I.M.F. Stands by Christine Lagarde, Convicted of Negligence
DEC. 19, 2016
Earlier on Monday, the Cour de Justice de la République, a French court that considers cases against current and former government ministers, found Ms. Lagarde guilty of criminal charges linked to the misuse of public funds when she was France’s finance minister nearly a decade ago. But the court did not impose a fine or a sentence.
In a statement, the directors of the I.M.F. said they had considered the court’s decisions and had “full confidence in the managing director’s ability to continue to effectively carry out her duties.”
Yet the verdict — with its potential to tarnish Ms. Lagarde as a leader — came at a critical juncture for the I.M.F.
I.M.F. doctrine, which advocates free trade and austerity for countries in financial difficulties, has been criticized as elitist and not sufficiently in tune with the populist movements sweeping the globe.
For now, the fund must confront more immediate challenges. With Britain leaving the European Union, Italy’s future in the Eurozone perhaps in doubt and the possibility of global trade wars being set off by President-elect Donald J. Trump, some have said the steady, experienced hand of Ms. Lagarde was needed more than ever.
“She has been a very effective leader,” said Edwin M. Truman, a specialist in international finance formerly at the Federal Reserve and the United States Treasury. “Yes, there are big questions about the fund’s future. But for her to have to step down now — well, that would be complicated.”
Jacob J. Lew, the Treasury secretary, expressed the Obama administration’s support for Ms. Lagarde, saying that “she is a strong leader of the I.M.F., and we have every confidence in her ability to guide the fund at a critical time for the global economy.”
For the Trump administration, “I don’t think this kind of ethical question is likely to be the highest priority,” Mr. Truman said. While the I.M.F. and other global institutions did not figure in the presidential debate, Mr. Trump repeatedly criticized a “global power structure” that fixed the economy against workers.
“At bottom, it’s all about French politics,” Mr. Truman said.
Members of the I.M.F. board were well aware that Ms. Lagarde was facing trial in her native France over allegations that occurred when she was the finance minister in the administration of Nicolas Sarkozy.
The consensus among the directors was that Ms. Lagarde’s transgressions occurred when she was not at the fund — in contrast to those of her predecessor, Dominique Strauss-Kahn — and since taking charge in 2011, she had proved to be a leader capable of presenting a softer side of the fund while fighting hard to bolster its legitimacy in the aftermath of the financial crisis.
More so than her predecessors, Ms. Lagarde has pushed the fund to be more aggressive in taking up the cause of women and focusing attention on growing issues of inequality around the world.
Over the last year and a half, she has also led a forceful public critique of Europe’s refusal to offer Greece debt relief in return for the difficult economic changes the country has been making.
Nevertheless, while Ms. Lagarde may have retained the backing of her board for the moment, over the longer term, her French legal problems may have hurt her most valuable asset — her carefully constructed public persona.
“She was a breath of fresh air, someone representing true change from the past,” said Peter Doyle, a former economist at the fund and now an outspoken critic. “Now she is just another tainted European leader.”
Those are tough words. But economists note that the fund’s core mission of requiring financially ailing countries to reform their economies and fight corruption demands credibility and reputation of the highest order.
And that starts at the top, with its leader — especially one who is as widely known as Ms. Lagarde.
“It would be complacent if not delusional to say there will be no impact on the institution,” said Nicolas Véron, a specialist on international economics at the Bruegel Institute in Brussels. “The only question is how big is the impact — and how does it compare with the need for stability.”
Ms. Lagarde’s legal issues in France have dogged her work at the fund since she was appointed in 2011. She took over as managing director after Mr. Strauss-Kahn resigned following accusations that he sexually assaulted a maid in a New York City hotel.
The case against Ms. Lagarde centered on Bernard Tapie, a former entertainer and owner of Adidas who had previously been jailed on corruption charges. Mr. Tapie accused the lender Crédit Lyonnais, in which the French state had a stake at the time, of cheating him when it oversaw the sale of his share in the sportswear empire in 1993. Years of costly legal battles ensued.
In 2007, Ms. Lagarde sent the dispute to a three-person private arbitration authority that awarded Mr. Tapie more than 400 million euros, or $420 million at current exchange rates, in damages and interest, to be paid by the state.
The court did not fault Ms. Lagarde for approving the arbitration, but it ruled that she had been negligent for not appealing the decision. The court, noting that a judge had previously invalidated the payout in a 2015 ruling and that she had “national and international” stature, decided not to punish Ms. Lagarde and spared her a criminal record.
Speaking to reporters after the hearing, Ms. Lagarde’s lawyer, Patrick Maisonneuve, said he had a “mixed” reaction to the verdict.
“On the one hand, she is found responsible, but given the circumstances, given the responsibilities that Ms. Lagarde had at the time — in 2008, we were in a major economic crisis — the court decided that it would not sentence Ms. Lagarde to anything,” he said.
Ms. Lagarde’s lawyers can appeal the verdict before France’s highest criminal court, the Cour de Cassation, on procedural grounds. But Mr. Maisonneuve suggested she might not, because no punishment was meted out.
Jackie Calmes contributed reporting.