IMF's Lagarde down, not out, despite conviction

Washington (AFP) - Despite her conviction by a French court for negligence, Christine Lagarde is likely to continue to lead the International Monetary Fund even at the risk of weakening the fund's image.

The fate of the former French finance minister -- who replaced another former French official caught up in a sex scandal -- now is in the hands of the IMF's board of directors, which represents the 189 member states and was expected to deliver its verdict later Monday.

There is no established procedure for this case. Lagarde has led the IMF since July 2011, when Dominique Strauss-Kahn was forced to resign, and she can remain in her post as long as she continues to enjoy the support of the board of directors, which is dominated by the US with a veto vote, and Europeans.

Under the terms of her contract, Lagarde is required to follow the highest standards of ethical conduct as IMF chief, but the court case dates from when she was finance minister. The French court found Lagarde guilty of negligence over a massive payout to the tycoon Bernard Tapie in 2008, but she will not be fined or face prison.

Everything therefore depends on the IMF board members who, so far, have been very understanding. Since her legal troubles began in August 2011, the fund's board has supported her, repeating at almost every step of the proceedings that they trusted in her ability to "effectively perform her duties" despite the distractions.

And despite her indictment and even facing a possible trial, the IMF in February unanimously re-appointed Lagarde to a second five-year term, which began in July.

According to several sources interviewed by AFP, this support should be reaffirmed on Monday, especially since Lagarde will not face punishment and was spared an embarrassing suspended prison sentence.

And, critically, the French government already said it continues to have "full confidence" in Lagarde, who was fulfilling her mandate to the IMF "successfully."

- Reputation -

Lagarde is very popular inside the IMF, and the nature of her case is very different from that of Strauss-Kahn, who was accused of sexual assault of a maid in a New York hotel.

Working much more by consensus than her predecessor, Lagarde quickly managed to silence critics and restore the image of the institution by opening it more to emerging economies and to new fields of research such as income inequality and climate change, and by going to the aid of Greece or Ukraine.

In fact she showed that she was still at her post Monday, issuing two statements on a bank takeover in Ukraine.

Desmond Lachman, a former senior IMF official, told AFP that following the Strauss-Kahn scandal which hit the fund's credibility, "She's been very good toward the IMF's image in terms of the brand, having a seat at the table, and being readily involved for the European crisis, kind of keeping the fund very relevant."

The US political environment also may play a role: just a month before President-elect Donald Trump takes office, the fund's member states may not want a leadership change that would allow the White House the opportunity to have an outsized impact on the choice for her replacement.

Since the institutions were founded after World War II, an American has always led the World Bank and a European has had charge of the IMF, but the US has the biggest vote on the IMF board.

The US Treasury did not respond to an AFP request for comment on Lagarde's status.

- Tarnished image -

Whatever the outcome for Largarde, this new episode risks further tarnishing the image of an institution that demands the greatest discipline from the states it bails out, but which seems to be the victim of a curse on its managing directors.

Strauss-Kahn's predecessor at the head of the IMF, former Spanish economy minister Rodrigo Rato, is facing prosecution in Spain for embezzlement when he was banker.

"There is obviously a question of credibility for the IMF," says Lachman.

According to Peter Doyle, a former IMF executive and Lagarde critic who left the institution in 2014, this succession of scandals must force the fund to adopt "a serious process" to appoint the managing director.

Under an agreement brokered when the IMF shifted its voting shares in 2010 to give more weight to large emerging market economies like Mexico and the so-called BRICs countries -- Brazil, Russia, India and China -- Strauss-Kahn's replacement was due to come from one of those countries.

But in 2011, with European economies again in need of IMF aid and advice, the board selected Lagarde over Mexico's highly-regarded central bank chief Agustin Carstens.

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