IMF Examines Chief's Alleged Relationship With Female Staffer

By Anthony Faiola
Washington Post Staff Writer
Sunday, October 19, 2008

The International Monetary Fund has hired an outside firm to investigate whether its managing director, Dominique Strauss-Kahn, abused his position by engaging in an affair with a female staffer who later left the organization with financial compensation, according to sources familiar with the probe.

The IMF confirmed yesterday that it has contacted law firm Morgan, Lewis & Bockius to conduct the investigation. The focus is whether Strauss-Kahn, France's former finance minister who came to the top job at the IMF in September 2007, acted improperly in connection with an alleged sexual relationship he had with a former division chief at the fund, Piroska Nagy.

Nagy left her position in the Africa department of the IMF this summer as rumors of her possible relationship with Strauss-Kahn began to surface. The IMF, a multilateral lender offering economic guidance and loans to countries in crisis, was at the time in the process of reducing as much as 10 percent of the staff, mostly through buyouts.

In a brief interview in August, soon after her departure, Nagy, now an economist with the European Bank for Reconstruction and Development in London, would not confirm or deny the affair. She said she had left her job after almost two decades at the fund "as part of the normal downsizing at the IMF." She declined to disclose the size of her severance package, but said it was "no more" than her years of service and salary levels had warranted.

Results of the outside investigation are scheduled to be presented to the board by the end of the month, an IMF spokesman said. The investigation was reported by the Wall Street Journal yesterday.

In a statement, Strauss-Kahn, 59, also did not confirm or deny the affair. But he said he had not acted improperly. "With my full support the IMF is examining an incident which occurred in my private life in January, 2008," Strauss-Kahn said. "I have cooperated and am continuing to cooperate with outside counsel to the Fund concerning the matter. At no time did I abuse my position as the Fund's Managing Director. I look forward to the report of outside counsel."

The investigation brings uncertainty to the IMF leadership just as the fund is scrambling to contain the global financial crisis and is in talks with several small and medium-size countries about possible emergency loans. If Strauss-Kahn is ultimately forced to cut short his five-year term, it would set up a scramble by the United States and Europe to fill the top job at the IMF at a critical time. A European has traditionally headed the IMF while Americans have long headed the World Bank, though that system has been challenged by a growing number of developing countries that say the process for leading the organizations should be open to broader competition.

Sources close to and inside the IMF said the allegations have sparked a debate over the managing director's tenure. Some have criticized Strauss-Kahn, also a prominent political figure in France, for excessive favoritism.

They point to a separate female employee who worked on Strauss-Kahn's campaign to head the French Socialist party last year and who was given a temporary position at the fund soon after his arrival. An IMF committee that oversees the managing director's performance reviewed that instance and found no impropriety, saying the woman was paid only briefly before moving into a temporary, unsalaried position and later moving back to France.

Others have defended Strauss-Kahn. If the affair was consensual, they say, the different cultural standards in Europe for such relationships should be taken into consideration given that the fund is an international agency.

In May 2007, Paul Wolfowitz, then president of the World Bank, the IMF's sister organization, was forced to resign after promoting and granting a pay raise to a longtime female companion.

Strauss-Kahn's predecessor at the IMF, Rodrigo de Rato of Spain, abruptly stepped down in June 2007, citing "personal reasons."

A key determination now is whether Strauss-Kahn violated IMF codes of conduct regarding sexual harassment, even if the relationship was consensual. IMF sources said the investigation will also examine whether Strauss-Kahn pressured Nagy into a relationship, as well as whether the managing director intervened to prompt or encourage her departure.

Senior IMF officials who spoke on condition of anonymity said the affair is alleged to have spanned at least two months, during January and February of this year. Sources said it ended after Nagy's husband, the noted Argentine economist Mario Blejer, himself a former IMF staffer, discovered the affair and confronted his wife.

The allegations reached the board that oversees the managing director's performance in July. A. Shakour Shaalan, 80, who represents Egypt and other Arab nations and is the longest-serving member of the IMF board, sought the outside investigation in August. He did so after consulting with several other board members, including those representing the United States, Russia and Germany.

Though the outside investigation was launched weeks ago, it was brought the attention of the full 24-member IMF board only Friday. In an interview, Shaalan said the full board was not informed sooner because he thought it should remain confidential until the results of the probe were known. The board was notified after officials heard an article on the allegations would be published.

"I am not in the business of damaging reputations without a solid foundation of evidence," Shaalan said. "We are determining the truth about this situation, then we will act."

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