The International Monetary Fund failed to demand debt relief as part of Greece’s initial bailout in 2010 even though many of its officials believed this was crucial for the program’s success, according to an internal probe into the IMF’s handling of European bailouts published Thursday, which found that the Fund bent its own rules and gave in to political pressure.
“Critically, there was no rigorous attempt to articulate a convincing path to restoring debt sustainability in Greece, other than a program of official financing, fiscal adjustment and structural reforms,” the IMF’s Internal Evaluation Office (IEO) said in its report, obtained by Kathimerini and first published earlier this month.
The report said the Fund came under “pressure” to agree to the Greek bailout even though senior staff members did not believe the debt was sustainable. It noted that then IMF managing director Dominique Strauss-Kahn decided “to go along with the decision already reached by European policymakers and take a chance” that stability could be restored in Greece without prior debt restructuring.
In comparison, the IEO found, the Fund’s bailouts of Ireland and Portugal were much more efficient, boosted by strong “national ownership” of the programs and enforcement of reforms.
According to the IEO, the IMF’s rules on granting exceptional access, which require board involvement from the outset, were “followed only in a perfunctory manner.” It added that amendments were made that departed from the Fund’s usual process, allowing a “systemic exemption” that allowed the Greek bailout to proceed.
Responding to the findings of the report, Managing Director Christine Lagarde said she believed the IEO did not adequately prove that the IMF’s technical analysis came under undue political pressure. The IMF’s involvement in the programs for Greece, Portugal and Ireland was a “qualified success,” she said. “Greece, however, was unique,” she added. “While initial economic targets proved overly ambitious, the program was beset by recurrent political crises, pushback from vested interests and severe implementation problems that led to a much deeper-than-expected output contraction.”
The IMF has yet to decide whether to join Greece’s third bailout, calling for debt relief.