Earlier this year, the Independent Evaluation Office (IEO) released a valuable report on the 'The IMF's Role as a Trusted Advisor.' Known for its candour and independent assessment of the IMF, the IEO held little back in assessing how the IMF has fared in carrying out this important role.
The IMF does not have in its mandate a requirement to be a trusted advisor, but it is greatly understood in the international financial community that for the system to work well, the IMF needs to be able to get and give candid reports on the health of members and its clients’ economies. After conducting 400 interviews with government authorities, the IEO was able to discern a great deal of feedback on how the IMF has performed in this implicit yet important role.
Interestingly, the IEO determined that how the IMF has fared varies across time, issue area, and according to economy size and importance in the global economy.
Overall the IEO found that the IMF had improved since the onset of the financial crisis. Indeed, the crisis humbled IMF staff for failing to predict it. Consequently, the Fund has improved in its approach with member countries. Particularly, the IMF had been seen as more flexible, better at listening, and members felt the Fund had handled issues of transparency and confidentiality in a more positive manner.
On issue areas, government officials were happy with technical assistance, the IMF Institute's training programs, and the performance of Resident Representatives. With that said, IMF advice was deemed to be better on fiscal and banking issues, but less useful in what are traditional and key areas of IMF expertise — namely on issues of currency valuations or exchange rates.
Finally, in emerging market economies and developing countries, governments were most critical of the IMF's role as a trusted advisor. In contrast, large market economies had overall indifference to the IMF and its role as a trusted advisor.
Where does this leave the role of the IMF as a trusted advisor?
Well, many governments were worried to discuss overly sensitive issues. They feared that any trusted information shared with staff might be used against them and make its way into conditionality.
The IEO, using the analogy of the IMF as a doctor, found that advice was most sought when an emergency physician was needed, not a family physician who would help maintain a healthy economy. I think the challenge is to think of the IMF as one's healthcare insurance agent where governments fear those who monitor their economic health at the same time as determining their insurance premiums.
Clearly not discussed in the IEO report is the issue of whether or not the IMF medicine, so to speak, actually works. Does austerity work or does it further hurt the economic health of member countries? These are significant questions, but the IEO report begins an important conversation on how this premier organization on international monetary relations is perceived by the countries it is meant to serve.