Friday 6 December 2019

IMF says Irish bailout stoked fears of bias towards West

IMF chief Christine Lagarde
IMF chief Christine Lagarde

Anna Yukhananov

The International Monetary Fund (IMF) continues to be seen as a club for rich countries, limiting how much poor nations trust its advice as objective, the IMF's own auditor said in a stinging report.

The Independent Evaluation Office's report analysed its own studies over the past decade to see common patterns when the IMF falls short. The report also criticised how well the IMF's executive board oversees and guides the organisation, a global multilateral lender with 188 member countries.

The auditor found few cases of outright "asymmetric treatment" and noted it was hard to measure what objectivity means in practice. However, many of the IMF's members still believed the lender treated its bigger shareholders, including the US and Europe, more leniently than others, it said.

The auditor found that IMF staff sometimes exercised self-censorship to avoid candid messages about risks to advanced economies - in contrast to their advice to smaller, poorer nations.

That perception was magnified when the IMF lent billions of dollars to eurozone countries in distress, including Ireland, Greece and Portugal, with loans that were much larger than the countries' economies.

"The Euro area programmes had created the perception that European member countries had excessive weight in the IMF's decisions relative to their economic power," according to the report.

Developing nations have longed viewed the IMF with suspicion for promoting disastrous privatisations that complicated the transition from communism for some emerging nations in the early 1990s, and for pushing budget cuts that exacerbated debt crises in Asia and Latin America a few years later.

That suspicion has been compounded by a power structure that gives greater weight to many European countries compared to the size of their economies.

The IMF is based in Washington and is traditionally headed by a European.

Reforms to the IMF's structure meant to give more power to emerging markets have been held up by the Congress of the United States, the IMF's biggest and most powerful member.

"Ultimately, the perception of lack of evenhandedness is rooted in the uneven distribution of decision-making power within the IMF," according to the internal report.

The report also said the IMF's 24-member board sometimes does not provide clear guidance or oversight of the IMF's strategic direction, as board members are caught between acting on behalf of the IMF or following the interests of the countries they represent.

The auditor suggested the IMF should do a better job of dealing with these persistent problems, instead of treating the IEO's advice as a "box-ticking exercise" that does not get to the heart of the problems.

The IMF's managing director Christine Lagarde said the IMF takes seriously concerns about not treating all members equally, and will continue to review this issue when designing its aid programmes.

The critical report was published in New York on the same day that Cameroon bowed to international pressure to cut some of its costly fuel subsidies.

The move pleased international donors calling for reforms but has in the past been reversed due to the threat of protests against subsequent price rise.

The IMF has for years called for subsidies, which cost around $600m a year, to be cut.

Cameroon has for decades pumped oil and is a significant cocoa producer but analysts say the country's potential has been stymied by a lack of reform and political stagnation under President Paul Biya, who has been in power since 1982.

But recalling deadly protests over fuel prices in 2008 and neighbouring Nigeria's failed bid to cut similar subsidies in 2012, Cameroon has repeatedly stalled the move.

The price of petrol at the pumps is now 650 CFA francs ($1.36) per litre and diesel prices have risen to 600 CFA francs, according to the statement.

The statement did not say how much the government would save from the move but said the subsidies cost 157 billion CFA francs in the first six months of this budget year.

In an effort to ease the impact of the rise in fuel prices, the government said it will start talks over increasing the minimum wage, among other measures.

The IMF said in May that Cameroon's fiscal deficit for 2014 would be 5.5pc of GDP, mainly due to fuel subsidies and a public investment programme.

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