staff, from leaving. He grabbed the victim's chest without consent, attempted to remover her pantyhose and forcibly grabbed the victims vaginal area, then forced her to have-to perform oral sex.

The defense argues that A, he is not guilty of any of these charges, that he is not a flight risk. An argument that failed with the judge. The defense attorney, Benjamin Brafman.

(BEGIN VIDEO CLIP)

BENJAMIN BRAFMAN, STRAUSS-KAHN'S ATTORNEY: The defendant is a well- known, well-respected international person. He is also probably the most easily identified individual in the world today, as a result of publicity that has been generated during the past 72 hours. I also would add, for the benefit of the defendant, that he denies these charges. That he is presumed innocent under the law, something which I did not hear, at all, coming from the people's position. And he is presumed innocent. And indeed this is a very defensible case. There are significant issues that we have already found simply with preliminary investigation. And in our judgment makes it twice likely that he might ultimately be exonerated.

(END VIDEO CLIP)

ROTH: The judge ordered him held. There will be another court hearing here on Friday May 20th of this week. The defense attorney telling reporters, Richard, outside the court here, the battle has just begun. They ask that his innocence be presumed, because they anticipate a potential trail. They say he is going to clear his good name. He has no intention of fleeing.

One other note: The International Monetary Fund sketching out hotel rates and where people from the IMF get to stay. They say the Sofitel Hotel, in Times Square, where Strauss-Kahn was staying, is not on the list of New York hotels. That there are clear rules, and it would have been up to him to pay the additional $100s. Normally, it is a $386 fee, that is the maximum hotel rate allowed for IMF staff. This was allegedly something like over $2,500 hotel rate.

Richard, back to you.

QUEST: One question here. As I listen to the defense attorney, he made a great deal of the fact that Strauss-Kahn was meant to be on that flight to Paris. And that, you know, he had continued his agenda, day, and it wasn't as if he rushed to the airport. What is your reading of that, Richard?

ROTH: Well, the defense is saying that this ticket was purchased days earlier. This was not some flight to the airport and get out of town. The prosecution said this was similar to a Roman Polanski case. If he gets on that jet, he's never coming back. The defense attorney said that he called the hotel to say I left my cell phone there. Which the hotel did gather. That helped the police alert them as to where Strauss-Kahn was, but the defense is saying, look, that cell phone, by calling to say bring it out to me, that shows a man who is not trying to hide at all.

When the Port Authority, New York Police agency officers got to the plane the flight attendant or someone from the airline thought they were coming with the phone, not for Strauss-Kahn.

QUEST: Richard Roth, who is outside the court for us, tonight.

QUEST MEANS BUSINESS, we need to consider the aspects of the economy and the timing of Strauss-Kahn's arrest. Well, I suppose there is never a good time to be arrested on sex charges, but for the global economy it is pretty bad. The EU finance ministers hammered out Portugal's $111-billion bailout in Brussels today, without a strong presence from the IMF. Now, the fund has committed enormous amounts of money to bailouts. Around $43 billion went to Greece; $32 billion has gone to Ireland, $37 billion of IMF money is going to Portugal. A total of $112 billion of IMF money, all part of the wider bailout funds.

EU ministers continue their meetings in Brussels tomorrow. Our Correspondent John Defterios is in Brussels for us tonight.

John, Strauss-Kahn isn't paying all the bills. The IMF isn't paying all the bills, but he is the lynchpin, if you like, that brings all these people together and makes the whole thing work, to some extent.

JOHN DEFTERIOS, CNN CORRESPONDENT: Yes, Richard, he has been in that role for nearly three years since the financial crisis of the autumn of 2008. That is a fair bet, he is one that also welcomed in the members of the G20, to provide the surplus funds and restructure the shareholdings of the International Monetary Fund. So there is a glaring absence, if I can put it that way, in the halls here at the European Council. The so-called Euro Group, the European finance ministers are meeting behind this glass wall, as we speak right now.

They are considering the candidacy of Mario Draghi, the Italian who is looking to get the presidency of the European Central Bank, in the autumn of this year. The IMF had to do some fancy footwork to get a replacement here for Dominique Strauss-Kahn. That is in the name of Nemat Shafik. We have not seen her. She is the deputy managing director.

As you know, Richard, John Lipsky has decided to stay back in Washington. He is to be chairing an informal meeting right now. We're waiting to hear a response from the IMF on that front. It is worth noting, though, and you talked here about, about a fourth of the money coming from the IMF.

