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IEO fragility report: IMF less concerned with “making a real difference on the ground”

23 July 2018

Peacekeepers patrol Haiti during elections.

Peacekeepers patrol Haiti during elections. Credit: United Nations

In April, the IMF’s Independent Evaluation Office (IEO, see Observer Winter 2015) published its latest report, The IMF and Fragile States, assessing the IMF’s engagement with countries in fragile and conflict-affected situations (FCS). The report found the IMF’s approach conflicted with and was not well adapted to the distinct needs of FCS, “leaving questions about the credibility of the Fund’s commitment in this area.”

The report outlined a number of areas of concern, including that the IMF’s financial toolkit is “not inherently well suited to the circumstances of fragile states”, due to its relatively short-term focus, and that staff guidance has “often treated fragile states like any other country, rather than as requiring distinctive treatment.”

Fragility not “intellectually interesting” to IMF economists

In addition to structural concerns, the report highlighted the management of human resources as problematic, noting a widespread perception of stigma attached to working on FCS within the institution and calling for a fundamental change in staff incentives to encourage work in these settings. The report observed that, “IMF economists have advanced degrees in macroeconomics or finance, with comparatively less interest in development issues,” and that “many of them do not find it intellectually interesting or challenging to work on FCS.” It noted that, “there is a tendency within the IMF to consider that the mark of a good economist is an ability to do analytical work on complex economies, with less attention paid to the ability to make a difference to countries’ policy making on the ground.” Comparing the IMF to development banks and aid agencies, the IEO cited one interviewee as saying that the latter place much greater value on development work and “making a real difference on the ground.”

There is a tendency within the IMF to consider that the mark of a good economist is an ability to do analytical work on complex economies, with less attention paid to the ability to make a difference to countries’ policy making on the ground.IEO, the IMF and Fragile States

Rebecca Engel of the University of York responded, “It is remarkable that the IEO report confirms that the IMF continues to neglect its responsibilities in conflict-affected states. The failure to integrate conflict and political economy analyses into their policy-making in FCS and the lack of concern for overall development outcomes has proven to undermine the fragile political settlement of states seeking IMF support. Timor-Leste serves as just one example where IMF policies, after independence in 2002, contributed to a distancing of the state from its citizenry and impeded the state’s ability to manage expectations within a divided society. It is surprising that in 2018 the institution is seemingly unreformed.”

Echoing calls by Marcus Manuel from UK-based development think-tank Overseas Development Institute (see Observer Spring 2018), the report identified the IMF’s security policies, which restrict staff’s ability to be physically present in many FCS, as significantly impeding the Fund’s impact and called for pragmatic ways of increasing the Fund’s field presence in high-risk locations.

In her response to the report, the IMF’s Managing Director Christine Lagarde provided only ‘qualified support’ to the recommendations pertaining to staff incentives and field presence, in contrast to ‘support’ for all other recommendations. She reiterated that the ‘paramount objective must be that of ensuring staff safety, signalling that no significant changes are likely to be made in the IMF’s security policies.

IMF board reaffirms support for fragility work

While executive directors expressed diverging views on adapting the IMF lending toolkit for FCS in a March board meeting, with some cautioning against reducing the strength of programme conditionality and others suggesting lengthening programme duration in FCS, the board broadly agreed with most of the report’s recommendations. This included making a high-level commitment to reinforcing work on FCS as a top priority for the IMF.

The IMF’s commitment goes hand-in-hand with the push for greater World Bank Group focus on FCS, as it announced in December that IDA18 will double its resources to FCS. The Bank’s general capital increase endorsed by the board in April also has an explicit focus on concentrating more WBG resources in FCS (see Dispatch Spring 2018). Given that the Bank continues to face substantial challenges in its programming in FCS despite its concerted efforts to improve in this area, the IMF will be hard-pressed to significantly improve its performance in FCS without urgently instituting the changes the IEO has called for in its report.