The International Monetary Fund’s Independent Evaluation Office presented a scathing report on Thursday on the IMF’s handling of European bailouts. The findings show that it bent the rules and bowed to political pressure in the ill-fated Greek rescue in 2010. The watchdog criticized the IMF’s executive board for being poorly informed, oversights over decisions and taxing the Fund’s resources.
The IMF was viewed as operating too closely with the EU and underestimating the risks in the EU economy while overestimating the area’s ability to handle the crisis. The report attacks former French IMF chief Dominique Strauss-Kahn who handled affairs until May 2011. He rushed to join the European Central Bank and European Commission in crisis bailouts in Greece, Ireland and Portugal and sacrificed the organization’s independence and ability to clearly assess the situation upon joining the “Troika.”
The willingness of the IMF to readily accept the ECB and EC decisions to not restructure Greece’s debt is damned in the report. “The IMF was kept on the sidelines in late 2009 and early 2010 when approaches to dealing with the developing crisis in Greece were being debated in Europe,” it says. “By the time the IMF was invited to provide its expertise and financing in late March 2010, the option of debt restructuring at the program’s outset was off the table.”
Furthermore, the IMF rushed through the decision to lend Greece more than normally permitted. There was little discussion and understanding. Now, the IMF is demanding that the EU reduce Greek debt if it is to join the third rescue program.
Never before had the IMF dealt with advanced economies in a currency union and rather than help, the IMF lost its “characteristic agility as a crisis manager.” The Europeans lead in the decision-making process and the IMF was “often too close to the official line of European officials, and the IMF lost effectiveness as an independent assessor” as it lacked flexibility.
The report doesn’t outright conclude that there was political pressure, however, it suggests that there was pressure prevalent in the Troika arrangement. “The credibility of the IMF comes from the technical competence and independence of its staff, and the managing director must ensure that its technical work is protected from political influence.”
Christine Lagarde’s statement
IMF Chief Christine Lagarde released a statement at the same time as the report. She rejects that there were EU political influences and other motivations at play in the IMF decisions. She did however refer to the “unprecedented” crisis that caused the Fund to draw lessons in its own internal assessments.