Notwithstanding a lack of revisionist policy taken by IMF with regard to Neoliberalism, and no apparent suggestion by IMF’s Independent Evaluation Office (IEO) – an office totally independent of IMF, as it reviews its progress – for adopting this revision against the neoliberal inclination of IMF, yet the IEO’s recent report titled ‘The IMF’s exceptional access policy: evaluation report December 2024’ where it reviews the performance of EAP deserves praise since it points out how IMF has been much below par when it came to assessing which countries qualified for this policy, given their lack of adherence to previous IMF programmes, and their glaringly apparent recidivist behaviour, especially when it was quite clear that governments took IMF bailout as a means to delay reforms for reasons not because they were repelled by neoliberal policies, given they followed basically similar outside of the IMF programme, but because they wished to push the can of however weak reform down the road to protect as much political capital as they could from safeguarding rent-seeking vested groups.
A December 12, 2024 Financial Times (FT) published article ‘IMF faces internal attack over flaws in biggest bailouts’ pointed out with regard to sub-optimal screening process adopted by IMF while extending resources under EAP: ‘The IMF’s in-house watchdog has criticised the fund over a lack of consistency in some of its biggest bailouts of the past two decades, calling on officials to address claims they succumb to political pressures to back big, risky repeat borrowers.
Rules for outsized loans to countries such as Argentina, Ukraine and Egypt needed an overhaul as “perceptions of a lack of even-handedness” were affecting the fund’s credibility, the IMF’s independent evaluation office said in a report on Thursday.’
Neoliberalism, IMF’s exceptional financing & recidivist behaviour of programme countries—I
Similarly, with regard to Pakistan – a prolonged user of IMF resources for a number of decades now, and also quite recidivist in its approach with regard to approaching IMF for new programmes – a country, which although left multiple programmes incomplete, yet continued to get bailouts, raising in turn a lot of eyebrows, which smelt of decision-making at IMF based on non-economic determinants.
Moreover, IMF has faced criticism for apparently getting influenced on taking keener scrutiny of countries being bailed out with regard to how they were likely to, or how they employed IMF resources, especially if they used them, or likely to use them in paying back a certain country for instance – a matter otherwise internal to how a country best assesses its use of borrowed resources in terms of dealing with debt obligations, especially when this is being done in exceptionalist way of picking out a single country by IMF, and such influence not coming out of some sort of general policy.
In this regard the same FT published article pointed out: ‘The IMF often faces criticism that it bows to big shareholders that often are also large lenders to countries in trouble. In October, Brent Neiman, the US Treasury Assistant Secretary for International Finance, said the fund needed to be firmer in assessing bailouts where China was a big creditor. The IEO report said its evaluation “confirms that pressures on staff and management, exerted directly or indirectly, were strong in high-stakes cases”.’
In addition, IEO rightly pointed out, and which FT in the same article highlighted ‘…that the fund also tended to wrongly assume that big bailouts would boost investor confidence in countries. “The expected confidence effects relied more on assumption than on analytical explanation,” the report said.’
This is because of the neoliberal mindset, or ‘Washington Consensus’-based, or monetary school of thought influenced approach of IMF whereby role of economic institutions is seen as mostly in an exogenous way with regard to reducing transaction costs, something which is critical to attracting investors.
This finding of IEO should underline to the IMF that more than the bailout itself it is institutional quality and underlying organizational standing, and market structures that have an important role to play in reducing transaction costs, which, as indicated earlier, are critical to attracting private financing.
Hence, based on the review by IEO – not to mention a lot of economic literature pointing in the same direction for decades – it is right to conclude that even after providing exceptional balance of payments support by IMF, which although helps boost macroeconomic indicators but such betterment in indicators is only for the short-term, given an overall environment of weak institutional quality, especially on the aggregate supply side that significantly helps lower transaction costs.
As an important corollary, over-board use of austerity policy increases cost of capital, and raises debt sustainability issues for both government, and private sector, all of which are factors that push away both domestic-, and foreign investment.
Going back to the earlier argument to delve further, it is important to point out the existence of contradiction in terms of enabling recipient countries to tap more than their quota, but at the same time to subject them to ‘surcharge’ is too burdensome a reminder on a recipient country – which in the first place is too much in want of financial support from IMF – to pay as fine in the shape of surcharge fee in case of delay in repayments, in addition to the interest payment on extra loan already being taken; not to mention surcharge becoming all the more burdensome in times of practice of monetary austerity – as had been the case in recent years in the wake of the Covid pandemic, and high level of inflation that occurred for a number of years since then, only to come down to a calmer range during the last year, or so since it operates in a flexible exchange rate regime.
Hence, the IEO’s evaluation report taking the case study of Pakistan of the time it took loan under standby arrangement (SBA) with IMF during November 2008 – September 2011, it is pointed out that the programme was approved under the EAP or exceptional circumstances clause (ECC), whereby against the approved amount of SDR 7,236 million, 4,936 million was disbursed since the programme ended as incomplete. At the same time, while exceptional access was provided, surcharges have also been incurred on Pakistan, others.
Moreover, these surcharges have been no miniscule amounts as pointed out in the Report as ‘In terms of surcharges paid, the largest amounts were paid after the Global Financial Crisis and during the European sovereign debt crisis... Since their introduction, surcharges have generated SDR 14.3 billion for the Fund, of which SDR 11.6 billion is from level based and SDR 2.7 billion from time-based surcharges (as of end-2023).
The five largest payers have been Argentina, Greece, Portugal, Ukraine, and Ireland, which together account for SDR 8.1 billion (level-based) and SDR 2.0 billion (time-based). In 2023, surcharges generated SDR 1.5 billion, with the five largest payers being Argentina, Egypt, Ukraine, Ecuador, and Pakistan.’
In addition, the Report among other sources is based on a November 5, 2024, IEO Background Paper titled ‘Exceptional access in the context of global, regional, and country-specific shocks: Latvia, Pakistan, Jordan, Greece, and Ukraine cases’, which is critical of the way assessment was done by IMF, on the basis of which ECC was granted to Pakistan in the 2008 SBA negotiated programme with IMF.
The paper points out in this regard – and which should bring better analytical assessment from IMF going forward for recipient countries in relation to negotiating loans with them, especially in the case of exceptional access, since it holds greater risk, and requires more ability to take larger responsibility by the country in terms of its capacity to repay than a routine programme without exceptional access in the following words: ‘Risk assessment has been mixed.
The notes on Preliminary Assessment of Exceptional Access circulated to the Board before a program request contains significantly less information than the concurrent Policy Note sent to management. Notably, the omission of proposed access levels for Jordan, Latvia, and Pakistan means that there was no substantive basis to assess the members’ capacity to repay or the credit or liquidity risks for the Fund, which substantially reduced the utility of these notes for early consultation with the Executive Board.
The Risk and Liquidity Supplement was seen as helpful by interviewees although it is presented to the Board at the end of the program approval cycle, lacks a standardized bottom-line assessment, and does not systematically assess strategic and reputational risks to the Fund (however, the 2022 Enterprise Risk Management policy now requires substantive enterprise risk assessments in EA program cases).’
(Concluded)
Copyright Business Recorder, 2025