When Rodrigo Rato was nominated as the new managing director of the IMF, in the spring of 2004, it was a crowning moment for the Spanish economy.

Just months earlier, he had been the senior economic figure in his country’s government, credited with guiding Spain into a period of prolonged growth and onto the top table of European economies. As he addressed the media after his appointment, the smile on the face of the new IMF boss was as broad as Spain’s newly found international influence.

Almost exactly a decade later, the reputation of Rato (65) is on the floor, and that of the Spanish economy is faring only marginally better.

On October 16th, he appeared in the high court in Madrid to answer a judge's questions about a scandal surrounding his chairmanship of Bankia, the country's fourth-largest lender, which was bailed out in 2012. Demonstrators yelled abuse at Rato as he left the court, having been told he had to post €3 million in bail, which he managed to do on Wednesday [October 22nd].

Close to power

"Rato's fall from grace represents the fall from grace of a system that has run Spain for the last 30 years," Ramón Tijeras, a biographer of the politician, told The Irish Times. "Rato has been one of the exponents of that system; he's always been close to power."

But in recent days the distance between this banker-politician and that power has grown, most notably when he stepped down from the governing Popular Party (PP) after several of its senior figures made clear that his position was untenable.

Rato’s appearance at the high court is part of an investigation that has followed the recent revelation that directors and board members of Bankia were given shady credit cards to use as they wished, without apparently being accountable to either the company or the tax authorities.

Rato headed Bankia between 2010 and 2012, when it was bailed out and part-nationalised. Facing similar accusations is Miguel Blesa, a former chairman of Caja Madrid, which was merged with other savings banks to form Bankia in 2010.

The high court has found that a total of €15.5 million was spent by 82 people linked to the bank between 2003 and 2012 on everything from cash withdrawals, wine and jewellery, to an African safari in Blesa’s case.

Rato spent €99,000 on his card between 2010 and 2012. Bills of €3,500 spent on alcohol on one occasion, and €970 in a shoe shop on another, reflect the tastes of a man not used to emulating the austerity preached by his party’s government on a national level.

A string of public figures from the main political parties and labour unions has been forced to step down from their posts in the wake of a scandal, which has once again raised questions about Spain’s banking sector. But it is Blesa and Rato who have been particularly vilified, for allegedly overseeing the system of lavish perks.

“Everybody with any real power in this country has been an accomplice of people like Rato and Blesa,” said Sergio, a representative of 15MpaRato, a civic organisation that has campaigned for two years for the former IMF boss to be brought to justice for several cases of alleged fraud and corruption.

Symbol of impunity

“[Rato] represents something which has to be attacked because it’s key in this corrupt system in which political and financial power collude. He’s the biggest symbol we have of impunity.”

The opprobrium aimed at Rato is compounded by the fact that this is the third judicial case opened against him in relation to his management of Bankia, which, for many, was the most brazen example of Spain’s ill-founded financial hubris.

He is being investigated for allegedly misleading the authorities over the bank’s accounts in the lead-up to its disastrous stock exchange listing; he is also being probed over the lender’s aggressive sale of a complex financial product known as “preferential shares” to tens of thousands of clients, many of whom it impoverished.

Born into a wealthy business family, Rato swiftly made a name for himself in the conservative PP. At the start of the transition to democracy in the 1970s, his father had been closely involved in founding its predecessor, the Popular Alliance, which included former members of the Franco dictatorship.

By the time the PP took power for the first time, in 1996, Rato was well placed to become economy minister in José María Aznar’s government.

“Rodrigo Rato was very influential,” said one former politician who was in the PP for over 20 years, pointing to the former minister’s closeness to Aznar and to major figures in the media. “At the time he seemed exemplary – a very honourable person, very trustworthy and competent.”

Property boom

That image was bolstered as the Spanish economy became one of the world's success stories, its GDP soaring on the back of a property boom. As Aznar approached the end of his self-imposed two-term limit, the well-connected, pop-music-loving minister with an apparently effortless grasp of economics was the obvious choice to succeed him as PP leader. Instead, Aznar hand-picked a drab former notary, Mariano Rajoy, who lost two general elections before finally becoming prime minister in 2011.

The sidelined Rato, meanwhile, became IMF managing director, a huge honour for both him and his country. But his sudden exit in 2007, citing “personal reasons”, is where his success story started to unravel.

“His resignation as head of the IMF was very disappointing, because this was a well-known, esteemed Spaniard heading a top institution,” says the former PP politician. “He left without explaining why and it was a massive letdown for lots of people.”

His abilities as both an economist and a leader also came under scrutiny. A 2011 IMF internal report into the agency’s handling of the approaching global crisis during Rato’s tenure was widely critical of policy and management.

Closer to home, many observers have blamed Spain's recent economic crisis on Rato's inflating of the property bubble during his tenure as economy minister. The continuation of this policy eventually led to the country requesting a €41-billion EU rescue for its banks in 2012 (the same year Businessweek listed Rato as one of the world's worst CEOs).

The economy is now staging a tentative recovery. But while the banking system’s health is more solid than it was two years ago, as reflected by its performance in the recent EU stress tests, its credibility is still extremely low among ordinary Spaniards.

José Juan Toharia, of polling firm Metroscopia, noted that “the ones seen as being mainly to blame for the economic crisis are the financial institutions and what is known as the political class”.

Rato has been closely associated with both, which explains his pariah status. But while his once gleaming reputation may never recover, his main challenge right now is to stay out of jail.