Com­mis­sion and IMF clash on in­flu­ence of pol­i­tics over bailout pro­grammes

Financial Mirror (Cyprus) - - FRONT PAGE -

Since the IMF was called to bail out euro­zone economies in 2010, its in­volve­ment has not been with­out con­tro­versy.

Ten­sions be­tween the IMF and EU reached crit­i­cal lev­els in June 2013, when the IMF ac­cused the bloc of lack­ing the ex­pe­ri­ence and skills to man­age bailout pro­grammes.

In the July 28 re­port, the IMF’s In­de­pen­dent Eval­u­a­tion Of­fice said that “at the euro area level, IMF staff’s po­si­tion was of­ten too close to the of­fi­cial line of Euro­pean of­fi­cials, and the IMF lost ef­fec­tive­ness as an in­de­pen­dent asses­sor”.

In or­der to re­gain some in­de­pen­dence and strengthen its po­si­tion vis-à-vis the EU, the watchdog rec­om­mended de­vel­op­ing “pro­ce­dures to min­imise the room for po­lit­i­cal in­ter­ven­tion” in the IMF’s tech­ni­cal analysis.

“The cred­i­bil­ity of the IMF comes from the tech­ni­cal com­pe­tence and in­de­pen­dence of its staff, and the manag­ing direc­tor must en­sure that its tech­ni­cal work is pro­tected from po­lit­i­cal in­flu­ence,” the IMF’s in­ter­nal au­di­tors said.

The Euro­pean Com­mis­sion on Fri­day (July 29) noted not only the strong links be­tween tech­ni­cal ex­perts and politi­cians in the cri­sis years but also highlighted the in­flu­ence of pol­i­tics on the bailout dis­cus­sions.

“A pro­gramme for sta­bil­is­ing the euro area, as well as for sta­bil­is­ing Greece in par­tic­u­lar, is far from a purely tech­ni­cal is­sue. It is cer­tainly and em­i­nently po­lit­i­cal is­sue,” Com­mis­sion spokesper­son An­nika Brei­dthardt said.

She re­called that the bailout plans were dis­cussed both at tech­ni­cal and, at the same time, at po­lit­i­cal level, as the euro­zone fi­nance min­is­ters (the Eurogroup) and the EU lead­ers took the ma­jor de­ci­sions af­ter get­ting in­put from the IMF, the Com­mis­sion and the Euro­pean Cen­tral Bank ex­perts (the Troika). The EU and IMF’s res­cue pro­grammes in Greece, Ire­land, Por­tu­gal, Spain and Cyprus have been crit­i­cised by var­i­ous par­ties over the last years.

In a re­port pub­lished in Fe­bru­ary 2014, the Euro­pean Par­lia­ment said that the “pre­lim­i­nary in­con­sis­tency of goals” be­tween the IMF (in­ter­nal de­val­u­a­tion) and the Com­mis­sion (fis­cal con­sol­i­da­tion) de­pressed the res­cued economies.

The poor pol­icy mix was the re­sult of the po­lit­i­cal dis­cus­sions held in the Eurogroup, MEPs said.

Early this year, the EU Court of Au­di­tors con­cluded that the de­sign of the pro­grammes was “gen­er­ally weak”.

The au­di­tors rec­om­mended the Com­mis­sion and the ECB set “pro­ce­dures for the qual­ity re­view of pro­gramme man­age­ment and con­tent” and “for­malise in­ter-in­sti­tu­tional co­op­er­a­tion with other pro­gramme part­ners” such as the IMF.

The Com­mis­sion said back then that rec­om­men­da­tions “very se­ri­ously”, and changes on top of those al­ready made.

The IMF’s Manag­ing Direc­tor, Chris­tine La­garde, re­acted it would take the con­sider fur­ther to the rec­om­men­da­tion to pre­vent po­lit­i­cal in­ter­fer­ence by say­ing that, “I do not ac­cept the premise of the rec­om­men­da­tion, which the In­ter­nal Eval­u­a­tion Of­fice failed to es­tab­lish in its re­port, and thus do not see the need to de­velop new pro­ce­dures”.

Mean­while, the in­de­pen­dent probe into the IMF’s han­dling of Euro­pean bailouts found that it bent its rules and was vulnerable to po­lit­i­cal pres­sure as it em­barked on the ill­fated 2010 Greece res­cue.

The Fund too read­ily ac­cepted the ECB and Com­mis­sion’s de­ci­sion to not re­struc­ture Greece’s mas­sive debt, which would have light­ened Athens’ fi­nan­cial bur­den, be­fore em­bark­ing on the first EUR 110 bil­lion bailout.

“The IMF was kept on the side­lines in late 2009 and early 2010 when ap­proaches to deal­ing with the de­vel­op­ing cri­sis in Greece were be­ing de­bated in Europe,” the IEO re­port said.

“By the time the IMF was in­vited to pro­vide its ex­per­tise and fi­nanc­ing in late March 2010, the op­tion of debt re­struc­tur­ing at the pro­gramme’s out­set was off the ta­ble.”

Debt re­struc­tur­ing was later re­quired af­ter the first bailout pro­gramme failed, and even now, the IMF is de­mand­ing its Euro­pean part­ners re­duce Greece’s debt load if it is to join the third res­cue pro­gramme.

The IEO added that the IMF reliance on Troika part­ners left it lack­ing flex­i­bil­ity, un­able to change course when the Greece pro­gramme stum­bled early on.

“IMF man­age­ment and staff, hav­ing de­cided not to push for debt re­struc­tur­ing for Greece, did not make a case for it when the pro­gramme’s like­li­hood of suc­cess in­creas­ingly came into doubt, start­ing from the au­tumn of 2010.”

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