Lagarde conviction may be part of ‘smear campaign’

On Monday, the International Monetary Fund’s (IMF) executive board gave its leader, Christine Lagarde, a reprieve from several withering years of uncertainty in the courts of France.

Within hours of her startling conviction on charges of negligence, the IMF board issued a statement saying that it, “reaffirms its 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 added.

That decision provoked a firestorm of criticism directed at Lagarde and the Fund as agents of the status quo. But, some analysts (and Lagarde herself) felt the charges were part of a smear campaign directed at the potential future French leader. 

“The charges were highly political,” Dr. Gary Clyde Hufbauer, the Reginald Jones Senior Fellow at the Peterson Institute for International Economics said. “No doubt some French politicians wanted to knock her out of the ring and the special court created to hear the case – all Members of Parliament – speaks for the circus,” 

The conviction of Lagarde in France’s Court of Justice of the Republic (CJR), a special tribunal of three judges and a dozen parliament members, was for negligence in a case that dates back to her role as Finance Minister of France in 2007.

Cases in the CJR may be appealed, not retried, and the court found Lagarde negligent for not appealing the case, and thus, for the misuse of public funds.

The court case against Lagarde dealt with an arbitral award of $425 million to Bernard Tapie, a French businessman, after he sued French government-owned Credit Lyonnais for the undervaluation of his sale of a majority share of the Adidas sportswear company when he went into government in France.

It was then that Lagarde made the decision not to appeal the award.

The decision was reversed subsequently by French courts, which ordered Tapie, who was charged with fraud in an unrelated case, to refund the money to Credit Lyonnais.

“French politicians are trying to balance the budget while getting a formidable possible candidate out of the way,” a French diplomat, who did not want to be named, said. “And France and the European Union diplomats are scared to comment because they don’t want to serve time themselves.”

 Lagarde was found negligent in her management of the case, not of committing fraud. She was not given a prison sentence or a criminal record.

Critics have said that the problem with Lagarde staying at the Fund after her conviction is that it appears to sanction impunity at the financial institution where several previous leaders have left under a cloud of impropriety.

She was warned internally, an issue that came up at trial, that she should not drop the appeal, but she said that she was not aware of the caution. Accountability, many say, is the hallmark of the IMF, and now there is a stain on her judgment.  

“She was a breath of fresh air, someone representing true change from the past. Now she is just another tainted European leader,” Peter Doyle, a former economist at the Fund, told the New York Times.

However, many feel the charges against Lagarde were trumped up.

“(Lagarde is) obviously innocent,” Hufbauer said. “She is one of the most powerful women in the world and among the most visible leaders in France. 

“This was political decision, offsetting the initial political decision to press charges… Lagarde has done a great job in a difficult time,” Hufbauer said.

The IMF is underfunded by roughly $1 trillion, but countries have been unwilling to contribute resources, Hufbauer said.

There are other political decisions at stake, according to Martin S. Edwards, associate professor and director of Graduate Studies at the School of Diplomacy and International Relations at Seton Hall University.

“The U.S. does not want to think about a succession, given how the White House sped up Jim Yong Kim’s reappointment at the World Bank, in anticipation of potential Trump problems — this is not a trivial concern,” he said.

Edwards added that European countries do not feel Lagarde needs to be replaced at a time when, “she is only lightly nudging the Germans on Greece, rather than fully antagonizing them.”

U.S. Treasury Secretary Jacob Lew, in a statement after the executive board decided to keep Lagarde in place, said, “She is a strong leader, and we have every confidence in her ability to guide the fund at a critical time for the global economy.”

Lagarde has decided not to appeal the conviction.

“I am not satisfied with it, but there’s a point in time when one must stop, turn the page and move on,” she said. 

Lagarde’s conviction will be a, “mere footnote in history,” Hufbauer said.

Pamela Falk, CBS News TV & Radio, Foreign Affairs Analyst & U.N. Resident Correspondent, is former staff director of a subcommittee of the House of Representatives and holds a J.D. from Columbia School of Law. She can be reached at @PamelaFalk.

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