The European Central Bank and the European Union moved ahead with that Portuguese bailout, worth $110 billion. So let's take a look at the checklist for Europe today. They have checked off the first thing off the list, that is the Portuguese bailout. They said they did so because it was a credible financial package, there, put forward by the Portuguese. They are supposed to hit 6 percent, in terms of a budget deficit this year.

They have not tackled the Irish interest rate. They may not. They may leave Brussels tomorrow without doing so. I'm told by officials the one problem that is proving extremely difficult, again, is Greece. Rising debt, 157 percent, a rising budget deficit of 9.5 percent, maybe higher, so far this year. The Dutch finance minister, as he was going out of the first round of meetings said, Greece is not on the right track.

And I brought this up, Richard, because this is where Dominique Strauss-Kahn would normally play a key role, how to mend fences, how to bring people together. He was supposed to meet with Angela Merkel, whose coalition partners are starting to scream that they don't want to put any more money on the table. So the subtleties, the behind the scenes things that take place here is where the managing director would play a key role here in Brussels.

QUEST: We are going to talk in a second, and I'm going to talk more about who might take over in the event that Strauss-Kahn isn't able to continue in his duties. John, you and I have met Dominique Strauss-Kahn on many occasions, at G20, G8, IMF. It is difficult to overstate, in that sense, the role that he plays in being that bridge person, isn't it?

DEFTERIOS: You are absolutely correct. If you think about it, Richard, there was a vacuum during the autumn of 2008, after the collapse of Lehman Brothers, what was going to be the lead organizations going forward. I can remember having conversations with Dominique Strauss-Kahn and John Lipsky, and the IMF stepped in. They were considered a very credible one-two punch for the international community, as you well know.

QUEST: Right.

DEFTERIOS: Now, John Lipsky announced last week that he is going to be leaving at the end of August. And it raises a big question who will lead the International Monetary Fund. Very quickly, we have two Frenchmen in charge of two major organizations right now. The European Central Bank with Jean-Claude Trichet, and the IMF under Dominique Strauss-Kahn. Think about it, four months from now, that probably will not be the case.

QUEST: Well, one of them, we know, almost certainly will be the Italian Mario Draghi, the second one, we are now going to consider in more detail. John Defterios who is in Brussels for us tonight.

The IMF is meeting, just about now, actually. There is an executive board meeting of the fund to decide what to do. There will be briefed by this chap, John Lipsky. I'll tell you more about that in a second. The arrest of Strauss-Kahn will leave a power vacuum at the IMF and there is no clear successor in sight. Now, Strauss-Kahn has been there, a former finance minister of France, IMF MD, since 2007. He got the job, of course, largely on the back of Nicolas Sarkozy wanting to shove him out of France, where he couldn't be that much of a contender. But he gets top marks for the way he has handled the bailout.

This is the man who will be briefing the executive board tonight. John Lipsky, former chief economist at Chase Bank, an absolute bastion, a legend in the world of economics. And Mr. Lipsky, the acting managing director, due to step down shortly, in a couple of months. But now running the fund in the absence of this.

The IMF itself-and this is why it is so important-because in recent months the G20 has given the IMF some huge extra roles. The IMF is involved in looking at volatility of petro, gasoline markets, and balances in global economies. It is dealing with the exit strategies and the coordination from monetary easing. So, the IMF's role, largely as a result of what Strauss-Kahn has introduced and fought for, and the power that he sought has really moved quite a long way forward in this regard. One many can talk about this, my good friend, Ken Rogoff, who joins me.

It's not exaggeration to say, that the IMF's role in the global economy today has expanded post crisis 2008.

KEN ROGOFF, ECONOMICS PROFESSOR, HARVARD UNIVERSITY: It is utterly remarkable how many different responsibilities it has. And you are absolutely right, Richard, the G20 has just assigned it everything. And I think part of that was a vote of confidence in Strauss-Kahn. That they felt he was doing a good job. He was a political leader that they trusted and obviously, this is just a catastrophe. It is incredibly horrifying and tragic.

QUEST: We can't obviously get into any of the details, and nor should we, Ken, to be frank. But does he-can he-does he maintain his position at the IMF while this progresses, do you think? Or is it untenable, even as a figure head?

ROGOFF: I-I think-I just don't know, Richard. Obviously, it is an absolutely incredible situation. I don't know.

