IMF Clears Strauss-Kahn of Wrongdoing in Affair With Staffer

By Christopher Swann

Oct. 26 (Bloomberg) -- The International Monetary Fund cleared its chief, Dominique Strauss-Kahn, of any wrongdoing in connection with his relationship with a female employee while faulting him for a ``serious error of judgment.''

An investigation by the fund's board ``concluded that there was no harassment, favoritism, or any other abuse of authority,'' a statement by the Washington-based agency said yesterday. ``Nevertheless, the Executive Board noted that the incident was regrettable and reflected a serious error of judgment on the part of the managing director.''

Strauss-Kahn, in a separate statement, said: ``I very much regret the incident and I accept responsibility for it.'' The 59-year-old former French finance minister, who took the helm of the lending agency in November 2007, said he accepted the board's findings and repeated an apology to his staff and his family.

The report said ``this matter is now closed,'' lifting a cloud that threatened to distract Strauss-Kahn just as the IMF steps up lending to countries swamped by the global financial crisis. The fund last week agreed to lend Iceland $2.1 billion after the nation's banking system collapsed. Discussions with Pakistan for a loan of up to $10 billion are under way, and Ukraine may also seek help.

``Our conclusion was that this will in no way effect the effectiveness of the managing director in the very challenging period ahead,'' Shakour Shaalan, senior member of the 24-person board, told reporters in a conference call yesterday. He described Strauss-Kahn as ``very competent'' and said that the board had ``accepted his apology.''

Focus of Inquiry

The IMF investigation focused on Strauss-Kahn's relationship with Piroska Nagy, wife of former Argentine central bank President Mario Blejer, according to a fund director who spoke earlier on condition of anonymity.

The report said Strauss-Kahn made ``initial contact'' with a female staff member, who wasn't identified, concerning ``legitimate IMF business.'' There followed ``a two-week-long exchange of consensual and very personal messages.'' In early January the two engaged in a ``consensual physical relationship of short duration.''

Nagy, who worked in the IMF's Africa department, left the agency in August, according to her lawyer, Robert Litt. He said on Oct. 18 that Nagy hadn't alleged any misconduct by Strauss- Kahn, and that she resigned voluntarily in response to a severance offer available to all staff.

The IMF report said Strauss-Kahn ``played no role in her subsequent employment'' at the European Bank for Reconstruction and Development in London.

Wolfowitz Resignation

The investigation follows last year's resignation of World Bank President Paul Wolfowitz following an uproar over Wolfowitz's decision to secure a pay increase for his companion. Both Washington-based institutions were created in 1944 as the post-World War II economic order was being planned, and now have 185 member nations.

Strauss-Kahn has won praise for overhauling the fund's voting structure to give more say to emerging nations and for cutting costs. Last December, he announced plans to cut staff by as much as 15 percent, or almost 400 people, to stem losses as the fund's loan-book dried up.

To contact the reporters on this story: Christopher Swann in Washington at cswann1@bloomberg.net