An internal IMF report shows the IMF repeatedly succumbed to political
pressure, ignored its own rules, and kept many executive board members in the
dark about the state of affairs.
The International Monetary Fund repeatedly succumbed to political pressure
from European governments during the eurozone debt crisis, according a
damning internal report on bailout strategy that will fuel debate over
whether it should continue to fund Greece.
In-house inspectors highlighted a litany of flaws in the IMF’s “uneven”
response, prompting calls for greater clarity over the fund’s rescue strategy
for eurozone countries.
Christine Lagarde, the IMF’s managing director since 2011, backed some of
the inspectors’ recommendations for improving internal procedures but
dismissed calls from the independent evaluation office (IEO) to fortify the
fund’s defences against political interference.
T the report is likely to fan suspicions of some emerging market IMF
shareholders and some of its staff that it repeatedly bent its own rules to
help out the eurozone.
“It highlights the concerns of many — both inside and outside the fund –
that the fund’s treatment of developing and emerging market economies is
quite different from its treatment of advanced economies,” said Eswar Prasad,
economics professor at Cornell University and former IMF official.
“Political factors seemed to play a bigger role than pure technical
considerations in matters involving advanced economies.”
The inspectors said the troika arrangement — in which the IMF worked
alongside the European Commission and European Central Bank — potentially
subjected the technical judgment of IMF staff “to political pressure” from an
early stage.
“The European Commission, in the area of emergency crisis lending, acted
as the agent of the eurogroup, which in turn represented member states and
decided whether to provide assistance.
“Interviews and some internal documents suggest that political feasibility
in creditor countries was an important consideration for [European
Commission] staff and that IMF staff occasionally felt pressured to accept a
less-than-ideal outcome.
The inspectors said the IMF executive board, responsible for the fund’s
day-to-day business, was in the dark on sensitive policy questions for Greece
and Ireland, which also received a bailout in 2010.
Some executive board members, who usually meet several times each week,
learned more from the press throughout the crisis period than from informal
board meetings.
The board approved the first Greek deal in May 2010 “without seeking
pre-emptive debt restructuring, even though its sovereign debt was not deemed
sustainable with a high probability”.
The fiscal troubles of Greece remain unresolved, fanning concern about
regional instability at a time of upheaval in Turkey. In recent days the US
has pressed the country’s European creditors to allow a debt restructuring to
restore order in its finances.
The inspectors, led by Japanese academic Shinji Takagi, found the IMF had
considered the prospect of lending to a eurozone country to be unlikely and
had never set out how such programmes might be designed.
The fund’s involvement in eurozone programmes had been a “qualified
success” in the face of unprecedented systemic challenge, Ms Lagarde said.
Yes indeed. The bailout was a “qualified success” for Germany and the
creditors (for now), but an unmitigated disaster for Greece.