QUEST: Right, but does any-let's go to areas we can get into. And we have this EU meeting with Greece going on. Now, I know you believe firmly that Greece will, should, may, possibly can, and ought to default, or at least restructure. I'm giving you wide parameters, there, Ken, a wide avenue. Without Strauss-Kahn, how do these international issues proceed?

ROGOFF: Well, I think it is a-the IMF needs to play a strong hand in however it plays out. Particularly, if there is a restructuring. They have the technocratic expertise. And they still have it. I mean, the IMF is absolutely able to deal with the issues. The thing is that Strauss-Kahn was the political leader. He provided some of the political legitimacy and in the end, when you are making tough decisions, there are winners and losers, that is important. And if he cannot continue he'll be need to be replaced with someone who is equally effective in the political role, not just the technocratic one.

QUEST: And do you think the days of the duopoly, Europe gets the fund, the Yanks get the bank, are those days gone? Is this the moment when the emerging markets say, enough?

ROGOFF: Well, I think it is very clear that when Strauss-Kahn would leave, whenever that would be, that he would be replaced with someone from Latin America, or Asia, or certainly the United States, and certainly not Europe. And I think that remains true. There is a very, very strong consensus about that.

Unfortunately, the problem, they don't have a process for picking someone. Do you just take some political hack that gets advanced by a country that is powerful. Strauss-Kahn was excellent, I'm not saying he was, but do you do it that way? Do you just play political favorites? Or do you have some process that gets somebody really good? I don't know what we are going to see.

QUEST: And I just need to ask you, because everywhere-you know, the Europeans, the ECB, everybody is still saying that there is no need for Greece to restructure credit portfolios, credit events. Are they just doing the proverbial into the wind, Ken?

ROGOFF: Yes, I mean, they have their head in the sand. They hope to convince markets of that. The problem is that it is not just Greece. It is Portugal, it is Ireland. And then over the longer term you have to be concerned about Spain and Italy. You need to send a message to everybody that restructuring can happen if you don't get your house in order. We'll only stand by you so long.

QUEST: Ken Rogoff joining us from Harvard, tonight. As always, Ken, difficult days, you obviously know Dominique Strauss-Kahn very well.

ROGOFF: Indeed.

QUEST: And so difficult days for all concerned. Many thanks indeed. Ken Rogoff, who joins us from Harvard.

It is a small world, actually, international economics, particularly when you get around to the G8 and the G7 and the G20, the same people go around and around, so everybody knows, particularly, Dominique Strauss-Kahn involved.

It is a controversy that is playing out on both sides of the Atlantic. Nowhere is DSK more influential than in France. Obviously, we have extensive coverage, our correspondent is there, tonight, for us after the break.

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(COMMERCIAL BREAK)

QUEST: If things weren't bad enough, there are new accusations against Dominique Strauss-Kahn from a French woman that is adding to the political mess and the legal problems for the IMF chief. France has been shocked by these charges to one of its most prominent political figures. Jim Bittermann is live for us at CNN Paris, tonight.

Jim, we are treading on eggshells around these allegations, this latest set of allegations?

JIM BITTERMANN, CNN BUREAU CHIEF, PARIS: Well, Richard, we are a little bit, but I think we are going to see more crystallize in the next day or so, here. Basically, it involves a member of the Socialist Party, herself; a member of the regional council in France, whose daughter was-she says-the daughter was sexually assaulted by Strauss-Kahn. Now, this all happened nine years ago.

The daughter was 22 years old. She was a writer and a journalists and she went to talk to Strauss-Kahn about an interview, and she says he attacked her. Rape did not occur, but it was definitely sexual in nature. They grappled on the floor. He removed her bra and tried to get her pants off. It was a pretty tawdry scene according to the mother. And the mother, because she was a Socialist, talked her daughter out of bringing any kind of charges at that point, against Strauss-Kahn.

Now she says she regrets that decision. She has gone to a lawyer, the daughter has gone to a lawyer. And we may know more about this tomorrow, about whether or not they are going to actually try to revive the case and go to the police with this, Richard.

QUEST: And, Jim, I mean, obviously, the French political scene feels like, tonight, it has had a nuclear bomb exploded underneath it?

BITTERMANN: It really is. There are just no adjectives to describe it that are quite adequate. I mean, everybody here is stupefied at all of this; 72 hours ago, Strauss-Kahn was going to be this country's next president, according to all the public opinion polls. He was the leading man in the public opinion polls, even though he hadn't declared for the presidency. And now he's come to ground and is sitting in a jail cell in New York. It is an amazing turn of events.

