Recently, the Independent Evaluation Office (IEO) of IMF, has completed the survey ‘IMF Performance in the Run-Up to the Financial and Economic Crisis: IMF Surveillance in 2004-07’, (available here).
The output of the survey was crystal clear: Structural deficiencies and internal weaknesses affected negatively the ability of foreseeing the crisis. IMF followed some of the most inefficient practices without noticing obvious alerts, insisting in the dangerous view that the advanced economies are strong enough to tolerate any crisis, for instance the economy of USA which eventually became the epicenter of the crisis.
According to the results of the survey, some of the reasons that caused IMF’s inability to asses the financial threats were the multilayered structural weaknesses, the internal conflicts, the political pressures, the prejudice in analyzing the financial data, the internal censorship and the luck of effective surveillance and control on behalf of the managing board of the organization.
The authors of the survey admit that most of the above mentioned problems existed long before Rato’s era. Rodrigo Rato, nowadays managing director of Caja Madrid, left IMF due to personal reasons, one and a half year before the expiration of his contract.
It is common sense that the surveys undertaken by IEO do not tend just to balance the different views and positions inside the organization, neither to blame any member of the staff in person, that’s why IMF’s assessment by IEO is considered one of the most thorough and stringent that an international organization can undergo.
Some of the official statements of IMF that later unmasked its inability to realize the coming crisis are also included in the survey: ‘USA’s financial system is solidly founded and well regulated (2005)’. ‘The leading banks exhibit a constant financial basis and the systemic risk is considered low (2007)’. ‘The markets had shown its self-adjusting capabilities and this is what they are doing today (2007)’.
According to the current managing director Dominique Strauss-Kahn, the survey’s lesson learned is that IMF didn’t act the way it should and he believes that the independent assessment will be a guide in IMF’s effort to improve the quality of the organization’s surveillance. The article of El Paίs concludes that although a lot of changes have been launched so far, it seems that IMF admits that even more structural reforms are required.
Let’s now examine the story from a greek point of view, since IMF is now financing a Stand-By Arrangement with Greece for a period of 36 months in an amount equivalent to €30 billion, something that allows IMF to intervene in greek government’s financial policy matters. The question that follows is simple: Does it sound reasonable the fact that an organization with so many internal deficiencies, which resulted in not foreseeing the crisis, is capable of suggesting financial policies for overcoming the crisis?
In addition, since IMF’s relationship with prognosis is really bad (one might say because prognosis is a greek word!), I think that we will not be surprised to see again IMF failing in foreseeing a future crisis and it will be really hard for Greece if something like that happens before the expiration of the Stand-By Arrangement. There is a common belief that although it seems that the financial sector is recovering globally, nobody can underestimate the possibility of a new crisis (a pattern-W crisis, as it is referred in the financial literature). In that case the Stand-By Arrangement has to be reviewed and new measures to be taken.
Endless questioning is arising that way, but we can conclude simply by saying one thing: Continuous effort in personal and national level to pay back the €30 billion and let IMF’s experts go back in Washington in two years time to work only for restructuring and improving their organization…