IMF becomes more self-critical (sort of)

For years, critics have accused the International Monetary Fund of being secretive, imposing overly austere policies on developing countries in exchange for its loans and refusing to look critically at its own policies—or admit its mistakes.

In the past, the IMF has brushed away such attacks. But recently, the institution is showing signs of becoming more openly self-critical.

The IMF, which is holding its spring meeting this weekend in Washington, has acknowledged its mixed record in dealing with financial crises in Asia and Argentina and is even owning up to some failures.

Consider the following:

  • Last month, the IMF released a report on lessons learned from Argentina’s financial crisis of 2001 that conceded it had missed signs of brewing danger.
    It said it was too optimistic about the country’s growth prospects and the success of reforms it had urged.

  • In March 2003, the IMF published a research paper concluding that in developing countries, rapid financial market liberalisation—a long-standing condition for IMF loans—sometimes leads to further instability, not economic growth. It called the results “sobering”.

  • In 1998, the IMF’s letter of intent with South Korea—which spelled out the loan’s terms—was a confidential document leaked to the press. Now, the majority of agreements, as well as most policy papers and research, are made public.

    IMF officials say the institution has stressed greater self-scrutiny and transparency ever since it came under fire for its handling of the Asian financial crisis of 1997-98.

    “The fund has learned that in order to do business, it needs to do it openly and transparently. It needs to listen to its critics, learn from them and engage in self-criticism,” said Thomas Dawson, chief spokesperson for the institution of 184 member nations.

    “That doesn’t always mean the critics are right,” he said.

    Still, even the IMF has conceded that its initial response to the Asian crisis was too aggressive.

    In exchange for emergency loans, the IMF required Thailand, Indonesia and South Korea—which were unable to repay foreign debts after a plunge in their currencies—to adopt a series of “structural adjustments,” including hiking interest rates, cutting public spending and liberalising financial markets.

    When the measures did little to improve things—angering many in the region—the IMF eased back on some of its demands.

    Argentina’s financial debacle of 2001, when it defaulted on more than $80-billion of foreign debt, was particularly embarrassing for the IMF because it had been closely advising the country on economic matters since the early 1990s and had held up the nation as an exemplary model.

    The crisis pushed nearly half the population into poverty and sparked deadly riots.

    In a paper examining what went wrong in Argentina, the IMF’s 24-member executive board said the fund failed to sound the alarm on a host of issues, particularly the country’s “excessive” borrowing and risks attached to the peso’s peg to the dollar.

    Also, in an attempt to boost its credibility, the IMF in 2001 created an Independent Evaluation Office, which last year issued a report highlighting faults in the IMF’s handling of crises in South Korea, Indonesia and Brazil.

    Critics have welcomed such moves, but say they don’t go far enough.

    For one, they say that most of the IMF’s post-crisis analysis fails to acknowledge that its own prescriptions contributed to the meltdowns.

    “It’s still half-hearted,” said Joseph Stiglitz, Nobel Economics Prize winner and a former chief economist at the World Bank.

    “They’re not self-critical enough to say maybe our model is wrong.” Plus, so far there’s no sign that the IMF is actually making changes in its policies, opponents say.

    “They’re doing a more honest reckoning of what they have wrought, but their policies haven’t changed and the pressure they put on nations in the global south hasn’t changed,” said Soren Ambrose, policy analyst with 50 Years is Enough, one of several groups planning protests this weekend at the meetings of the IMF and its sister agency, the World Bank.

    Kenneth Rogoff, the IMF’s former chief economist, said the fund had always encouraged debate and described the changes as “gradual.” He credits Horst Koehler, who stepped down as the fund’s managing director in March, for bringing a more candid air to the institution.

    “He encouraged everyone to question the status quo,” said Rogoff, who now teaches economics at Harvard.

    Critics, meanwhile, denounce the process for replacing Koehler as undemocratic and secretive—further evidence that the IMF hasn’t really changed its ways, they say.

    By tradition, the IMF’s top spot goes to a European, while the World Bank president traditionally is an American—an arrangement that has been criticised given that these institutions, founded in 1945 to help Europe recover from World War II, now work almost entirely with developing nations.

    On Monday, former Spanish Finance Minister Rodrigo Rato appeared to become the top choice for the post after France agreed to support him and give up on its preferred candidate. On Tuesday, a source in the German IMF board hinted it, too, would back Rato.

    Some concern about the selection process seem to be coming from within the IMF’s own ranks.

    In an e-mail to all IMF staff that was leaked to the press, Jack Boorman, a special adviser to the managing director, said the process appeared to be “anything but open and transparent” and urged that a clear list of criteria for candidates be drawn up.

    Dawson, the IMF spokesperson, said the selection is “hardly shrouded in secrecy,” but added that Boorman’s views “have the support of a number of people in the institution”. - Sapa-AP

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