IFI governance


IEO report criticises IMF policy recommendations

20 November 2014

A November report by the IMF’s Independent Evaluation Office (IEO) responded to the international financial crisis. The report criticised the IMF’s recommended policy mix of monetary expansion and fiscal austerity specifically during the period of 2010-2012, noting that it was “less than fully effective in promoting recovery and exacerbated adverse spillovers” (see Update 83, 82, 78).

The IMF managing director Christine Lagarde strongly rejected the report’s finding that fiscal austerity had been prescribed prematurely, accusing the IEO of neglecting “relevant elements and context of the institution’s undertakings” during the crisis. According to Lagarde, “advising economies with rapidly rising debt burdens to move toward measured consolidation was the right call to make.”

Isabel Ortiz, of the International Labour Organization (ILO), said that the “IEO’s conclusion on fiscal consolidation policies being premature has been pointed out by many economists and institutions since 2010. However, the IEO report fails to realise that this policy was not only advised to high income countries, but also to a larger number of developing countries.” The ILO’s “analysis of IMF fiscal projections and country reports from 2010 onwards (in its World Social Protection Report 2014) shows that IMF policy discussions focused on fiscal consolidation in a significant number of developing countries.”

Besides questioning the IMF’s policy prescriptions, the IEO report also considered the Fund’s role in coordinating and collaborating with multilateral entities. This included the IMF’s participation in the ‘Troika’ of lenders to Euro area states, with the European Commission and European Central Bank, as “a novel coordination mechanism” which has “clearly raised concerns regarding the IMF’s independence and the principle of uniform treatment of member countries (see Observer Autumn 2013, Update 82). In an October article by international news agency Reuters, Paulo Nogueiro Batista, the IMF executive director representing Brazil and 10 other emerging market countries, was reported to have said: “the Fund played the role of a ‘junior partner’ in the trio of lenders, at times ignoring its own policies.”