Reforming the reformer

It is strange that the International Monetary Fund, which prescribes reform programmes for various countries, is itself in dire need of reforms to make itself more relevant and effective in performing the functions assigned to it under its charter. Such an assertion is generally made by less developed countries but, of late, some members of its staff have also joined this group to make similar allegations.
According to the latest reports, Peter Doyle, a senior IMF economist working as one of the Division Chiefs, in his resignation letter to Shakour Shaalan, dean of the Board, has excoriated the Fund for failing to address Europe's crisis and suppressing its challenges. He said that it was not just a matter of the Fund's incompetence amid the global crisis and in surveillance ahead of the eurozone crisis, but because the institution had deliberately shirked from its responsibilities. It was also revealed that "the substantive difficulties in these crises, as with others, were identified well in advance but were suppressed. Timely sustained warnings were of the essence. So the failure of Fund to issue them is a failing of the first order." Doyle also claimed that the IMF had been 'playing catch-up' in reactive responses in last-ditch efforts and its inaction had caused sufferings for many, including Greece, besides bringing the second global reserve currency (euro) on the brink.
Christine Lagarde, Managing Director of the IMF, has been accused of being "tainted" by a faulty selection process. "Neither her gender, integrity, or elan can make up for the fundamental illegitimacy of the selection process." Appointments of Managing Directors, over the past decade, had all-too-evidently been disastrous. Doyle also accused the IMF of "European bias" which was becoming more deeply entrenched despite reform commitments. In his resignation letter, he also writes that "after twenty years of service, I am ashamed to have had any association with the Fund at all." In response to certain queries on the matter, an IMF spokesman remarked that there was no evidence that his views were suppressed.
Highly negative assessment of the performance of the IMF and a faulty selection process of its Managing Director as pointed out by a former senior member of its staff may be somewhat overblown but is not far from reality. In fact, these shortcomings have been frequently highlighted by developing countries and some of the independent economists at various forums but never addressed properly due to the dominance of developed countries in decision-making processes; these countries have the largest quotas in such organisations and, therefore, wield the stick to dictate their policies. The discriminatory treatment between the rich and poor countries has reached a level that while developing countries are now routinely reprimanded for minor intemperances, developed countries are not censured for even severe violations of the rules of the game. Unfortunate was the fact that repeated requests to reform the system were ignored without giving due consideration to the justification of such pleas. We are happy that an insider who had been working at a fairly responsible position in the Fund has finally spoken clearly and loudly about the inequity of the system and raised the right questions about the objectivity of analyses at the IMF and its neutrality in conducting its operations. An honest interpretation of Doyle's statement could also suggest that the time is ripe for restructuring of the organisation, particularly in the area of selection process of its Managing Director and making the staff and the management more responsible in meeting the emerging challenges in a timely fashion without favouring or fearing from a certain group of countries. Although, fault-lines were always there, but the incompetence or ineffectiveness of the Fund to properly deal with the eurozone debt crisis had greatly exposed its weakness of bending backwards to earn the goodwill of powerful members of the Board. The charge by Doyle that the difficulties were identified well in advance by the staff, challenges were suppressed and the Fund shirked from its responsibilities deliberately is definitely of a serious nature and needs to be investigated thoroughly. Already the IMF was accused of looking the other way when the US had a huge structural current account deficit and China was amassing foreign exchange reserves at an unprecedented scale (that is because of its exchange rate policy; its trade surplus with the US; some hot money flows into China; and foreign direct investment in China) while developing countries were not allowed such excesses. Such a distorted system of course needs to be changed. One way of reducing asymmetry between the weaker and powerful members of the IMF could be realigning the quotas through certain other means to empower the developing countries to have more say in decision-making and change the selection process of the Managing Director to a merit-based system. A number of other measures also need to be undertaken to improve the functioning of the IMF in order to enhance its efficiency and credibility all over the world. Peter Doyle may have written his resignation letter for some ulterior motives but certainly has given enough food for thought to those who have been monitoring the inherent inadequacies of the multilateral financial institutions. There is no denying the fact that entities responsible for spreading the message of reforms need to begin the process from their own houses.