IFI governance


Committee questions independence of IMF’s evaluation arm

30 June 2006

In an evaluation of the IMF Independent Evaluation Office’s first five years of work, an external committee concluded that the IMF board and management may have undue influence on the body and that IMF management may not be appropriately implementing the body’s recommendations when they are endorsed by the board.

The external committee — chaired by Karin Lissakers, a former US executive director at the IMF, and comprising Ishrat Husain, former governor of the State Bank of Pakistan, and Ngaire Woods of Oxford University — submitted its report to the IMF board in March. However, release of the report was delayed until June, after the conclusion of Argentina’s annual Article IV consultation, because of the controversy over the claims of undue IMF management influence on an IEO report on the Fund’s work in Argentina during its 2001 financial crisis. The IEO report assessing the IMF’s role in and handling of that crisis was released in July 2004. The first draft of the report emphasised IMF staff and management mishandling of the crisis, but the final IEO document highlighted “the failure of Argentine policy makers to take necessary corrective measures.”

The external evaluators felt that “in this case, the IEO accommodated management and staff sensitivities to the detriment of the information value of its evaluation and its contribution to Board oversight.” It also cited “a number of Executive Directors [who] voiced a concern that management exercises too much influence over the final product.” Mario Cafiero, a former member of Parliament in Argentina, said, “We knew the IEO had produced a soft report in order to facilitate the IMF’s attempt to get out of its tremendous responsibility in the Argentine case.” Montek Singh Ahluwalia, director of the IEO at the time of the Argentina report, flatly denies these claims: “I would like to place on record that at no time was I subjected to any pressure from management to tone down the IEO criticism in this, or any other report.”

management may have undue influence on the IEO

Despite the external committee’s conclusion of undue influence, it made no firm recommendations on how to address this shortcoming. The managing director’s response to the report actually suggested that the board should be given more influence over what appears in final IEO reports. “The IEO’s terms of reference needs be modified to allow the executive board to correct factual inaccuracies. In addition, provision needs to be made for a deletions policy”. His response did not clarify what was meant by a factual inaccuracy. Bruce Jenkins of the Bank Information Center – a member organisation of the Global Transparency Initiative, an international network of organisations pushing for increased transparency from international financial institutions – found this suggestion troubling: “Giving the board or management the power to censor or edit documents from an independent body like the IEO would seriously impinge on the evaluator’s ability to create accountability at the Fund. The IMF needs to become more transparent, disclose materials (especially staff reports) in a more timely manner, and not fiddle about with extending an already extensive deletion protocol to independent reports.”

The committee’s main recommendations deal with more mundane issues of IEO structure and operations, but noted that “the IEO has served the IMF well”. The external evaluators suggested: broadening the mandate of the IEO to ensure that its evaluations address the fundamental question of whether the IMF is fulfilling its mandate; diversifying the mix of staff at the IEO beyond former Fund staff; creating a more systematic method for follow-up on IEO recommendations; and overhauling the IEO’s dissemination and outreach activities.

The issue of follow-up on IEO recommendations was also an area of controversy. The panel worried that even if the executive board endorses the IEO’s recommendations, there was no mechanism to ensure that management implements them. “Individual executive directors may return to issues raised by the IEO in subsequent program and policy discussions but unless a substantial number do, and on a regular basis, nothing is likely to happen if management opposes the changes.” This highlights concerns, which have resurfaced in light of the IMF strategic review, about the effectiveness of the board in overseeing the organisation. Bank of England governor Mervyn King recently stated that a “full-time executive board, staffed at middle level, not by senior officials from capitals, has made it . more difficult to hold senior management accountable.”

Both the management and staff responses to the report were at pains to state that if the board adopts IEO recommendations, those become Fund policy just like any other Board directive. The staff response went further to suggest that, “a more efficient alternative would be for the IEO to refrain from making specific recommendations . leaving it to Fund management and the Board to identify appropriate solutions.”

The current IEO director, Tom Bernes, welcomed the external evaluator’s report and its recommendations. In a meeting with UK civil society organisations in May, he stated that he hoped to improve the outreach and dissemination activities of the IEO to address the panel finding that “the IEO’s public outreach has been seriously deficient”, but that because of budget constraints it was unlikely that there would be significant change.

The IEO is currently considering its work programme for 2006 and 2007. It is expected to produce an evaluation of the role of structural conditionality in IMF-support programmes this year. Its other ongoing projects are evaluations of the IMF’s role in the determination of the external resource envelope in Sub-Saharan African countries and of the IMF’s advice on exchange rate policy.