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Media reports say that beleaguered IMF chief Dominique Strauss-Kahn?s defense will assert that his alleged sexual encounter with a hotel made was consensual. This is according to the New York Post. The Post quotes an anonymous source as saying that and I quote, ?There may well have been consent following statements from Strauss-Kahn?s lawyer during this arraignment in a New York court yesterday. He was denied bail. Previous media reports had suggested that his defense would hinge on an alibi from his daughter. The next hearing is now on May 20.

Martin Wolf, Chief Economics Commentator at the Financial Times in an interview with CNBC-TV18?s Menaka Doshi spoke about how Kahn?s absence from the IMF at this crucial time of rescue packages raises several important questions.

Below is a verbatim transcript of his interview. For complete details watch the accompanying videos.

Q: Everyone has been debating for the last two days that Strauss-Kahn was the guy who was building the consensus, pushing the rescues at the IMF. Will that entire process be impacted and I know I say this even though a Portugal bailout was passed by the EU finance minister?s meeting last night where there was an IMF representative present?

A: Yes, the answer is that the bailouts have already been agreed. That was true for the one for Portugal which will go ahead. They are in fact basically completed. The question arises with the next round of bailouts. It is generally understood that there is going to have to be another package for Greece and that will be a politically very controversial package because there are many people in Europe who feel that they have been cheated.

In the sense that originally it was expected that Greece could go back to the markets in 2012 that now looks inconceivable. It is going to need more money. There are also lots of evidences that Greece is not sticking to its programme. This is all going to be very contentious and difficult. For that sort of negotiation and subsequent negotiations of that kind, the absence of Strauss-Kahn could be quite significant.

Q: How will this resolve itself at least in the short-term? For instance, what if Spain needs rescuing a lot sooner than any of us anticipated over the course of the next few months while he is still absent?

A: The assumption at the moment is that Spain will not need a bailout package. That would create enormous problems because of the scale of the country. Its not quite clear that they have the resources necessary. Thats a controversial question to deal with Spain. If that were to happen, it would blow everything apart and they would really have to start rethinking in a very big way. So lets hope that doesnt happen.

But even just dealing with Greece will be a significant issue. Its going to require probably quite a bit more money. It may not be too difficult to do this but certainly it will be more difficult to reach an agreement without the catalytic role of the IMF under Strauss-Kahn and nobody else at the IMF can play that role, they dont have the same political weight within Europe.

Q: Then the good news is that more EU leaders including Angela Merkel are opposed to a debt restructuring for Greece. So even if like you say the catalytic effect of Strauss-Kahn is missed in the next few months, it at least wont come down to a debt restructuring, right?

A: Yes, but the alternative to a debt restructuring is to put a lot of public money up and allow the private sector essentially to withdraw its funding. Thats going to be also difficult and politically very controversial.

Q: Will the events of the last two days force an early departure for Strauss-Kahn who?s term otherwise comes to an end in 2012 and thus will it open the door for possibly a power shift at the IMF with the next leader coming from say a BRIC country versus the tradition of a European leader heading the front?

A: It was widely expected that Strauss-Kahn would leave in any case because he was expected to stand for the presidency of France. In that sense this is sooner and tragically different circumstances but he was not expected to stay for the full term in any case. This is not a forecast about when he might leave. I have no sense of how this criminal procedure will go.

On the question of whether the next head of the IMF will be from a non-European country that will be the big change whether BRIC or non-BRIC. This is obviously the matter that has been discussed. There was an expectation that this was quite likely to happen this time. My own guess, at this stage I haven?t heard from anybody is that given how central the IMF has come to be in Europe and given the enormous shareholding of the Europeans in the IMF they are going to resist very strongly of having somebody in charge of the IMF who is not European.

I suspect though I cannot be sure of this that the Americans are quite likely to support them in which case it will continue to be European. But this is all up for grabs for negotiation. My guess at the moment is that the next head of the IMF will in fact be another European but if they don?t come up with a credible candidate and others do come up with more credible candidates then that could prove to be wrong.

Q: Would you say that the chances then are slim that the next leader is Chinese for instance because China has contributed significant resources to the IMF in recent years in exchange for more voting power that will be due to China this year and next. Yesterday, we had a comment from the Chinese government spokesperson saying, ?You also raised the issue of the selection of the Fund?s senior leadership. We believe that this should be based on the principles of fairness, transparency and merit.? What do you make of that?

A: One has to assess not just the general principle of which country it should come from but also who could produce a credible leader. Leading the IMF, particularly, at a time of global crises requires somebody with enormous experience of crises, very substantial economic weight and expertise, a great deal of creditability around the world. The ideal candidate should have these qualities, political weight as well as intellectual weight.

I don?t think this is a very long shortlist. In fact there are very few people who come to mind. I don?t know who the Chinese government might try to promote to this job. It?s not immediately obvious to me which Chinese figure would meet those criteria. It seems to be quite likely that it would be from someone from somewhere else.

Q: What do you make of the impact of the events of the last few weeks on the future of the IMF, an institution that many have seen along with the World Bank as increasingly relevant in the past few years except for last year where the IMF has definitely come into a prime role with regards to the sovereign debt rescue across Europe?

A: This is unbelievably damaging that the head of this institution be involved in such a case. Of course the institution as such isn?t responsible but the members chose the leader. I don?t know what is going to happen with the case but it is very damaging. I would have to say I disagree with your assessment.

Most informed people would think that the IMF has done remarkably well under Strauss-Kahn?s leadership and has dealt with the crises extraordinarily effectively. The criticisms you mentioned relate to previous periods. The IMF has been astonishingly imaginative and effective during the crises and whatever his other faults, Strauss-Kahn has been a remarkably effective leader of this institution which makes what is now happening even more tragic.

Tags: Media Reports