BERKELEY – Following the International Monetary Fund’s controversial actions in the Asian financial crisis of 1998, when it conditioned liquidity assistance to distressed countries on government belt-tightening, the IMF established an Independent Evaluation Office (IEO) to undertake arm’s-length assessments of its policies and programs. That office has now issued a comprehensive critique of the Fund’s role in Europe’s post-2008 crisis.
Many of the IEO’s conclusions will be familiar. IMF surveillance, intended to detect economic vulnerabilities and imbalances, was inadequate. While staff sometimes pointed to booming credit, gaping current-account deficits, or stagnant productivity, they downplayed the implications.
This reflected a tendency, conscious or not, to think that Europe was different. Its advanced economies did not display the same vulnerabilities as emerging markets. Strong institutions like the European Commission and the European Central Bank had superior management skills. Monetary union, for some less-than-fully articulated reason, changed the rules of the game.
Such self-serving claims were in the interest of European officials, but why was the IMF prepared to accept them? One answer is that European governments are large shareholders in the Fund. Another is that the IMF is a predominantly European institution, with a European managing director, a heavily European staff, and a European culture.