And this morning, when the French woke up and saw this perp walk, the perpetrator walk, as he walked with two policemen on either side, his hands in handcuffs, a lot of people were very upset at that. One of the Socialist Party members said it was unbearably cruel to see that and there have been a number of people who have commented on that during the day, today. At the Socialist Party headquarters some people were in tears today, Richard.

QUEST: OK, we thank you for that. Jim Bittermann who is in Paris for us, tonight.

Let me just quickly bring up to you what the markets have been doing at the moment. The European bourses were-well, they did take somewhat of a tumble at the open. But by the time everything had finished trading markets had moved back. The main indices began the week downbeat. They looked for the service for some form or encouragement and they recovered at the end of the session, but were still down on the day. The CAC nearly off 1 percent.

(DESK BELL CHIMES)

To the Down Jones industrials before we take a break. Just off, flat, completely flat. Down just around 5 points, barely changed, in all. When we come back in just a moment, the building of the cities and the next great Asian hub.

(BEGIN VIDEO CLIP)

QUEST: Coming up after the break, they say this will be the new Shanghai, or Hong Kong, but can greater Tianjin compete with the world's financial centers?

(COMMERCIAL BREAK)

QUEST: When it comes to the building of cities of the future, all eyes these days, not surprisingly on China. And one symbol of China's extraordinary growth isn't Beijing; 140 kilometers southeast, just by high- speed train, 30 minutes, Tianjin. Its growth far outstrips the national average, the middle of a spectacular upgrade.

Tianjin, you get three cities for the price of one. In Binhai New Area, there is the development that is driving the whole region's economy. There are three cores, each representing some of China's most dynamic sectors, technology, industry, and tourism. Not surprisingly with such growth, it is our "Future City".

(BEGIN VIDEOTAPE)

QUEST (voice over): Every city has its shape and size. Here in Tianjin, both are changing. Big, bold construction projects are underway. And some, like Binhai New Area are up to 50 kilometers from the rest of the city. This is much more than a city suburb. It is one of many new dots on the map that surround traditional Tianjin. Eventually, high-speed rail will join these dots.

(On camera): Nothing really prepares you for the size and scale of the construction underway here. An hour from Tianjin proper, and they are building up a storm. Binhai includes Yujiapu, a brand new financial district that will serve the city.

HAO PEITAO (through translator): Yujiapu covers 3.8 square kilometers. It will provide modern financial services to not only Tianjin, but also the whole of Northern China.

QUEST: Last year, Tianjin economy grew by 17 percent. For Binhai, the figure was as high as 25 percent. All the while, Beijing has now set the national growth target to a mere 7 percent.

(On camera): If the central government's idea is for modest growth that is a forlorn hope, certainly here, in Greater Tianjin. Behind me they are constructing Yujiapu, the ambition is it competes with Shanghai and Hong Kong.

(Voice over): It is all part of China's wider ambition to draw more people into its cities. An ambition that will see 50,000 skyscrapers built in the next 15 years.

PEITAO (through translator): Compared with other projects I've done, Yujiapu is the largest so far, and also the most difficult, especially because Yujiapu's land is mostly soft soil. Building a lot of skyscrapers on soft soil is a big challenge in terms of architecture and civil engineering.

QUEST: The Tianjin Tigers are taking on the Beijing Bears, the result is a score (ph) draw. Tianjin's relationship with the capital, Beijing, just 150 kilometers away, has been just as hard-fought. The city has been a political (UNINTELLIGIBLE). Often caught between the machinations of China's rulers.

UNIDENTIFIED FEMALE: Before I worked in Beijing and last year I came back, Tianjin is more opportunity.

UNIDENTIFIED MALE (through translator): Tianjin is a coastal city, so it is more open to the rest of the world than internal provinces and cities.

UNIDENTIFIED FEMALE (through translator): I love Tianjin. I've only been here three months. Beijing doesn't compare.

QUEST: So now Tianjin authorities are taking any opportunity to compete with the capital.

(On camera): Tianjin is most certainly not embarrassed to light up the city at night. Who knows what the energy cost is?

(Voice over): This is a city that is not shy.

Everywhere the urban planners are at work on the biggest construction projects of their careers.

TANG ZHONGFU, URBAN PLANNER, BINHAI NEW AREA (through translator): I think I'm lucky, it is my destiny to work in design and to plant this area. Binhai will become the window of Northern China's open and reformed policy towards the world.

QUEST (on camera): This whole area is about what will be grand designed here translated into massive construction sites.

