All views expressed by members are their own and not reflective of the views of the Bretton Woods Committee.
At times when the world’s financial stability has been threatened by major regional dislocations, such as the Latin debt crisis of the 1980s and the Asian debt crisis of the 1990s, the IMF’s largest shareholder, the government of the United States, has been a particularly forceful voice on the Fund’s Executive Board of Directors. Promoting democracy and countering authoritarianism was a key US aim during both the Latin and Asian debt crises. The IMF’s swift, large-scale lending followed by generous World Bank structural adjustment loans supported US goals.
Fast forward to more recent times, and once again politics may be weighing on the IMF’s decision-making. Again, the United States has been a powerful force, but the outcomes are less likely to replicate the success stories seen in earlier times. Serious questions are now being raised by the IMF’s own Independent Evaluation Office (IEO).
Over the last two decades the Fund has introduced and modified its procedures to permit member countries to access far greater amounts of cash than the “Normal Access” standard of about 200 percent of a country’s IMF quota. Many of the countries that could take advantage of the Fund’s “Exceptional Access” were in dire economic difficulties, sometimes due to the impact of the 2008 global financial crisis, the COVID-19 pandemic, and high interest rates and inflation.
It could be argued that the deployment of exceptional levels of IMF borrowing have contributed to greater international financial stability during challenging times. However, some of the Fund’s decisions, including a $50 billion agreement in mid-2018 for Argentina and potentially the $8 billion agreement in March 2024 for Egypt, have damaged the Fund’s reputation.
In December 2024, the IEO issued a timely report—“The IMF’s Exceptional Access Policy,” which included background papers on the Fund’s 2018 Stand-By Arrangement for Argentina, as well as its 2020 programs of support for Egypt.
The IEO pointed out that the Fund’s program for Argentina: “(i) did not provide an anchor strong enough to shape the expectations of members and markets; (ii) did not sufficiently reduce risks to safeguard the Fund’s resources; and (iii) did not prevent the perception of a relatively more favorable treatment to Argentina.”
Countries are meant to borrow from the Fund for “temporary use.” As of right now, there is no prospect of Argentina repaying the Fund, and political leaders have expressed optimism about a new agreement with the Fund.
The core conclusion of the IEO report is that the June 2018 agreement for Argentina was misguided and that the significantly revamped—now $57 billion—agreement in October 2018 was somewhat more realistic, yet still full of blunders. My prime takeaway, supplemented by years of watching grand corruption at the highest political levels in Argentina, is that the Fund’s management, many of its staff that worked on the country, and the Executive Board of Directors did not take the political context into account.
The speed with which the initial deal was done was exceptional. Macri met with then IMF Managing Director Christine Lagarde in early May 2018 and publicly announced plans for an IMF deal. The program was determined in just one month. The IEO stated that from the outset there were perceptions among some of the IMF’s staff that management was overly involved in formulating the terms of the agreement.
The IEO report stated: “This perception was stoked by public signs of key shareholders’ support for Argentina and by the very positive statements of key Directors at the Executive Board.” To translate – the IEO is saying that there was a strong view held inside and outside the Fund that the largest shareholder, the United States, was pushing hard for a large deal.
The IEO noted that there has been a considerable amount of disagreement among Fund staff over the terms and conditions of the IMF’s agreements. Judgement calls have had to be made frequently at the highest management levels. Continually, the Fund did not account for the political risks and realities in Argentina, or intentionally ignored them.
The Fund moved ahead with its agreement with the Government of Mauricio Macri (President from December 2015 to December 2019) without discussing the program with the political opposition. The IEO noted, “Given the level of polarization of Argentine politics—locally referred to as ‘la grieta’ or the chasm—seeking support for an IMF-supported program from political parties in the opposition was mission impossible, as they had no incentives. Therefore, making program approval or reviews dependent on the opposition’s provision of support would have meant no program at all.”
This led to a widespread view in Argentina that the IMF was directly seeking to provide political support to Macri. When he lost the 2019 election, the IMF faced a new government with which it had no contacts and an unfavorable reputation.
The IEO also issued a special report on Egypt‘s exceptional access program as a “response to the COVID-19 pandemic with a combination of a
US$2.8 billion Rapid Financing Instrument—approved by the Board on May 11, 2020—and a 12-month, US$5.2 billion Stand-By Arrangement – approved on June 26, 2020.”
The IEO had a series of concerns about the terms of these arrangements, but I suspect that they will be viewed as minor when at some time in the future the IEO reviews the 2024 loan agreement. The Fund was first discussing a $3 billion deal, and then announced that it would lend $8 billion. That IMF decision coincided with the European Union providing Egypt with $8 billion and was quickly followed by the UAE investing $35 billion in Egypt including $11 billion of fast-disbursing funds.
Egypt’s economy has long been troubled, yet the flood of cash that was agreed by the EU, IMF, and UAE at the same time was enormous, reflecting the determination of the United States, UAE, and EU to secure full cooperation from Egypt given the Gaza-Israel war. The IMF’s lending to Egypt does not include specific conditions to curb the high levels of corruption that permeate government contracting.
The political pressures on the IMF, notably by its largest shareholder, pose dangers to the credibility of the Fund, especially at a time like the present. Unlike the crisis era of the 1980s and 1990s, most nations in financial trouble today have alternatives to IMF lending. China represents a mounting challenge to an IMF that is in danger of being seen as influenced by US strategic foreign policy.