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The IMF’s internal watchdog has criticized the fund for a lack of consistency in some of its biggest bailouts in two decades, forcing officials to support large, high-risk repeat borrowers. to address allegations that it bowed to political pressure in order to do so.
The IMF’s Independent Evaluation Department said in a report on Thursday that “perceptions of a lack of impartiality” have affected the fund’s credibility regarding large loans to countries such as Argentina, Ukraine and Egypt. He said the rules needed to be reviewed.
This report highlights one of the most vexing problems facing the IMF. The Washington-based IMF is under pressure to balance the growing debt problems of a growing number of developing countries with the taxation of IMF resources by a small number of struggling countries. . to terminate that support.
The fund’s largest loan commitment is for Argentina, where President Javier Millei is seeking $10 billion in new loans on top of the $44 billion the country has accessed since 2018 under exceptional access rules. The country’s debt to the IMF is so large that last year it used a renminbi swap facility with China’s central bank to help pay it back.
Continued IMF support for Ukraine is also key to Kiev’s war financing against Russia’s invasion, while this year’s loan to Egypt is seen as stabilizing a major economy on the front lines of the aftermath of the Gaza war. was.
Responding to the assessment, IMF Managing Director Kristalina Georgieva said: “A review of the Fund’s rules governing maximum relief is necessary to ensure that policies remain fit for purpose in an evolving global landscape.” ” he said.
But he said the IMF still needed room for flexibility and feared that too sweeping reservations about its commitments to countries such as Argentina and Ukraine could backfire and weaken countries’ ability to return to the market. I warned you that there is.
The fund introduced a so-called “exceptional access policy” in 2002 to better regulate large-scale bailouts that pose significant risks to the Fund’s resources.
The watchdog acknowledged that the fund’s policy for so-called “exceptional access” cases, in which countries borrow many times the normal limit, was working better than previous discretionary powers, but the normal criteria The agency said there are remedies that “do not provide a substantially higher standard” compared to the United States.
The report added: “Use of this (policy) may have at times led to delays in debt resolution issues and has not facilitated private financing as much as the Fund had envisaged at the time of its adoption.” Ta.
Under a long-standing policy, countries had to pay a surcharge, or extra interest, on IMF loans that exceeded established quotas to discourage large-scale repeated borrowing. The fund reformed the levy this year, including lower tax rates.
Regarding remedies under the exceptional access rules, the IEO said: “There is a strong perception outside the fund that political pressure is influencing assessments in some high-profile cases.”
The IMF faces criticism that it is bowing to its large shareholders, which are also often big lenders to countries in trouble.
In October, Brent Neiman, the U.S. assistant secretary of the Treasury for international finance, said the fund needed to make a more robust assessment of remedies when China is a large creditor.
The IEO report said its assessment “confirms that there was intense direct and indirect pressure on staff and management in high-stakes events”.
The investigation found no evidence to support concerns that the economic assumptions behind the bailout had been “reverse engineered” to obtain loan approval.
But it also revealed weaknesses in the process, including the IMF’s reliance on political guarantees that bailout conditions such as large spending cuts would be delivered before elections.
The fund also added that there is a tendency to incorrectly assume that large bailouts will boost investor confidence in countries. “The expected impact on confidence depended more on assumptions than on analytical explanations,” the report said.
The assessment looked at cases from 2002 to mid-last year, including the IMF’s bailout of Greece during the 2010 eurozone crisis and Russia’s 2015 loan to Ukraine after its annexation of Crimea.
We also considered so-called “gray zone” cases, where the fund determines that a country’s debt is sustainable before making a loan, but there is a high probability that it will not be sustainable.
In particular, cases in the gray area would benefit from “further consideration and reconsideration based on more recent data,” Georgieva said.
“We don’t want to increase the risk of inadvertently increasing the prospects for deeper debt restructuring and higher losses,” Georgieva said.