CHAPTER 4 Why Did the IMF Fail to Give Clear Warning?
Author:
International Monetary Fund. Independent Evaluation Office
Search for other papers by International Monetary Fund. Independent Evaluation Office in
Current site
Google Scholar Close
Language:
English
Print Publication Date:
24 Aug 2011
Keywords:
IEOR; IEO; IMF performance; market; evaluation; IMF surveillance; evaluation team; IMF effectiveness; IMF economist; IMF report; IMF macroeconomist; Financial sector; Global

Abstract

40. Various factors played a role in the IMF’s failure to identify risks and give clear warnings. Many of these factors represent long-standing problems that had been highlighted for over a decade.24 In this section, these factors are grouped into the following broad categories: analytical weaknesses, organizational impediments, internal governance problems, and political constraints.25 There are considerable interconnections among these categories, and their relative importance is based on subjective judgments. The IMF’s ability to correctly identify the mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely, and incomplete analytical approaches. Weak internal governance, including unclear lines of responsibility and accountability, lack of incentives to work across units and raise contrarian views, a review process that did not “connect the dots” or ensure follow-up, and an insular culture also played a big role, while political constraints may have also had some impact. Interviews with country authorities (Annex 7) and survey evidence from staff (Annex 8) echo many of the same factors.

Within Same Series

Other IMF Content

Other Publishers Content

  • Collapse
  • Expand
Cover IMF Performance in the Run-Up to the Financial and Economic Crisis
IMF Performance in the Run-Up to the Financial and Economic Crisis
IMF Surveillance in 2004-07
ISBN:
9781616350789
ISSN:
2617-670X
Publication Date:
24 Aug 2011
Publisher:
International Monetary Fund
DOI:
https://doi.org/10.5089/9781616350789.017
Pages:
59

  • Acharya, Viral V., Thomas Philippon, Matthew Richardson, and Nouriel Roubini, 2009, “Prologue: A Bird’s-Eye View—The Financial Crisis of 2007–2009: Causes and Remedies,” in Restoring Financial Stability: How toRepair a Failed System, ed. by Viral V. Acharya and Matthew Richardson (Hoboken, New Jersey: John Wiley and Sons).

    • Search Google Scholar
    • Export Citation

  • Banerji, Angana, 2010, “Multilateral Surveillance,” IEO Background Paper No. BP/10/02 (Washington: International Monetary Fund). Available at: www.ieo-imf.org.

    • Search Google Scholar
    • Export Citation

  • Bazerman, M.H., and D. Moore, 2009, Judgment in ManagerialDecision Making (Hoboken, New Jersey: John Wiley and Sons, 7th ed.).

  • Blanchard, Olivier, 2009, “The Crisis: Basic Mechanisms and Appropriate Policies,” IMF Working Paper No. 09/80 (Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

  • Borio, Claudio, and Philip Lowe, 2002, “Asset Prices, Financial and Monetary Stability: Exploring the Nexus,” BIS Working Paper No. 114 (Basel: Bank for International Settlements).

    • Search Google Scholar
    • Export Citation

  • Borio, Claudio, and William White, 2003, “Whither Monetary and Financial Stability? The Implications of Evolving Policy Regimes,” paper presented at the Federal Reserve Bank of Kansas City Symposium (Jackson Hole, Wyoming), August 28–30.

    • Search Google Scholar
    • Export Citation

  • Bossone, Biagio, 2010, “Bilateral Surveillance in Switzerland,” IEO Background Paper No. BP/10/06 (Washington: International Monetary Fund). Available at: www.ieo-imf.org.

    • Search Google Scholar
    • Export Citation

  • Caprio, Jr., Gerard, 2011, “Macro-Financial Linkages in IMF Research,” IEO Background Paper (forthcoming; Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

  • Case, Karl, and Robert Shiller, 2006, “Full House,” Wall Street Journal, August 30.

  • Commodity Futures Trading Commission, 1998, “Concept Release Concerning Over-the Counter Derivatives Market,” Release No. 4142–98, May 7.

    • Search Google Scholar
    • Export Citation

  • Dhar, Sanjay, 2010, “Bilateral Surveillance of the United States,” IEO Background Paper No. BP/10/04 (Washington: International Monetary Fund). Available at: www.ieo-imf.org.

    • Search Google Scholar
    • Export Citation

  • Frieden, Terry, 2004, “FBI Warns of Mortgage Fraud ‘Epidemic,’” September 17. Available at: www.cnn.com.

  • Haldane, Andrew G., 2009, “Why Banks Failed the Stress Test,” BIS Review 18/2009. Available at: www.bis.org.

  • Independent Evaluation Office (IEO), 2008, “Governanceof the IMF: An Evaluation” (Washington: International Monetary Fund).

