IMF chief guilty of ‘serious error of judgment’ in affair

Based on an independent external inquiry, the IMF executive board said it had "concluded that there was no harassment, favoritism, or any other abuse of authority by the managing director.

"Nevertheless, the executive board noted that the incident was regrettable and reflected a serious error of judgment," it said in a statement.

In a teleconference with the press, IMF executive director Shakour Shaalan said that the board had unanimously accepted Strauss-Kahn's apologies and that it would continue to work with him.

"The mood of the board was very, very positive," he said after it met Saturday on the case. "Our conclusion was that this in no way affects the effectiveness of the managing director."

"The managing director is very competent in carrying out his job. This was an unfortunate incident; the board has accepted his apologies."

Shaalan acknowledged that many in the IMF staff, especially women, "are not at all happy" with Strauss-Kahn's behavior.

"The managing director has expressed his regrets, I don't think that we can ask him to do more at this time," he said.

"We will continue to work with him. If there is some confidence that has been lost, he will regain it very soon."

Strauss-Kahn, 59, considered one of the preeminent European political figures on economic matters, was appointed in September 2007 to head the IMF and help reform the institution.

The French former political star earlier admitted he had an extramarital affair with Hungarian-born economist Piroska Nagy, but denied that he had harassed her and rejected suggestions she was given a more generous severance package than merited when she left the IMF in August.

But the sex scandal cast doubt within and outside the key global institution on Strauss-Kahn's judgment, breaking just as the IMF confronts the world's deepest financial meltdown since the Great Depression of the 1930s.

The fund spent much of the past two weeks fielding desperate pleas for help from several countries including Iceland, Belarus and Pakistan, and calls from major developed countries to take a leading role in coordinating the response to the crisis.

In a statement Saturday Strauss-Kahn said he had apologized to the board, IMF staff and his family for his behavior.

"I agree with the statement made by the executive board today in concluding its inquiry," Strauss-Kahn said.

"I very much regret the incident and I accept responsibility for it," he said.

He added that he is "committed, going forward, to uphold the high standards that are expected of this position."

According to the outside inquiry into the affair, which involved 28 interviews including with the key people involved, he engaged in "a consensual physical relationship of short duration" with Nagy in January 2008.

The inquiry, by Washington law firm Morgan, Lewis & Bockius, found no evidence either that Strauss-Kahn had offered or arranged for work-related benefits for Nagy, or that he had threatened her in any way.

It said Nagy, who left the IMF in August to join the European Bank for Reconstruction and Development, had insisted that she made the decision to leave on her own and left as a part of the IMF's ongoing voluntary separation program. The fund slashed about 600 positions at the time.

It also said that Strauss-Kahn played no part in arranging her remuneration package in the separation program.

The nine-page report said that the affair was originally discovered by Nagy's husband, who "advised his wife and the MD of the potential for adverse publicity."

But, it pointed out, rather than seeking advice from the IMF's ethics officials or general counsel, Strauss-Kahn retained his own lawyer and asked public relations friends what to do.

"The MD acknowledged that while he thought his conduct was purely personal in nature, the public disclosure of the relationship ... would have been damaging to the reputation of the IMF, the office of the MF, and the person of the MD."

The probe came 15 months after former World Bank president Paul Wolfowitz was forced to quit because of alleged favoritism to a staffer with whom he had a long-standing relationship.