Critics often blame the International Monetary Fund for failing to predict or prevent financial crises, but a new report concludes that governments often do not heed IMF warnings designed to fend off economic turmoil.
The independent report, commissioned by the agency, also says, however, that IMF monitoring of the economies of its 182 member nations has failed to keep pace with the globalization of financial markets and the increased importance of billions of dollars moving around the world every day.
The IMF assembled a group of experts headed by John Crow, former governor of the Bank of Canada, to look at IMF economic monitoring, or "surveillance," in 12 countries and recommend how to improve the process.
The 12 nations included Thailand, where the global financial crisis began in July 1997, Korea and Brazil. All received multibillion-dollar IMF rescue packages as their economies neared collapse.
One problem the report found is that the IMF lacks the political clout to enforce its recommendations. As an international financial institution, the IMF recommends remedial actions to keep countries out of economic trouble but can't force them to act.
"There is a disjunction between what the rest of the world thinks the IMF can do" in a crisis "and what insiders think," Crow said, presenting the report at a news conference a week before the Washington-based IMF holds its annual meeting.
"The IMF is never a primary influence, but it can play a role in a debate" on what to do, he said. "Political considerations almost always dominate over fund warnings."
Those considerations can include an impending presidential election or a government protecting companies or individuals with whom it has close ties.
Crow also said the IMF was slow to apply in Asia the lessons learned when it helped rescue Mexico in 1995, particularly insights about vulnerabilities in domestic financial systems.
The report stressed "the need to focus surveillance more directly on the international aspects of a country's situation, the linkages across countries and the lessons countries can learn from other experiences."