IMF office releases first evaluation, considers next ones

26 November 2002

The first report of the IMF‘s Independent Evaluation Office (IEO) was released in September. The 300-page report evaluates the “prolonged use of IMF resources”, in other words why countries become dependent on recurrent IMF financing. The study focuses on the cases of Senegal, Pakistan and the Philippines.

Prolonged use has expanded significantly since the 1970s both in terms of the number of countries and the Fund’s financial exposure. This is partly the result of a shift in the IMF‘s role to increased involvement in low-income countries with deep-rooted problems. But it is also due to inadequate policy advice and problems with IMF internal governance. Bad design and weak implementation of programmes due to ownership deficits, as well as lack of attention to issues of political economy and an expansion of conditionality are said to have led to prolonged use. Prolonged use is perceived as problematic in the report because it weakens national policy formulation processes and there is a risk that countries will not face their responsibilities. In this respect the IEO cautioned that it was charged with examining the role of the IMF, but that governments bear primary responsibility for the programmes they implement – and their failure.

Contrasting with earlier indications that the report would raise questions rather than make conclusive recommendations for the Board of Directors of the IMF (see Bretton Woods Update 30), the IEO has come up with a set of recommendations. These include: greater selectivity in supporting programmes, differentiated interest rates for prolonged users, more attention to alternative policy options and their trade-offs, prioritising key conditions, systematic ex-post program evaluation, and transparent discussion of political considerations.

The Board of the IMF has discussed the findings of the study in broad terms and has agreed to ask a task force comprised of Fund staff to come up with follow-up actions. The suggestion of differentiated interest rates was, however, immediately rejected. While most Directors didn’t see prolonged use as a problem, some argued it showed the need for a reassessment of the Fund’s strategic role in low-income countries. Several Directors approved of the IEO‘s call for greater separation of surveillance and program implementation in programme countries. However Southern EDs expressed concern that this might impose an undue burden on programme countries.

The fact that the final version of the first study makes clear recommendations is encouraging. However concerns remain that the approach chosen by the IEO is not the most appropriate to ensure its credibility, not just among Fund members but with the Fund’s real ‘clients’ – people in borrowing countries. Responding to an article in Bretton Woods Update 30, IEO staff contested assertions that their approach was technocratic, claiming it was “rigorous” and that they made every effort possible to include a broad range of stakeholders

The Bretton Woods Project acknowledges the benefits of the first study but emphasises that the independent evaluation office should assess the effects of IMF operations on people and the environment, not only on a borrowing countries’ reserves or willingness to implement reforms. This supposes a move away from the assumption that countries – especially the poorest parts of their population – are better-off if they conform to IMF policy prescriptions. Concerns about the composition of the IEO‘s staff were also re-stated, as there is a lack of balance between ex-IMF, ex-World Bank staffers and economists, and those with different backgrounds.

IEO report | Summary of Board discussion

Summary of the report (FOE US)

New IMF evaluation report Bretton Woods Update 30 | IEO email on Bretton Woods Update 30 article and Bretton Woods Project’s response

Choice of evaluation topics

Two more IEO studies, on fiscal adjustment and recent capital account crises (Brazil, Korea, Indonesia) are currently under way. Some NGOs have urged the IEO to monitor how recommendations of the first study will be incorporated in subsequent IMF programmes, once the task force has submitted options to the Fund’s Board.

The IEO has also announced a draft work programme for next year. Possible topics include a review of the Poverty Reduction and Growth Facility (PRGF) and PRSPs, case studies of Argentina and Turkey, IMF-provided technical assistance, surveillance and capital account liberalisation. A PRGF/PRSPs review in collaboration with the Bank’s evaluation department is very likely and external stakeholders will be invited to provide input.

Draft work programme

NGO letter on draft work programme

A list of IEO‘s staff (and consultants for the first three studies) is available from the Bretton Woods Project.