French magistrates have decided not to place IMF chief Christine Lagarde under formal investigation over her role in a $368.5 million arbitration payment made to a supporter of former president Nicolas Sarkozy.
Lagarde was instead given the status of a "supervised witness", after she was questioned for the second time on Friday on her 2008 decision as Sarkozy's finance minister to use arbitration to settle a court battle between the state and businessman Bernard Tapie.
|IMF's Lagarde faces second day of questioning.
"My explanations answered questions raised about the decisions that I had made at the time," Lagarde told reporters outside the Paris court. "My status as a supervised witness is not a surprise for me because I always acted in the interest of the state and according to the law".
Lagarde had played down the investigation, but the stakes were high for both her and the IMF, which has expressed confidence in Lagarde.
Criminal charges against Lagarde would have marked the second straight scandal for an IMF chief, after her predecessor Dominique Strauss-Kahn, also from France, resigned in disgrace in 2011 over an alleged assault on a New York hotel maid.
Lagarde, the first woman to run an organisation considered the pillar of the international financial system, was named the world's seventh most powerful woman by Forbes magazine on Wednesday.
Tapie, a former politician, went to prison for match-fixing during his time as president of French football club Olympique de Marseille.
Prosecutors working for the CJR suspect he received favourable treatment in return for supporting Nicolas Sarkozy in the 2007 presidential election.
They have suggested Lagarde - who at the time was finance minister - was partly responsible for "numerous anomalies and irregularities" which could lead to charges for complicity in fraud and misappropriation of public funds.
I always acted in the interest of the state and according to the law.
The investigation centres on her 2007 move to ask a panel of judges to arbitrate in a dispute between Tapie and Credit Lyonnais, the collapsed, partly state-owned bank, over his 1993 sale of sports group Adidas.
Tapie had accused Credit Lyonnais of defrauding him by consciously undervaluing Adidas at the time of the sale and argued that the state, as the former principal shareholder in the bank, should compensate him.
His arguments were upheld by the arbitration panel but critics claimed the state should not have taken the risk of being forced to pay compensation to a convicted criminal who, as he was bankrupt at the time, would not have been able to pursue the case through the courts.
The payment Tapie received enabled him to clear his huge debts and tax liabilities and, according to media reports, left him with millions of dollars which he has used to relaunch his business career.
Lagarde has said the arbitration was necessary to put an end to a costly dispute, and has always denied having acted under orders from Sarkozy.
Lagarde would not automatically be forced to resign as IMF chief if she is charged, but such a ruling would certainly weaken her position and undermine her future ambitions on the world stage.