UNIDENTIFIED MALE (through translator): We're putting up 122 high buildings here. By early 2015, companies, bankers and financial agencies can start working in these buildings. And by 2020, everything will be complete. I have to admit that our construction speed at Ujiaku (ph) has been much faster than normal speed.

QUEST: In Tianjin, the old is giving way to the new. The ancient traditions are seeking their modern day incarnations. The established ways of structuring cities (INAUDIBLE). A single urban core is no longer the only way to map a city. In China, the need to modernize cities is urgent. Tianjin's urban planning is giving us a glimpse into the future.

(END VIDEO TAPE)

QUEST: Future Cities.

After the break, more on Dominique Strauss-Kahn in court, his political past, presidential ambitions and previous scandals.

QUEST MEANS BUSINESS.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest, QUEST MEANS BUSINESS.

This is CNN. And on this network, as always, the news always comes first.

And there's been a series of strong explosions that have been felt in Tripoli, in Libya, a short while ago. There's no confirmation from NATO, but allied warplanes have been bombing Libyan military targets since March, on a mission to protect civilian lives.

The chief prosecutor at the International Criminal Court says the only way to protect Libyans is to arrest Moammar Gadhafi. He has requested a warrant for the Libyan leader's arrest.

The best chance yet and we may finally learn what caused Air France Flight 447 to crash into the Atlantic Ocean nearly two years ago. Investigators have recovered information from the flight data and cockpit voice records that includes the last two hours of the cockpit conversations. It's expected to take several weeks to analyze that data.

Kenyans are mourning a national hero. The Olympic gold medallist, Samuel Wanjiru has died after jumping from his balcony in Kenya. Police say he jumped after his wife caught him with another woman and locked him inside. Wanjiru became Kenya's first Olympic marathon champion at the Beijing Games in 2008.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Zero and lift-off for the final launch of Endeavour.

(END VIDEO CLIP)

QUEST: The Space Shuttle Endeavour on its final mission, a 16 day trip to the ISS. The U.S. congresswoman who was shot in the head four months ago was there to watch the launch. Her husband is the shuttle commander.

Now, it's believed at this hour, the International Monetary Fund's executive board is being briefed on the developments concerning the managing director, Dominique Strauss-Kahn and his arrest in New York. It's been an extraordinary 24 hours for Strauss-Kahn and the Fund over which he leads.

The head of the IMF was supposed to be in Brussels helping negotiate Europe out of its debt crisis. Now, he is on remand in New York, charged with seven sex-related crimes, including attempted rape. It marks the beginning of a controversial new chapter for Dominique Strauss-Kahn and difficult times for the Fund.

(BEGIN VIDEOTAPE)

QUEST (voice-over): In France, he's known as DSK. Dominique-Strauss Kahn, a powerful figure during the global economic crisis, serving as head of the International Monetary Fund, the IMF. Strauss-Kahn has been credited with transforming the organization and helping to promote developing economies.

The 62-year-old became head of the IMF in 2007. Known for his luxurious style, Strauss-Kahn is nicknamed the hot rabbit for his personal misadventures in a high profile career.

In 2008, soon after joining the Fund, he was accused of having an affair with a senior economist on the IMF staff. Strauss-Kahn later apologized, calling it, in his words, "a serious error of judgment."

He's long been a controversial and unpredictable character on the French political scene. More than a decade ago, he served as France's finance minister, where his profile grew as a key player in France's economic recovery during the late 1990s.

He cut the deficit, which allowed France to qualify for the euro, but was out of that job in 1999 after facing allegations of corruption. Strauss-Kahn was acquitted of the charges.

He's married to the journalist, Anne Sinclair, his third wife, and is the father of four daughters. In 2006, he made a bid for the French presidency. He lost that to Segolene Royal in the Socialist Party primary. Dominique-Strauss Kahn was widely expected to return to French politics in 2012. He was seen as the strongest challenger to President Nicholas Sarkozy. That is until now.

EMMANUEL SAINT-MARTIN, NEW YORK CORRESPONDENT, FRANCE 24: Imagine a few years back, three years back, here in the U.S., John McCain and Barack Obama having been accused of something like that, because it's what it is about. I mean Dominique-Strauss Kahn was really ahead in all the polls for next year, the 2012 election in France.

QUEST: What seemed a lively, colorful and still promising public future is now threatened by the allegations of what's happened inside this New York hotel.

(END VIDEO TAPE)

QUEST: We need to consider on this program what that means for the IMF, the in the military.

