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The judges did not impose a fine or sentence on Lagarde, a move that may allow her to keep her IMF post. But the verdict is likely to add to the debate over the Fund’s role as international elites and their institutions face growing populist criticism.
New York Times reported that the board of the IMF was already weighing its options, adding that it could seek Lagarde’s resignation immediately, or she could volunteer to resign.
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The steps are, however, considered unlikely, given that the Fund backed her for a second five-year term, which began in February.
“If anything, the recent political shocks in Europe and the United States could push the IMF’s board to rally behind Lagarde, even if there are lingering concerns about her credibility. She and the Fund are central players in some of the thorniest issues on the global economic stage,” the report stated.
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Lagarde and her team are said to have been adamant about providing debt relief to near-bankrupt Greece, putting the Fund at odds with Germany. And philosophically, the Fund, since its inception after World War II, has ardently advocated the types of free-trade policies that President-elect Donald Trump has criticised so aggressively.
Lagarde’s legal issues have dogged her work at the Fund since she was appointed in 2011. She took over as managing director when Dominique Strauss-Kahn resigned after being accused of sexually assaulting a maid in a New York hotel.
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The case against Lagarde centred on Bernard Tapie, a former entertainer and owner of Adidas, who had previously been jailed on corruption charges. Tapie accused the lender Crédit Lyonnais, in which the French state had a stake at the time, of cheating him in the sale of his share in Adidas in 1993. Years of costly legal battles ensued.
In 2007, Lagarde sent the dispute to a three-person private arbitration authority, which awarded Tapie more than €400m, or $420m at current exchange rates, in damages and interest, to be paid by the state.
The arbitration decision was derided as politically tainted, and Lagarde was charged with negligence for allowing the arbitration in the first place and for declining to appeal the panel’s verdict.
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While the court did not fault Lagarde for permitting the arbitration, it ruled that she had been negligent for not appealing the decision. Martine Ract-Madoux, the presiding judge in the case against her, also rejected the claim that the case was politically motivated.
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