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Lagarde takes up IMF post replacing Strauss-Kahn

Former French finance minister Christine Lagarde took over as the new head of the International Monetary Fund Tuesday with fresh questions over Portugal’s bailout posing an immediate challenge.

The first woman to head the world’s key crisis lender, Lagarde takes over in the wake of countryman Dominique Strauss-Kahn, who quit in May to fight sexual assault charges.

Although not an economist, the 55-year-old gained wide respect as France’s point-woman during its leadership of the G20 as well as in European debt talks over the past three years.

She spent her first day at the IMF’s Washington headquarters in meetings with the Fund’s management team, the executive board, department chiefs and other staff.

But her debut was marred by a sharp downgrade of Portugal’s sovereign debt to junk status by Moody’s.

The powerful rating agency warned that Lisbon could not meet the reform requirements of its first 78-billion-euro ($112 billion) IMF-European Union bailout and would need a second rescue package.

That comes after weeks spent recasting the 110-billion-euro IMF-EU rescue of Greece — including, tentatively, a restructuring of its debt held by banks — in which Lagarde played a key role as French finance minister.

Portugal’s deterioration, following Greece’s, could come to test the IMF’s commitment to eurozone stability.

A lawyer by training, Lagarde joined Baker & McKenzie in 1981 specializing in labor and anti-trust issues.

The divorced mother of two quickly rose in the ranks and ultimately moved to the company’s Chicago headquarters to oversee global operations.

In June 2005, she joined the French government as trade minister, and then in 2007 she became France’s, and the G-8’s, first ever female finance minister.

She won the IMF job over Mexican central bank chief Agustin Carstens, maintaining Europe’s 65-year lock on the position, the result of a pact with the United States dating back to the founding of the institution.

The deal has drawn accusations that the Fund is overly aligned with European and US thinking and not sensitive to the situation of emerging and poor economies.

“Small countries should have an appropriate voice. Since the global crisis, small countries have faced particular challenges that require greater attention from the IMF,” South African Finance Minister Pravin Gordhan said last week after Lagarde was chosen.

Critics also said Lagarde was too close to the eurozone crises to be independent.

She is committed to serve as IMF managing director for five years after three previous directors, all Europeans, left the job early, according to a statement of her terms of appointment.

Lagarde was given a pay package of $467,940 in annual salary net of any taxes, and $83,760 in allowances for maintaining a “scale of living appropriate” to her position.

The terms of appointment to Lagarde’s new job require her “to observe the highest standards of ethical conduct, consistent with the values of integrity, impartiality and discretion.”

“You shall strive to avoid even the appearance of impropriety in your conduct,” they said.

Such terms were not in the contract signed by her predecessor in 2007.

Strauss-Kahn resigned on May 18, five days after he was arrested in New York on allegations that he tried to rape a hotel chambermaid.

He has denied the charges, and prosecutors have since admitted serious concerns over the accuser’s credibility.

Media reports said prosecutors were moving toward dismissing the charges, with the New York Post citing defense sources as saying Strauss-Kahn had engaged in consensual sex with the maid, but then angered her by refusing to pay for it, prompting her accusations.