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The International Monetary Fund's internal watchdog has criticized the fund for inconsistency in some of its largest bailouts of the past two decades, calling on officials to address allegations that they are caving in to political pressure to support large and risky borrowers.
The International Monetary Fund's Independent Evaluation Office said in a report on Thursday that rules for granting large-scale loans to countries such as Argentina, Ukraine and Egypt need to be overhauled because “perceptions of unfairness” affect the fund's credibility.
The report highlights one of the thorny issues facing the International Monetary Fund, as the Washington-based institution is under pressure to balance mounting debt problems in more and more developing economies with the imposition of taxes on its resources by a small group of countries that it is struggling to manage. Postpone it. To stop supporting it.
The fund's largest lending commitment is to Argentina, where President Javier Miley is seeking a new $10 billion loan, in addition to the $44 billion the country has tapped since 2018 under exceptional access rules. The country's liabilities to the International Monetary Fund are so large that last year it used a renminbi swap line with China's central bank to help repay.
The IMF's continued support for Ukraine is also one of the mainstays of Kiev's financing of its war effort against the Russian invasion, while the Fund's loan to Egypt this year was seen as stabilizing a key economy on the front line of the fallout from the Gaza war.
Kristalina Georgieva, the IMF's executive director, said in response to the assessment that the fund's review of the rules governing its largest bailouts was “essential to ensure that policy remains fit for purpose in an evolving global context.”
But she warned that the IMF still needed room for flexibility and that too many blanket reservations about its commitments to countries such as Argentina and Ukraine could backfire, weakening countries' ability to return to markets.
The Fund introduced the so-called “exceptional access policy” in 2002 to better regulate large bailouts that put greater risks on the IMF's resources.
While the watchdog acknowledged that the fund's policy of so-called “exceptional access” cases, where a country borrows several times more than usual limits, worked better than the previous use of discretion, it “did not provide a substantially higher standard” compared to the normal standard. The office said rescue operations.
He added, “The use of (the policy) may have sometimes delayed debt settlement problems and did not stimulate private financing to the extent that the Fund had envisioned when it was adopted.”
Under a long-standing policy, countries were forced to pay additional fees, or interest, on IMF loans beyond a specified quota, in order to discourage frequent borrowing in large amounts. The fund reformed the surcharge this year, including lowering the rate.
“Outside the box, there is a strong perception of political pressure in some high-profile cases affecting the assessment” of bailouts under the exceptional access rules, the IOE said.
The IMF often faces criticism that it bows to large shareholders who are often also major lenders to countries in trouble.
In October, Brent Neiman, US Assistant Secretary of the Treasury for International Finance, said the Fund needed to be more rigorous in evaluating bailouts where China is a major creditor.
The IOE report said its assessment “confirms that pressures on staff and management, exerted directly or indirectly, were strong in high-risk cases.”
The review found no evidence to confirm concerns that the economic assumptions behind the bailouts had been “reverse engineered” in order to get the loans approved.
But it identified weaknesses in operations, such as when the IMF relied on pre-election political guarantees that bailout conditions such as deep spending cuts would be implemented.
He added that the Fund also tends to incorrectly assume that large bailouts will boost investor confidence in countries. “The expected trust effects relied more on assumptions than on analytical interpretation,” the report said.
The evaluation reviewed cases from 2002 until the middle of last year, such as the International Monetary Fund's rescue of Greece at the beginning of the eurozone crisis in 2010, and the 2015 loan to Ukraine after Russia's annexation of Crimea.
The report also looked at so-called “gray zone” cases where the Fund judges a country's debts to be sustainable before it lends, but cannot say so with a high probability.
Regarding gray zone cases in particular, Georgieva said that “more reflection and review based on more recent data” was helpful.
“We do not want to inadvertently increase the risks of increasing the likelihood of deeper debt restructuring and increasing losses,” Georgieva said.
