Tag: IMF

Is the IMF Worth Reforming?

 

IMFThe IMF’s independent auditing body has just published an absolutely lacerating report on the IMF’s role in the Eurozone crisis. Among the highlights:

  • The IMF’s handling of the euro area crisis raised issues of accountability and transparency, which helped create the perception that the IMF treated Europe differently. Conducting this evaluation proved challenging. Some documents on sensitive issues were prepared outside the regular, established channels; the IEO faced a lack of clarity in its terms of reference on what it could or could not evaluate; and there was no clear protocol on the modality of interactions between the IEO and IMF staff. The IMF did not complete internal reviews involving euro area programs on time, as mandated, which led to missed opportunities to draw timely lessons.
  • In general, the IMF shared the widely-held “Europe is different” mindset that encouraged the view that large imbalances in national current accounts were little cause for concern and that sudden stops could not happen within the euro area.
  • The IMF-supported programs in Greece and Portugal incorporated overly optimistic growth projections. More realistic projections would have made clear the likely impact of fiscal consolidation on growth and debt dynamics, and allowed the authorities to prepare accordingly or persuaded European partners to consider additional—and more concessional—financing while preserving the IMF’s credibility as an independent, technocratic institution. Lessons from past crises were not always applied, for example when the IMF underestimated the likely negative response of private creditors to a high-risk program.
  • [E]ven though the possibility of engaging with a euro area country in a program relationship became real in early 2009 (when IMF staff raised the issue informally with the Irish authorities), no Executive Board meeting ever took place to discuss, let alone articulate, how the IMF could engage with a euro area country in a program relationship. (The first informal Board meeting during the euro area crisis was held on March 26, 2010, but only to discuss developments in Greece.) IMF management had earlier established small, ad hoc staff task forces to explore various contingencies, but the work of these groups was so secret that few within the institution knew of their existence, let alone the content of their deliberations.
  • Before the launch of the euro in January 1999, the IMF’s public statements tended to emphasize the advantages of the common currency more than the concerns about it that were being expressed in the broader literature. Individual staff members did express such concerns. Interviews with former and current senior staff members suggest that, after a heated internal debate, the view supportive of what was perceived to be Europe’s political project ultimately prevailed in guiding the Fund’s public position.
  • The IMF staff was often quick to praise national authorities for reforms without assessing the actual implementation or impact of the reforms. Reforms announced or implemented were generally cast in a positive light, albeit with a caveat that more were needed.
  • Apparently seeing little risk that a smaller country in the periphery could become a source of vulnerability to the rest of the monetary union, euro area surveillance did not analyze sufficiently how policies pursued in one country might affect other members of the monetary union. Staff resources were shifted away from countries that would later face crises.
  • The IMF remained upbeat about the soundness of the European banking system and the quality of banking supervision in euro area countries until after the start of the global financial crisis in mid-2007. This lapse was largely due to the IMF’s readiness to take the reassurances of national and euro area authorities at face value.
  • “[A] high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and incomplete analytical approaches”… compounded in the case of the euro area by a “Europe is different” mindset that encouraged the view that surveillance was largely the responsibility of euro area institutions and authorities, that large national current account imbalances were little cause for concern, and sudden stops could not happen within a currency union that issues a reserve currency.

This is an important account, because the IMF bears substantial responsibility for the collapse of confidence in traditional political parties in Europe, as well as the prevailing sense that the European Union is undemocratic and unaccountable. But as I’ve argued elsewhere, the lack of accountability and democracy in the EU is grossly overstated. The lack of democratic accountability in the IMF is not.

The standard complaint is that not only is the IMF undemocratic and unaccountable, it is privileged and Eurocentric.

Member Post

 

In all the discussion of the Greek debt fiasco – which has now escalated to an IMF default – the claim has repeatedly been made (and repudiated by the political Right) that the fault lies with the lenders for failing to lend more; but as always when the Left makes huge mistakes, the individual politicians […]

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Grecian Formula €1.55 Billion

 

An ATM in Athens.  The sign says "empty."While we’ve been debating the Supreme Court, there’s been a whole lot of noise going on in Europe over the snap referendum the Greeks have called on their loans from the IMF, the European Commission, and the European Central Bank (hereinafter “the troika,” as they are commonly known in Greece and Cyprus — usually with an epithet as a modifier.)

Here’s a guide to what’s happening and what’s at stake, as well as a few thoughts on what we’ll see on Monday.

This is a very odd referendum. Normally, the troika and the Greek government — currently controlled by the left-wing Syriza party that swept to power 8 months ago on a pledge to not borrow more money and get out from under the troika’s economic stabilization plan — would agree to some compromise. Syriza’s leader, Prime Minister Alexis Tsipras, would go on television, announce the agreement, and ask the people to vote to support it. (Chances are the compromise would include his breaking a couple of promises, so he’d want the people’s blessing to do so.) But no, this referendum comes after Tsipras left negotiations and flew back to Athens without an agreement — and he is putting the troika’s deal on the table.  It is clear he would like the public to vote no.