A recently released internal letter from the International Monetary Fund gives the masses that sweat for a living an inside look at the politics in the organization that is largely responsible for bailing out the world's debtor nations. In this resignation letter, Peter Doyle, a former Division Chief in the European Department of the IMF, indicts the organization for its incompetence and failings.
Mr. Doyle opens by stating that, "...after twenty years of service, (he) is ashamed to have had any association with the Fund at all.". Apparently, there's nothing like burning your bridges on the way out of the door, is there? I guess it is not his intention to return.
Mr. Doyle goes on to note that there are several issues that created the conditions that caused him such shame:
1.) The Triennial Surveillance Report (TSR) which reviews the effectiveness of the IMF's economic analysis and policy advice every three years. The latest report, released in August 2011, noted that surveillance had improved since 2008, however there were still gaps in how the IMF assesses risks and prospects for the world's economy and how the policy advice given by the IMF with "...a view to reducing the likelihood of next crises...", particularly as it applies to Europe. The TSR noted that, while the fund did issue pertinent policy recommendations for several Eurozone member states, important issues were left untouched. Mr. Doyle states that the Fund failed to issue warnings in a timely fashion and that, as a consequence, Greece suffered and the world's second reserve currency is "...on the brink...", forcing the Fund to play catch-up in a last-ditch effort to save the euro.
2.) The report from the Office of Internal Audit (OIA) chronicled the incompetence of the IMF in the lead-up to the global crisis in 2008 - 2009.
3.) The European bias that is deeply entrenched at the Fund as evidenced by the appointments for Managing Director which he notes have been particularly disastrous over the past decade as shown on this listing:
In case you were wondering, Ms. Lagarde's appointment on June 29th, 2011 is for a five-year term. Her salary is $467,940 annually, net of taxes (i.e. she pays no taxes on the amount) and, in addition, she receives an annual allowance of $83,760 per year, once again, not taxed. Her salary will be adjusted on an annual basis, based on the Consumer Price Index increase in the Washington metropolitan area. On top of all of these goodies, she is eligible to receive a pension for the remainder of her life.
Mr. Doyle notes that the entire Managing Director selection process is illegitimate, leading to a corporate culture of ineffectiveness.
Mr. Doyle might have added the following two items to his missive:
1.) The Independent Evaluation Office (IEO) released an Evaluation Report in 2011 entitled "IMF Performance in the Run-Up to the Financial and Economic Crisis" in which they found that:
"...the IMF’s ability to identify the mounting risks was hindered by a number of factors, including a high degree of groupthink; intellectual capture; and a general mindset that a major financial crisis in large advanced economies was unlikely. Governance impediments and an institutional culture that discourages contrarian views also played important roles."
2.) The Independent Evaluation Office released an Ongoing Project Issues Paper looking at the "Role of the IMF in Argentina, 1991 - 2002" in which the IMF admitted that:
"While ultimate accountability for a member country's economic policy must rest with its national authorities, since the crisis, a number of observers have raised questions about the effectiveness and quality of financing and policy advice provided by the IMF. Some critics have argued that the IMF's main fault lay in providing too much financing without requiring sufficient policy adjustment, while others have alleged that the policies recommended by the IMF actually contributed to the crisis. In either case, the eventual collapse of the convertibility regime and the associated adverse economic and social consequences for the country have, rightly or wrongly, had a reputational cost for the IMF."
Please keep in mind that the taxpayers of the IMF’s member nations are funding this organization. The IMF is funded by "quotas" assigned to each of its 188 member countries based on the size of their economy; weighted 50 percent to their GDP, 30 percent to their openness, 15 percent to their economic variability and 5 percent to their international reserves. The size of the quota is directly related to the number of votes that each nation has within the organization. The quotas are denominated in Special Drawing Rights (SDRs), the IMF’s unit of account. The largest member of the IMF is the United States with a current quota of $68 billion. Here is the link to a listing of the quotas of all national members. The IMF has total quotas of $364 billion and has committed $1 trillion of resources. Currently, the biggest borrowers from the IMF are Greece, Portugal and Ireland.
What I find particularly perturbing is that, in light of Mr. Doyle's letter, we see that it is pretty much business as usual within the IMF. Despite a history of ineffectiveness and self-admitted incompetence as shown in the Fund's internal assessments, it is still a recipient of our tax dollars that the organization seems incapable of using wisely. On top of that, rather than predicting where the world's economy is heading, it seems to be reactive, moving like a sluggish bureaucracy after world shattering events have already transpired. What, pray tell, good is that to any of us?