The IMF announced an initial agreement with Iceland on a $2.1 billion two-year loan to support an economic recovery program to help the island restore confidence in its banking system and stabilize its currency.Meanwhile, the earlier furore over IMF Managing Director Dominique Strauss-Kahn having an affair with an IMF staffer should be quelled somewhat by the findings of an Executive Board inquiry that he did not abuse his authority. What remains to be seen is if this episode undermines Strauss-Kahn further down the road. Will he still command respect from IMF staff in particular and the wider global governance community in general?
Following review by the IMF's management, the agreement could be presented to the IMF Executive Board for approval in early November. Iceland would be able to draw $833 million immediately after Board approval.
"Iceland has put together an ambitious economic program, which aims to restore confidence to the banking system, to stabilize the krona through strong macroeconomic policies, and to help the country achieve medium-term fiscal consolidation following the collapse of its banking system," said IMF Managing Director Dominique Strauss-Kahn. "I believe these strong policies justify the high level of access to Fund resources—equivalent to 1,190 percent of Iceland's quota in the IMF—and deserve the support of the international community.
"The authorities' program is focused on the essential upfront measures needed to restore confidence and economic and financial stability. The overarching goal is to support Iceland's effort to adjust to the economic crisis in a more orderly and less painful way," Strauss-Kahn said.
Based on the facts established by the external counsel's report, and the advice provided by the General Counsel and the Ethics Officer regarding the applicable standards of conduct, the Board has concluded that there was no harassment, favoritism, or any other abuse of authority by the Managing Director.Errant finance and errant romance--there is a strange congruity at work here aside from the obvious alliterative one.
Nevertheless, the Executive Board noted that the incident was regrettable and reflected a serious error of judgment on the part of the Managing Director, as he has acknowledged and for which he has apologized. The Executive Board stressed that the personal conduct of the Managing Director sets an important tone for the institution and, as such, must be beyond reproach at all times.
The Executive Board took note of the concluding observations by the external counsel with respect to best practices, and will take them into account in the work underway in the Fund to review the standards of conduct applicable to the Managing Director, the staff, and the members of the Executive Board.
The Board would like to thank all those who have cooperated with this inquiry. It considers that this matter is now closed, and looks forward to continuing to work with the Managing Director and staff on the daunting challenges facing the membership.
UPDATE: Also see TIME discussing the fallout from the affair from the standpoint of Europeans wishing to push through changes at the IMF--especially Sarkozy:
But many leaders-particularly French President Nicolas Sarkozy, and British Prime Minister Gordon Brown-want to go beyond that activity and place the IMF at the center of a reformed, unified, and better-regulated global finance system. Sarkozy has gone so far as to call for the "moralization of finance markets" and "re-foundation of capitalism". Though the most rabid adepts of laissez-faire systems like the U.S. are expected to rebuff such efforts to impose international strictures, Strauss-Kahn's profile as a respected economist and market-friendly leftist leaves him in a rare spot: The head of an international agency about to extend its powers that political and business leaders on both sides of the Atlantic and Asia feel they can deal with.
That credibility, however, seriously suffered from the uproar over Strauss-Kahn's affair. That will leave him with the difficult challenge of taking up the leading role many global politicians now call for the IMF to assume, even as many of his own staffers-particularly women-continue to regard Strauss-Kahn with resentment and disdain. Proving his reformist talents in a time of crisis as he also demonstrates unimpeachably monogamous behavior will not only be vital for Strauss-Kahn to up the IMF's role in a re-regulated international finance system; it may also be essential to his hopes to win the Socialist candidacy to challenge Sarkozy for the Elysee in 2012.
"The risk for Strauss-Kahn is that this thing may be dragged out again as campaigning starts to raise questions about his responsibility and stability," says Laurent Joffrin, editor of the left-leaning daily Liberation. That threat is especially true given Strauss-Kahn's long-standing reputation in France as a man with formidable and proven powers of seduction.