Eswar Prasad was the founding editor of the "IMF Research Bulletin" and works as a professor of trade policy at Cornell University.

The professor joins me now from Washington to talk about this.

Professor, Prasad, the -- the IMF will continue, of course. It's much greater than one person. But Strauss-Kahn is a larger than life figure in leading the Fund.

ESWAR PRASAD, FOUNDING EDITOR, "IMF RESEARCH BULLETIN": Strauss-Kahn brought a lot to the IMF. In fact, the IMF is where it is today largely because of him. When he took over the institution about four years ago, the institution was in decline and something -- seemingly increasingly irrelevant to the international monetary system. And then the financial crisis came along, which helped the IMF.

But Strauss-Kahn was a visionary. He thought really big. He wanted to put the IMF at the center of all the action and he wanted to...

QUEST: Right.

PRASAD: -- make sure the IMF got a lot more resources. And he managed to do both.

QUEST: Right. But he's now got a fund that has got more resources, more mission -- missions, G20 has given it the balancing commission. The European Union Commission has given it.

So who takes those roles?

PRASAD: The IMF has a very deep bench. And much of the work is really done by the professional staff of the IMF. But the leadership is really important in terms of stetting the tone and more importantly in taking some decisions that are political rather than purely economic.

If you think, for instance, about the Greek debt crisis and the state of the IMF program with Greece, it's clear that Greece is not going to be able to satisfy some of the conditions the IMF has set for it.

So then it no longer becomes a technical economic issue. It's a political one -- how much loan should Greece be given, how much money should we -- should it be given...

QUEST: All right...

PRASAD: -- how much time should it be given?

QUEST: So, but -- but in that -- in that scenario, let's -- let's just, as I think we must, look at the IMF without Strauss-Kahn.

Who is the number one candidate out there to take over?

PRASAD: Right now, we have a very interesting conjuncture, because not only is Strauss-Kahn, I guess, on his way out, but John Lipsky, the U.S. representative, who is in the number two position, has announced he will leave at the end of August. So both positions are in play.

It always used to be the case that the top job went to the European, the second job to an American. Neither of those is as obvious anymore. There are some very good emerging market candidates out there. For instance, Kemal Dervis, of -- of the Brookings Institute; Tharman Shanmugaratnam, who handles the IMF oversight body. There is Trevor Manuel from South Africa and some candidates from Latin America.

So there is no dearth of good candidates...

QUEST: Ah, but...

PRASAD: The question is whether Europe will give up its prerogative.

QUEST: Right. Well, first of all, whether Europe gives up that prerogative. But in those names that you've mentioned, there are people of good economists. But it's only, say, for example, Trevor Manuel that you mentioned who has stature in terms of being able to sit opposite Angela Merkel, Sarkozy, Cameron, even Tim Geithner and say yes or no.

PRASAD: Strauss-Kahn will be a very difficult act to follow. But many of the people on that list I said do have that stature if you think about Tharman Shanmugaratnam, he comes from Singapore, which is a very small country, admittedly. But he has been put in charge of the International Monetary and Finance Committee, which oversees the IMF. So he is very well respected intellectually.

Again, Kemal Dervis is somebody who's been through it all. He was the Turkish finance minister, a very good economist. He worked with the World Bank before. And he is very well known in international economic policy circles.

So this list does have some very good candidates.

But still, Strauss-Kahn will be a tough can -- a tough act to match.

QUEST: Professor Basard, we thank you, from the Brookings Institute, for coming in and talking to us and giving us that perspective on what is turning into an extremely difficult area to analyze.

Many thanks, indeed.

Now, to make one mistake in a year might be considered a mistake. But to make the sort of mistakes B.P. has made, you may wonder what's happening next.

Will B.P. find itself frozen out of the Arctic?

The deadline is just, ooh, just about four -and-a-half hears away, in a moment.

(COMMERCIAL BREAK)

QUEST: $14.3 trillion of debt -- that's the size of the U.S. state debt ceiling. Earlier today, the Treasury secretary, Tim Geithner, confirmed the U.S. had reached it.

So, you've reached the ceiling, you can't borrow anymore -- or can you?

Maggie Lake explores what happened when the nation stretched to the limit.

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MAGGIE LAKE, CNN CORRESPONDENT (voice-over): The U.S. debt is climbing by the min and on Monday, it hit the ceiling -- $14.29 trillion. That's the absolute limit Congress has allowed the U.S. to borrow. For the government to keep paying its legal obligations in full, Congress must raise the debt limit. But in politically divisive Washington, both sides are still staking out their positions, with Republicans taking a hard line.

