Lagarde charge raises ghosts of scandal at IMF

The International Monetary Fund is again touched by scandal with chief Christine Lagarde's being charged in a French graft case, three years after predecessor Dominique Strauss-Kahn resigned in disgrace.
The "negligence" charge against Lagarde Wednesday in a case dating back to her years as French finance minister bears little resemblance to the sexual-assault allegations from a hotel maid that led to the downfall of Strauss-Kahn in 2011.
But Lagarde's legal challenge in the long-running Tapie affair could weaken the IMF, already under heavy criticism for forcing austerity measures on weak European economies.
Since the beginning of the French probe, the IMF executive board has stood behind the managing director, expressing confidence in her ability to meet her responsibilities.
Until now, French investigating judges had placed Lagarde under a special witness status that required her to return for questioning when asked.
But Lagarde announced Wednesday, in an exclusive interview with AFP, that she has been put under formal investigation for negligence after being again grilled by a special Paris court that probes ministerial misconduct.
In France, being placed under formal investigation is the nearest equivalent to being charged, and occurs when an examining magistrate decides there is a case to be answered.
Lagarde told AFP that the court decision was "totally without merit" and she did not intend to resign from the Washington-based IMF.
The Tapie case relates to a 400-million-euro ($527-million) state payout to French tycoon Bernard Tapie in 2008.
Lagarde referred the dispute between Tapie and partly state-owned bank Credit Lyonnais to an arbitration panel that ruled in favor of the businessman and ordered the payout.
Investigating judges are seeking to determine whether the arbitration was a sham organized to reward Tapie for his support of then-president Nicolas Sarkozy.
"After three years of procedure the only surviving allegation is that through inattention I may have failed to block the arbitration that put an end to the long-standing Tapie litigation," Lagarde told AFP.
- New IMF leadership crisis? -
Could the charge erode IMF support for Lagarde and risk plunging the institution into a leadership crisis?
The IMF has refused comment, saying she was on her way back to Washington and would brief the board "as soon as possible".
"It is a development she would have liked to avoid, but she is going to fight," a person close to Lagarde told AFP on condition of anonymity.
Lagarde could find support from the credit she has earned in restoring IMF luster after the Strauss-Kahn sex scandal, and for her leadership in the eurozone rescues.
"Ms. Lagarde has been rather effective in leading the IMF. It hasn't really affected the way in which she has been running the organization in the past three years and I don't see why this development would change that," said Desmond Lachman, a former IMF official.
A former member of the IMF board, Domenico Lombardi, also told AFP he did not expect a "drastic development any time soon" at the Fund.
But the representative of Brazil and 10 other countries on the board, Paulo Nogueira Batista, called the French charge a "serious matter."
"It's too early to make an assessment but we need some time to reflect as to whether or not this could be seen as damaging the image of the Fund," he told AFP, noting that he was speaking only personally.
"We also need to assess if this case demands so much time that it interferes with her mission."
She returns with pressing IMF business on her desk. On Friday, the IMF is expected to announce a new aid payout to crisis-riddled Ukraine.
It also continues to manage its bailout of struggling Greece, which requires tough talks with its European partners in the rescue.
And it faces the challenge that major emerging-market economies, such as China and Brazil, are making to the longstanding US-European control of the Fund.
Since its creation in 1944, the IMF always has been led by a European.

If Lagarde is forced to step down, said Lachman, "the emerging countries would push very hard this time around to have somebody from the emerging markets to head the IMF."