The International Monetary Fund has improved its image since the global financial crisis and should address member countries’ long-standing criticism to build on the regained trust, according to an internal audit.
With a call for temporary fiscal stimulus to avoid a collapse of the world economy in 2008-2009, the Washington-based IMF was seen as breaking away from a tradition of austerity, according to the report by the Independent Evaluation Office.
“The global crisis was a watershed event for the fund,” which is now perceived “as more flexible and responsive,” according to the report dated Jan. 17 and released today. “The true test for the fund will be in periods of calm, when a trusted advisor role is even more critical for traction.”
With loans in 47 countries including Greece and resources that were increased twice in the past four years, the IMF regained the global relevance it had lost in the years leading to the crisis. Still, the auditor urged the fund to respond to distrust that lingers in Asia and Latin America in an effort to secure global cooperation in preventing future crises.
The internal auditor two years ago lambasted the IMF for failing to see the signs of the global financial crisis, saying the Washington-based fund was sometimes “in awe of” government officials’ reputation and expertise in nations such as the U.S. and the U.K.
Today’s report described a perception in some countries that the fund is still dominated by its largest shareholders with conditions attached to recent loans in Europe being seen as “soft” compared with bailouts in the past.
“Reversing the lingering adverse effects of legacy and stigma in an important share of member countries is, undoubtedly, a challenge for the fund, with no quick or easy solution,” according to the report, called “The Role of the IMF as Trusted Advisor.”
The report made several recommendations, some of which were rejected by IMF Managing Director Christine Lagarde in a separate response as not being “practical or advisable.”
They include sharing with country officials some information on policy advice before visiting to assess their economies, crafting medium-term policy strategic plans for each country and incorporating the views of all countries when preparing major policy decisions.
“I agree that we have more to do to ensure that the entire membership sees the Fund as an honest, even-handed, and intellectually rigorous partner,” Lagarde wrote. “We will need to reconsider whether there are better ways to achieve the objectives set out in the report” than the proposed ideas.
“In particular, I do not believe that sharing all the elements of a policy note, as opposed to agreeing on the important topics, with the authorities ahead of a mission would facilitate a better dialogue,” she wrote. “Nor do I think that introducing more bureaucratic processes such as drawing up medium-term strategic plans would do much to enhance the relevance of our work.”