The IMF watchdog does come with a bite

The International Monetary Fund has over the years been criticised for the Byzantine intrigues of its workplace, where domineering department heads zealously guard their turf — to the detriment of the fund’s broader mission. Now, a recent bout of infighting has come to light that raises fresh questions about the institution’s culture and its promise to become more transparent.

This summer, the fund’s Independent Evaluation Office, an autonomous unit that has a mandate to judge all aspects of the IMF’s conduct and policies, issued an 86-page assessment of the fund’s performance during the European debt crisis. The paper was unusually blunt in its critique of how the IMF handled Greece’s debt woes. Fund staff members were cowed by their counterparts in Europe, missed early signs of stress and did not do enough to push for a debt restructuring, the review laid out.

But this was not what set off the ire — and intervention — of senior fund officials. Before the report was published over the summer, fund officials demanded that the watchdog unit tamp down and in some cases remove sections of the report that said the IMF was not releasing documents that evaluators sought. The description of this dispute, which was not mentioned in the final paper, was provided by several people who were involved in the process, but who were not authorised to speak publicly.

By charter, the watchdog has a right to ask for any papers it believes will help in its analysis. In an interview, William Murray, a deputy spokesman at the IMF, acknowledged that the fund had some robust discussions with its internal evaluator over the language used to describe how the fund responded to requests for documents. But he added that the fund had a right to step in and ask for changes based on what he called factual errors.

“Frictions certainly developed over time,” Murray said, referring to the auditor’s 16-month quest for relevant documents. “But this was a massive paper chase — there was no concerted effort by the fund to withhold information.”

Infighting within global organisations as large and as political as the IMF can be expected. But under its managing director, Christine Lagarde, who was re-elected to a second five-year term earlier this year, the fund has sought to become more open to the world and less coldly bureaucratic. Such efforts were on wide display during the IMF’s annual fall meetings.

The week featured numerous panels on income inequality, women’s rights and ways to improve civil society, all of which was capped off with a cozy chat featuring Lagarde and the author Michael Lewis. In light of such steps, some traditional supporters of the fund have been taken aback by the IMF’s response to its internal auditor.

“The IEO was set up to have access to all documents at the fund,” said Edwin M. Truman, a former US Treasury official who was part of an outside panel of experts brought in to draw conclusions from the watchdog’s report. “Staff and senior management of the fund had no right to withhold anything from them.”

The watchdog unit was set up in 2001 with a mandate to evaluate the fund’s decision-making, which had been called into question after the Asian crisis in 1997, especially by austerity-bitten countries in Southeast Asia. Although the unit was given autonomy, those who worked there were in no way looking to cause trouble.

But a report card on the quality of the IMF’s advice during the Eurozone crisis was certain to touch on sore spots. Going back to 2012, when the unit first revealed that it would turn its eye toward the fund’s activities in the Eurozone, examiners met resistance, not only from staff members but from European board members as well.

Directors from France and Germany were particularly opposed to the inquiry, in some cases using strong language in meetings with the unit’s executives in an attempt to get them to drop the project — despite publicly endorsing the watchdog’s mission. When it became clear that the watchdog would proceed, European directors asked whether it would be possible to not release the report to the public, according to the people involved in the process.

Opposition to the investigation was most acutely felt in the powerful European Department, which oversaw bailouts in Greece, Ireland and Portugal. The leader of the European Department, Poul M. Thomsen, who was also the architect of the Greek bailout, distanced himself from the examiners initially, and the report ended up being critical of the fund’s work in Greece, although Thomsen was not mentioned by name in the review.

Thomsen would end up cooperating, releasing thousands of emails and documents, and agreeing to a three-hour interview with the IEO executive who compiled the report, Shinji Takagi. In a statement, Thomsen said that his department “complied fully with the IEO’s requests for information and documents, without exception.”

The investigation was focused on two areas in particular. Examiners wanted minutes from informal board meetings during the crisis, where IMF officials explained their actions to directors. It also asked for documents related to a series of secret meetings IMF executives had in 2010 in which they discussed different strategies for handling Greece.

The watchdog did receive reams of information that chronicled in broad terms the IMF’s work in Europe, but evaluators were not getting what they really wanted: paperwork that would shed a light on how and why the fund acted as it did. The excuses varied.

Finally, 16 months after they first made their requests, evaluators received most of what they had been asking for. It was then that IMF executives started pressuring the watchdog officials to remove passages in the report that explained how hard it had been to get the needed paperwork.

The auditors made some changes but, because they believed they had not received all the documents, they held firm in keeping their critical passages about how slow the IMF had been to cooperate. In early July, the report and 11 related background papers were made public.

Lagarde said in her response that the fund’s involvement in the Eurozone was a “qualified success.” She also said that the fund would continue its commitment to “accountability, transparency, and the role of the IEO.”

New York Times News Service