Tuesday 20 March 2018

Internal IMF report questions the fund's independence in bailouts

IMF boss Christine Lagarde at odds with some of the findings. Photo: AP
IMF boss Christine Lagarde at odds with some of the findings. Photo: AP

Donal O'Donovan and Colm Kelpie

The International Monetary Fund (IMF) has been severely criticised by its own internal watchdog for being too close to the European Central Bank (ECB) and the European Commission during the bailouts for Ireland, Greece and Portugal.

In a hard-hitting assessment the IMF's own staff said it needs to shield itself from political influence that could compromise its independence when assessing nations in crisis.

The IMF has been criticised since the start of the financial crisis over perceptions that EU member states were treated less robustly than was the norm for third world countries that have needed rescue deals.

That includes complaints that the IMF has continued to lend to Greece without its normal insistence that all other lenders suffer haircuts first, to bring the country's borrowings to sustainable levels - something vehemently opposed by the ECB.

The IMF's Independent Evaluation Office (IEO) has found that its partnership with the European Central Bank and the European Commission to form the so-called troika led to officials coming under pressure to put up a common front, even where the views within the troika were at odds.

That "potentially exposed IMF staff to political decisions at an earlier stage" than expected, the IEO said.

In Ireland, it is now well known that the IMF held widely different views on some issues to the ECB in particular.

Last year Ajai Chopra, the IMF's former Ireland mission chief, told this newspaper that, in his view, ECB had acted in an "outrageous" manner and went beyond its remit when it pressured Ireland to commit to years of austerity, for example.

Speaking after he left the agency, he was bitterly critical of letters between the former ECB President Jean-Claude Trichet and the late Brian Lenihan in 2010 in which Mr Trichet threatened to cut off funds for the Irish banks if the Government did not apply for a bailout.

And Mr Chopra also claimed that the possible effects of burning the bondholders that were put forward by Europe were "exaggerated". During the bailout, however, the IMF was largely silent on those issues.

In their new report, the IMF's internal watchdogs suggested that the fund's staff "often felt pressured to accept a less-than-ideal outcome" from creditor countries.

However, in response to the criticism, IMF managing director Christine Lagarde contested the watchdog's recommendation that the IMF establish procedures that minimise chances for political intervention in its technical analysis.

"I support the principle that the IMF's technical analysis should remain independent," Ms Lagarde said in a statement accompanying the report. "However, I do not accept the premise of the recommendation, which the IEO failed to establish in its report, and thus do not see the need to develop new procedures."

The criticisms look set to give fuel to congressional Republicans in the US, which is the fund's biggest financial backer, who are growing weary of the IMF's bailouts to Greece. The fund said in May that it's likely to provide some new financial assistance to the country later in the year, in conjunction with the latest European programme.

"This deal raises doubts as to the IMF's independence from Eurozone politics and institutions," Michigan Representative Bill Huizenga said. (Additional reporting Bloomberg)

Irish Independent

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