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Embattled IMF boss Christine Lagarde/AFP

Agency report

The IMF board is expected to meet shortly to discuss the implications of the guilty verdict against its Managing Director Christine Lagarde in a French court.

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“The Executive Board has met on previous occasions to consider developments related to the legal proceedings in France.

”It is expected that the Board will meet again shortly to consider the most recent developments,” fund spokesman Gerry Rice said in a statement.

Lagarde’s reputation on the line

A source confirmed to AFP the board meeting will take place on Monday, after a French court found Lagarde guilty of negligence over a massive payout to a tycoon while she was finance minister, but she will not be fined or face prison.

Lagarde was put on trial over her 2007 decision to allow a dispute over sale of the Adidas sports brand to the state-owned Credit Lyonnais bank to be resolved by a private arbitration panel, and then failing to challenge the result.

Not guilty but guilty

The court cleared her of negligence over her decision to refer the matter to arbitration but upheld the charge over her failure to contest the award.

The IMF board is expected to consider whether Lagarde’s conviction, even in the absence of any penalty, would damage the fund’s reputation.

It is especially an issue since Lagarde was named to lead the organization in July 2011 after her predecessor Dominique Strauss-Kahn, also a former French finance minister, was forced to resign amid a sex scandal.

The first woman to head the IMF, Lagarde presided over some of the worst of the fallout from the 2008 financial crisis and is in her second term as managing director after she was reappointed in February.

What if she leaves?

If the board decides she must leave, it will create a race to search for a replacement, who according to an agreement should come from a developing nation.

There is a longstanding agreement among the advanced economies after World War II that the head of the IMF is always a European. Five of the 11 have been from France, while the leader of the World Bank is always an American.

However, in the early 2000s there was a move to increase representation in the so-called Bretton Woods institutions. This is especially to give less weight to small European economies. It was also aimed at selecting a leader from among the large emerging market economies like Mexico and the so-called BRICs countries — Brazil, Russia, India and China.

But in 2011, with European economies again in need of IMF aid and advice, the board selected Lagarde over Mexico’s highly-regarded central bank chief Agustin Carstens.