IFI governance

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IMF still failing to connect with member countries

12 February 2010

An independent evaluation of the IMF’s dealings with its member countries shows a startling amount of displeasure with the Fund’s work in rich and poor countries alike. The IMF board failed to come up with a credible action plan to deal with the problems.

The IMF’s Independent Evaluation Office (IEO) released a study of IMF Interactions with Member Countries in mid January. Presenting mixed results, “the evaluation evidence shows that IMF interactions were least effective with advanced and large emerging economies. They were most effective with [Poverty Reduction and Growth Facility, PRGF]-eligible countries, and, to a lesser extent, with other emerging economies.” The PRGF is a subsidised lending window for low-income countries.

The evaluation looked at work done between 2000 and 2008, with surveys sent out at the height of the financial crisis in November 2008. The clear conclusion from the evidence is that the IMF is not accepted as a policy coordinator for the biggest and most important economies and that the emerging markets do not view the IMF as fair or even-handed. “Most telling, some large emerging economy survey respondents saw the Fund’s surveillance work to be conducted predominantly in the interests of major shareholders, more than in their interests.”

governance reform to start breaking down the perceptions of bias

The report confirmed impressions that the Fund has been unwilling to challenge the policies of rich countries. According to the IEO, “one interviewed official from a large advanced economy said that mission chiefs have been too ready to tone down their conclusions” and “one senior staff member said that management effectively told the team that they did not want the mission to say anything that the finance minister would not like.”

The evaluation “found that interactions were undermanaged” overall, with particular worries about the power dynamics of the IMF’s dealings with some of the poorest countries. “For the authorities of some PRGF-eligible countries — especially those subject to major programme interruptions and/or delays in debt relief — the underlying power imbalance was seen to drive interactions, including the adoption of what they saw as demanding and inflexible positions by Fund staff to which the authorities had to agree, or else.”

The IEO also found that the IMF was generally failing in its interactions with stakeholders beyond government. A background paper on relations with civil society noted that “the IMF remains fairly aloof from [civil society organisations]. Relationships in the field generally remain thin, including in countries where the IMF supports stabilisation and policy reform programmes.” Another paper found “that the IMF has not done as much as it could have done to foster engagement” with parliamentarians.

There is a clear disconnect about what passes as success for the IMF. The staff response to the report argued that “the underlying survey evidence, perhaps more than the report, presents a generally positive assessment of Fund interactions with members. The survey evidence shows more than two-thirds of authorities in most countries (and still more than half among the large emerging market economies) rating Fund interactions overall as very effective or effective.” The IEO, on the other hand, clearly felt that having almost half of large emerging markets call the IMF ineffective is not at all a positive assessment.

Jo-Marie Griesgraber of US based NGO New Rules for Global Finance agreed: “The IEO has raised key issues. The appalling ratings of the Fund’s effectiveness are testament that this institution is failing its members, not least because of serious issues about trust and legitimacy. The first step must be comprehensive governance reform to start breaking down the perceptions of bias.”

Still missing policy alternatives

In the IEO’s survey, officials were asked about the quality of the IMF’s work in a number of areas. On the question of work to “present alternative scenarios and address ‘what if?’ or ‘what’s missing?'” only 50 per cent of the officials from the poorest group of countries and 42 per cent from small- and medium-sized emerging markets rated the quality of the IMF as excellent or good. This has been a key battleground for campaigners who complained about the IMF’s unwillingness to consider different frameworks (see Update 67, 59, 57). Even IMF staff responding to the survey rated this as the weakest of the IMF’s areas of work.

A full one third of the officials from the poorest countries agreed that “IMF staff have been unwilling to consider different approaches to achieve desired policy outcomes”. And 62 per cent of the officials from a group of 19 large emerging markets said “The IMF has not been willing enough to experiment and innovate.”

The evaluation included an extensive survey of civil society – including journalists, representatives of trade association, NGOs, academics, and trade unionists – with more than 700 responses. In the poorest countries, 44 per cent of respondents felt that the IMF did not take into account civil society views and only 46 per cent said the IMF frankly discussed trade-offs between policy alternatives.

No take up of recommendations

The resulting recommendations from the IEO first take note that “the resolution of the larger governance issues is essential. As things stand now, the distrust felt by some large emerging economies corrodes the institution’s effectiveness in these countries and elsewhere as well.” The report then goes on to recommend that the IMF improve the quality and relevance of its work, involve more experts on country visits, create a larger menu of products and services, lengthen the amount of time staff are assigned to specific countries and develop strategic agendas for interactions with each country.

The board discussion of the report led to few concrete decisions. While the board endorsed moves for longer staff assignments and more guidance for staff on outreach, most other recommendations generated disagreement. The summation of the board discussion “underlined that the complexity of the issues warrants further analysis and discussion.” An implementation plan of board-endorsed recommendations will have to be prepared, but the board “will need to reflect further on internal cultural changes to enhance the Fund’s engagement with its members.”