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IMF stands by Lagarde after negligence verdict

Christine Lagarde was found guilty of negligence in public office by a special Paris court on Monday in a ruling that will cast a cloud over her position as managing director of the International Monetary Fund.

Within hours, however, the former French finance minister won the support of her board, clearing the way for her to continue on at the head of the fund.

The board’s decision came after the French tribunal hearing her case decided not to hand down any sentence to the former French finance minister. Ms Lagarde’s lawyer said the verdict would not enter into her judicial record and claimed the verdict as a “half victory”.

The court, which specifically judges cases against ministers, said Ms Lagarde failed to prevent a fraudulent €403m payout the French state made to flamboyant entrepreneur Bernard Tapie when she was finance minister.

It said that Ms Lagarde should have appealed against the payout, which occurred in 2008.

Ms Lagarde, who has for years denied any wrongdoing, called the decision “curious”. But she said she would not appeal. “I am not satisfied with it. But there is a point in time when one has to just stop, turn the page and move on and continue to work with those who have put their trust in me,” she told reporters in Washington.

The conviction is an unwelcome stain on the IMF managing director’s stint at the fund but it was not enough to see her toppled as its head. 

In a statement, the executive board said it continued to have “full confidence in the managing director’s ability to continue to effectively carry out her duties”.

“The Executive Board looks forward to continuing to work with the managing director to address the difficult challenges facing the global economy,” the board said. 

The US, the IMF’s largest shareholder, also added its support. In a statement, Jack Lew, treasury secretary, said: “She is a strong leader of the IMF, and we have every confidence in her ability to guide the Fund at a critical time for the global economy.”

Olivier Blanchard, the IMF’s former chief economist, called the ruling unfair. Speaking to the Financial Times he said: “She is one of the most scrupulous people I have ever worked with, so any notion that she might have gone along with a deal she thought was legally wrong should be rejected. And she is an extremely conscientious person and a workaholic. ‘Negligence’ is the opposite of how she works.” 

Ms Lagarde was reappointed to a second five-year term earlier this year and remains popular with staff and the IMF’s major shareholders, who credit her and her political skills for turning round the fund’s reputation after the removal of her predecessor, Dominique Strauss-Kahn. 

The IMF board had also been preparing for a possible conviction, with people close to major shareholders saying that in the absence of a prison term — and with continuing support from the French government — Ms Lagarde would probably be able to stay in her position.

After the judgment, the French government said it maintained “all its confidence” in Ms Lagarde’s ability to carry out her responsibilities at the fund

Most of the fund’s major shareholders are eager to avoid a wrangle over leadership, particularly with the new Trump administration preparing to take over in Washington. 

Douglas Rediker, a former US representative to the IMF, said Ms Lagarde’s popularity played in her favour as the board considered her future. 

“She is considered to have done a superlative job as managing director and the trial in France was at least to some degree a political trial, not an exclusively legal one,” he said. 

“Given global fragility and uncertainty, no one wants to have leadership of another major institution called into doubt again.”

Any leadership battle could have brought questions over the representation of emerging economies at the IMF and the World Bank back to the fore and sparked an unwelcome fight over control of the multilateral institutions.

Ms Lagarde, French finance minister between 2007 and 2011, had been accused of negligence for signing off on the arbitration that led to the payout to Mr Tapie — and not taking the eventual decision to appeal — despite repeated warnings from key ministers.

A Paris court last year annulled the payout on the grounds that it was fraudulent, suggesting that one of the arbitrators could have colluded with one of Mr Tapie’s lawyers. Mr Tapie, who denies all wrongdoing, was asked to repay the money.

Critics argued that the hefty payout to Mr Tapie was rigged to reward the businessman, a former socialist, for backing then President Nicolas Sarkozy’s election campaign the year before.

The prosecutor argued throughout the trial that the case against Ms Lagarde was “very weak”. In summing up, he said that she was merely following the reasonable advice of her advisers, which was an error only with hindsight.

Legal cases in France are drawn up by magistrates, who then hand them on to prosecutors, who are free to take a different line in court.

Mr Richard as well as Mr Tapie and the other suspects will stand trial in a separate case related to the same affair, where charges have been brought. They have all denied wrongdoing and are not expected to stand trial before March.

Via FT