[ Interview with Montek Ahluwalia ]

Some of the criticism directed at the IMF is not valid

Mr Ahluwalia, IMF activities have been scrutinized for years, for example by NGOs and academics. Why an Evaluation Office inside the IMF? Why does the Fund not use existing external evaluations?
I have no doubt it uses external evaluations. But we have one important advantage over external evaluations, and that is that we have complete access to the Fund’s internal documentation. When we present an evaluation we are able to say how decisions were reached within the IMF. I think the Executive Directors find that extremely valuable. The Fund management in the end has to choose a particular course of action, but it is useful to give the Board a sense of the internal debate and the alternative views that were considered.

To what extent do you resort in your reports to the expertise of outsiders, for example NGOs?
The majority of the IEO staff comes from outside the IMF. In addition, we extensively use external consultants, and we are very open to receive inputs from outside stakeholders, including NGOs. But we don’t do evaluations jointly with other organisations.

In the IEO’s Terms of Reference it is stated that you work at arms’ length from the Board. Can you, for example, publish a report with which the Board does not agree?
The Board can hold back publication but only for special reasons. Otherwise we publish as soon as possible. What is also important is that chosing the subject for evaluation is entirely left to the director of the IEO. If in our judgement certain things need evaluation, the Board cannot stop us.

But if you come to conclusions that the Board doesn’t like, would it be possible for it to hold back the report?
In my understanding it would not do so because of conclusions it doesn’t like. It may be worth in some cases postponing the release of a report by a few months if a country we are looking at is engaged in sensitive negotiations, for example, about new loans or debt restructuring, which may be prejudiced. For this kind of situation the Board does need to have the residual right to hold back publication. But „hold back“ doesn’t mean „hold back forever“.

In your evaluation of Fund activities during recent financial crises it is said that one major problem, for example in Indonesia, was the lack of political commitment to the IMF programmes. However, many analysts came to the conclusion that Malaysia was better off than other Asian crisis countries precisely because it did not follow the IMF.
We have not done an evaluation of Malaysia since we are supposed to evaluate Fund activities. However, it’s true that we are critical of the Fund’s programme in the case of Indonesia. We feel that mistakes were made, and we have made recommendations which, if they are followed, will prevent the same mistakes being made again.

Joseph Stiglitz, the former chief economist of the World Bank, harshly criticised IMF activities during the Asian crisis for being determined by narrow-minded orthodox economics …
There is no doubt that the Fund’s programme in Indonesia failed and that we had a crisis that was exceptionally severe. However, some of the criticism directed at the IMF is not valid. For example, it has been said that the downturn in Indonesia was because monetary policy was too tight. It is true that the Fund wanted tight monetary policy, but the the Indonesians never listened to that, and monetary policy in Indonesia was in fact quite loose. So it’s not true that the outcome was as bad as it was because the wrong monetary policy was followed. However, other criticisms are valid. The fiscal targets need not have been as tight as they were, though in practice they were quickly revised.

Another IEO report deals with the Fund’s fiscal adjustment programmes. Critics say that these programmes have negative effects on social spending. Did your evaluation confirm that?
Many of these generalisations are not valid. Our evaluation is based on a cross-country analysis of some 130 countries, and we found out that the fact that a country had an IMF programme did not mean that social expenditures were squeezed. If you have a crisis, social expenditures may be squeezed whether you have an IMF programme or not. The results show that the countries with an IMF programme even seem to have somewhat higher social expenditures than they otherwise would have had.

Is the criticism completely unfounded then?
No. For example, we found that very often, although aggregate social expenditures may not be squeezed, some of the critical components of social expenditures get squeezed. For example, in a hospital staff-related payments, like salaries, may not be affected by fiscal austerity. But there might be not enough money for essential drugs or vaccines. Our conclusion is that it is not enough to ask what is happening to aggregate social expenditure since this might obscure the fact that some of the elements relevant especially for the poor can be very badly hit.

Questions by Tillmann Elliesen.

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