Heading the most prestigious and influential financial institution in the world doesn’t come without its set of scandals and challenges. The case of Dominique Strauss Kahn and his resignation is not yet a very old story, and goes to show that there is absolutely no room for weakness when you are sitting at such a powerful position.
Kahn’s successor, Christian Lagarde received much fanfare when she joined as the new IMF head, especially since she is the first woman to hold that office. But last week, her Paris apartment was searched by police investigators, raising many questions about the IMF’s next choice after Kahn’s moralistically-challenged code of conduct.
The issue dates back to 2007, when Lagarde was serving as the finance minister of France. A French businessman Bernard Tapie and a bank Credit Lyonnais were involved. Tapie, received €400 million as compensation in arbitration for a long-running dispute with the bank that was approved by Lagarde.
Following this, Tapei switched support to Nicholas Sarkozy, who was also the leader of Lagarde’s UMP party, before the presidential campaign commenced.
It is alleged that Lagarde facilitated the deal in exchange for Tapei’s support for Sarkozy in the 2007 presidential elections in France. Lagarde has explained that her decision at that time was “the best solution at the time”.
Regardless of how true or false the accusations are; the IMF still gets the raw end of the deal. That the IMF appointed her even though this case was going on in the background will hit a nerve in the developing world which has been calling for greater representation in global institutions in light of emerging economies’ rising clout.
However, given her achievements—voted the best finance minister in Europe by the Financial Times in 2009, helping France’s export reach record levels as trade minister in 2005, promoting France’s negotiating clout in key forums such as the G20, helping engineer a bailout mechanism for struggling eurozone economies in 2010 before she became the IMF chief—Lagarde was the best candidate to head the IMF in these tricky times.
Even though the case will time getting resolved, the IMF can ill afford another scandal, given the bad press generated by Kahn’s scandal.
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