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: Without the significant spending cuts and changes in the way we spend the American people's money, there will be no increase in the debt limit. And the cuts should be greater than the accompanying increase in the debt limit that the president is given.

LAKE: Republicans want trillions in cuts and no tax hikes. Democrats say tax hikes should be included in the mix and they can against tying the debt limit too closely to deficit reduction.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: We believe that we can reach an agreement on significant deficit reduction within the same time frame that we need -- that Congress needs to take action to raise the debt ceiling. But it simply would be folly, as I've said before, to say that if we don't get an agreement or if we don't get the agreement we want, then we're just not going to raise the debt ceiling come what may.

LAKE: As politicians squabble, Treasury Secretary Tim Geithner has vowed to take, quote, "extraordinary measures to allow the U.S. to continue paying its creditors, including borrowing from the federal pension plan."

Because of this, the U.S. will not default on its debt immediately. But Geithner says he'll run out of options in early August. Many in the capital believe Congress must act by then. And creditors will be watching every step of the way. Creditors like China, which holds more than $1 trillion worth of U.S. Treasuries and Japan, which holds more than $890 billion worth of debt.

Over the years, the U.S. has been forced to raise the debt ceiling 74 times since 1962 to pay for tax cuts, foreign wars and other spending increases. In fiscal year 2000, total national debt stood at $5.5 trillion. Since then, debt has almost tripled.

Most in Washington agree, not raising the debt ceiling and defaulting on debt would trigger a spike in borrowing rates and a loss of confidence in the ability of the U.S. government to honor its obligations.

A high stakes game of political chicken is underway and the national debt clock is ticking.

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QUEST: Maggie Lake reporting there.

BP is battling against its own deadline. It needs to salvage or wants to salvage its deal with Rosneft.

We will be in Moscow after the break.

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QUEST: B.P. has less than five hours to finish a deal with the Russian energy giant, Rosneft, that would allow it to explore for oil and gas in parts of the Arctic that were previously off limits.

For the deal and project to go ahead, B.P. is said to be looking to buy out its existing Russian partner.

Five months of brutal negotiations are coming to the eleventh hour.

If you join me in the library, you'll see exactly how we got to where we are.

Now, on January the 14th, B.P. signed its jet -- joint venture agreement. The first agreement between B.P. and national oil and international oil company, Rosneft, being owned by the Russian government.

The core of that deal was the $16 billion share swap between B.P. and Rosneft. So far, so good. It seemed like B.P. had clinched a real winner after the Macondo Gulf of Mexico fiasco.

And then, on February the 1st, the deal was blocked because B.P. had either forgotten or thought they could ignore TNK-BP, their existing Russian partner. Any exploration in Arctic, or, indeed, in Russia, is supposed to go through their joint venture.

BP had hoped that somewhere they could get rid of TNT -- TNK-BP and substitute Rosneft instead.

May the 6th, new terms are put in place and B.P. now has until tonight to try and find a way to get the deal done with Rosneft, put the shares into a trust fund and, at the same time, keep TNK-BP on board.

It's a really tricky task. And, frankly, one might wonder what on earth B.P. was doing when it got itself into the mess in the first place.

Our senior international correspondent, Matthew Chance, is at CNN Moscow for us tonight -- Matthew, I mean how -- you know, this has been going on since January. We're four hours and counting to when it's -- the deadline is -- is over.

MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: And that's right, Richard. And my sources very close to the negotiations between TNK- BP and Rosneft tell me that there's unlikely to be a conclusive agreement as this deadline passes.

The two parties, TNK-BP and B.P., were discussing a financial settlement. We're talking about B.P. paying billions of dollars -- tens of billions of dollars, somewhere in the region of $30 billion, perhaps, to buy out TNK from its 50 percent stake in that Russian joint venture. That would enable B.P. to proceed with that very lucrative share swap agreement with Rosneft, the Russian state oil monopoly.

But at the moment, they haven't arrived at a price they're going to -- they're going to agree on. And, again, these sources that I've been speaking to close to these negotiations...

QUEST: All right...

CHANCE: -- are saying it's very unlikely now that an agreement is going to be reached today.

QUEST: Rosneft is believed not to want TNK-BP as part of any joint venture. TNK-BP is desperate, through this vehicle AR (ph), to be part of Arctic exploration. This is really about the Arctic.

