Lagarde Avoids Charges in Sarkozy-Ally Case as IMF Support Holds

International Monetary Fund Managing Director Christine Lagarde averted being charged by a Paris court investigating her decision to allow arbitration that benefited a supporter of former President Nicolas Sarkozy.

After two days of questioning, the court named Lagarde -- who was French finance minister under Sarkozy -- a material witness in the case. The status, while not precluding charges later, shouldn’t hurt her ability to stay at the IMF helm, said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics in Washington.

“This is what everyone would have wanted,” Kirkegaard said in a phone interview. “No one at the IMF board would be interested in having another divisive decision to make about a new managing director, that would be hugely disruptive.”

Lagarde, who has denied any wrongdoing, was heard by the Cour de Justice de la Republique, which focuses on ministers’ actions in office. The court was looking into whether she erred in agreeing to arbitration to end a dispute involving business tycoon Bernard Tapie that awarded him about $500 million.

“I was able to provide information to demonstrate that I always acted in the best public interest and in accordance with the law,” Lagarde, 57, said in a statement in Paris late yesterday after the court’s hearing.

A lawyer by training, she said she was heading back to Washington to explain details of the case to the IMF’s board. The IMF, in a separate statement yesterday, confirmed a meeting would take place in the coming days.

Board Support

“The executive board has been briefed on this matter several times and on each occasion expressed confidence in the managing director’s ability to effectively carry out her duties,” the 188-country institution said in an e-mailed statement following the court’s decision.

Lagarde took over the Washington-based fund in 2011 as the institution was reeling from the arrest of Dominique Strauss-Kahn, who quit the job as he faced allegations including the attempted rape of a hotel maid in New York. The charges were later dropped and he settled the maid’s lawsuit last year.

Lagarde continuing at the IMF “will be seen widely within the IMF and outside the IMF as a good thing because she is highly regarded and because the IMF is playing a very strategic role at the moment in many crucial debates,” said Uri Dadush, director of international economics at the Carnegie Endowment for International Peace in Washington.

Europe’s Recession

The fund is grappling with a recession in the euro area, contributing to four bailouts in the region, trying to resolve Egyptian aid talks and facing plans by some emerging countries to create their own development banks.

In the Tapie case, the businessman, who has also dabbled in politics and acting, in 2008 won a 385 million-euro ($497 million) arbitration award to settle a dispute over his company’s sale of German sportswear brand Adidas AG.

He contended that Credit Lyonnais mishandled the 1993 sale and pursued a claim against the formerly state-owned bank’s liquidator.

Tapie, a minister for less than a year under former Socialist President Francois Mitterrand in the 1990s, endorsed Sarkozy’s successful presidential effort in 2007 and failed re-election bid in 2012.

The arbitration court awarded Tapie 45 million euros in damages on top of 240 million euros for his creditors and about 100 million euros in interest. Lagarde refused to appeal the decision, saying “a very large majority” of the money would return to the state through the creditors’ claims.

The court opened its investigation into whether there was “complicity in forgery” or “complicity in misuse of public funds” in the case in 2011, soon after Lagarde became IMF head.

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