CHANCE: Well, absolutely. This -- this whole opportunity was about - - certainly for B.P. -- the ability to exploit the, what, 40 billion barrels of oil that -- that are believed to be beneath the Arctic, in Russian territories. And so it's an enormous potential, perhaps a quarter of the world's oil reserves, underneath that untapped last wilderness, if you will, when it comes to oil exploration.

So incredibly important for B.P., especially after that fiasco in the Gulf of Mexico last year, as you mentioned. They wanted to make a bold investment statement. And it hasn't worked out like that.

It was equally important, of course -- and still is equally important -- for the Russians. They're very keen on maintaining their position as the world's biggest oil producers. And of course exploiting the -- the Arctic reserves are essential for them in that strategy.

QUEST: Matthew Chance, who will probably have a late night tonight to see the deadline come and go.

Matthew, we thank you for that.

Now, the weather forecast.

Mari Ramos tonight at the World Weather Center.

MARI RAMOS, CNN METEOROLOGIST: You know, a lot of you have been saying how nice it has been across much of Central and Western Europe. But I've got to remind you that we need to get some moisture here. We need the temperatures to be a little bit cooler and we really could use the rain.

We're seeing a little bit more in the way of wet weather coming in across -- again, across the U.K. and Ireland and starting to move in a little bit as we head into Mainland Europe. There's a little bit more cloud cover for you over Germany. We did see some travel delays associated the with low clouds across this region and also with the windy weather, as we head into Southeastern Europe.

Overnight tonight, that will still be a concern. And even as you head into the early morning hours. So be aware that you could run into some travel delays with that weather system.

Also down here, as we head into North Africa and the southern parts of Portugal and Spain, our next weather system is moving in. Some of those storms could be strong later today. But overall, we're starting to see those temperatures return closer to average most of the day today. And as we head into tomorrow, this frontal system has moved through and that really has helped things out.

The temperatures right now, 12 in Berlin. Still a bit warm in London at 17. Nineteen in Paris and 14 in Munich. Moscow, you're right at 12 degrees right now. And as we head south, remember, a little bit windier down here -- 21 in Athens and 20 in Rome. The hot spot, Lisbon, still at 28 degrees this hour.

So, as we move on, we really need to talk about what's happening across the Middle East. Here, the temperatures have been sweltering over the last few days. I mean it feels more like July or August, the hottest months of the year, as opposed to where we are right now, which is mid-May. Even at this late hour, Abu Dhabi is still clocking in at 35 degrees; 35 right now in Riyadh, as well.

Kuwait City, you've cooled down somewhat, up to 33 degrees. But look at this. Some of you have had temperatures over 40 degrees for nine conservative days, some of you even 10 in a row. This is significant. We're finally starting to see the temperatures drop, though.

QUEST: Mari Ramos, we thank you, at the World Weather Center.

I need to update you on the markets, which is a flat day. And normally one wouldn't be so concerned about that, but down 22 points, bearing in mind what's been happening with the IMF and the bailout packages and the potential for uncertainty, a flat day can be just as significant as any other.

A reminder, of course, Dominique-Strauss Kahn refused bail at a New York court.

When we come back after the break, a Profitable Moment on what all this means for the future of the Fund.

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QUEST: Tonight's Profitable Moment.

We've devoted much of tonight's program to the case against Dominique Strauss-Kahn and what it means for the International Monetary Fund. Quite simply, the case itself, the legal matters, they will be settled before a New York court. So it's probably best that we all let the wheels of justice grind that slow and sure way until a decision has been reached.

On the question of the IMF, though, it's likely that any successor to Strauss-Kahn may have to be decided probably sooner rather than later.

There will be calls to abandon the duopoly which gives the IMF boss' job to Europe and the presidency of the World Bank to the United States, currently Bob Zoellick.

Emerging nations have been saying for years that this is no longer fair and certainly not representative of the global economy. Think of G20 and you start to realize, U.S., Europe, they are right.

But if there is to be a change at the Fund, it should be swift and clear-cut. It must be the right person. Nothing would do more damage than a fudge (ph) for political expediency.

Dominique Strauss-Kahn's fall has shocked the financial world elite. Now, we need to make sure that they don't make a drama out of this personal crisis.

And that's QUEST MEANS BUSINESS tonight.

I'm Richard Quest in London.

Whatever you're up to in the hours ahead, I hope it's profitable.

A special program is next, "Inside the Mission: Getting bin Laden."

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