  • Independent Evaluation Office (IEO), 2009, IMF Interactions with Member Countries (Washington: International Monetary Fund).

  • Independent Evaluation Office (IEO), 2011, Research at the IMF: Relevance and Utilization (forthcoming; Washington: International Monetary Fund).

    • Search Google Scholar
    • Export Citation

  • International Monetary Fund (IMF), 1998, “Review of Members’ Policies in the Context of Surveillance—Lessons for Surveillance from the Asian Crisis,” EBS/98/44 (Washington).

    • Search Google Scholar
    • Export Citation

  • International Monetary Fund (IMF), 2004–2008, World Economic Outlook, various issues (Washington).

  • International Monetary Fund (IMF), 2004–2008, Global Financial Stability Report, various issues (Washington).

  • International Monetary Fund (IMF), 2008, “2008 Triennial Surveillance Review—Overview Paper” (Washington), September 2. Available at: www.imf.org/external/np/pp/eng/2008/090208a.pdf.

    • Search Google Scholar
    • Export Citation

  • International Monetary Fund (IMF), 2009a, “Integrating Financial Sector Issues and FSAP Assessments into Surveillance—Progress Report” (Washington), January 16. Available at: www.imf.org/external/np/pp/eng/2009/011609.pdf.

    • Search Google Scholar
    • Export Citation

  • International Monetary Fund (IMF), 2009b, “Financial Sector Assessment Program After Ten Years: Background Material” (Washington), August 28. Available at: www.imf.org/external/np/pp/eng/2009/082809c.pdf.

    • Search Google Scholar
    • Export Citation

  • International Monetary Fund (IMF), 2009c, “Initial Lessons of the Crisis” (Washington), February 6. Available at: www.imf.org/external/np/pp/eng/2009/020609.pdf.

    • Search Google Scholar
    • Export Citation

  • International Monetary Fund (IMF), 2009d, “Review of Recent Crisis Programs” (Washington), September 14. Available at: www.imf.org/external/np/pp/eng/2009/091409.pdf.

    • Search Google Scholar
    • Export Citation

  • International Monetary Fund (IMF), 2010, “Factsheet: IMF Surveillance—The 2007 Decision on Bilateral Surveillance.” Available at: www.imf.org/external/np/exr/facts/surv.htm.

    • Search Google Scholar
    • Export Citation

  • Janis, Irving L., 1982, Groupthink: Psychological Studies ofPolicy Decisions and Fiascoes (Boston, Massachusetts: Houghton Mifflin, 2nd ed.).

    • Search Google Scholar
    • Export Citation

  • Krugman, Paul, 2005, “That Hissing Sound,” New York Times, August 8.

  • Krugman, Paul, 2006a, “Debt and Denial,” New York Times, February 13.

  • Krugman, Paul, 2006b, “Housing Gets Ugly,” New York Times, August 25.

  • Krugman, Paul, 2009, “How Did Economists Get It So Wrong?” NewYork Times, September 2.

  • Lewis, Michael, 2009, “The Man Who Crashed the World,” Vanity Fair (August).

  • Lewis, Michael, 2010, The Big Short: Inside the Doomsday Machine (New York: W.W. Norton & Company).

  • Parenteau, Robert W., 2006, “U.S. Household Deficit Spending: A Rendezvous with Reality,” The Levy Economics Institute of Bard College Public Policy Brief No. 88 (Blithewood, New York: The Levy Economics Institute).

    • Search Google Scholar
    • Export Citation

  • Peretz, David, 2010, “Bilateral Surveillance of the United Kingdom,” IEO Background Paper No. BP/10/05 (Washington: International Monetary Fund). Available at: www.ieo-imf.org.

    • Search Google Scholar
    • Export Citation

  • Rajan, Raghuram, 2005a, “Has Financial Development Made the World Riskier?” paper presented at the Federal Reserve Bank of Kansas City Symposium (Jackson Hole, Wyoming), August.

    • Search Google Scholar
    • Export Citation

  • Rajan, Raghuram, 2005b, “The Greenspan Era: Lessons for the Future,” speech delivered at the Kansas City Fed Conference (Jackson Hole, Wyoming), August 27. Available at: www.imf.org/external/np/speeches/2005/082705.htm.

    • Search Google Scholar
    • Export Citation

  • Rajan, Raghuram, 2005c, “Straight Talk: Risky Business,” Financeand Development, Vol. 42, No. 3 (September). Available at: www.imf.org/external/pubs/ft/fandd/2005/09/straight.htm.

    • Search Google Scholar
    • Export Citation

  • Rajan, Raghuram, 2005d, “Has Financial Development Made the World Riskier?” NBER Working Paper No. 11728 (Cambridge, Massachusetts: National Bureau of Economic Research). Available at: www.nber.org/papers/w11728.

    • Search Google Scholar
    • Export Citation

  • Rajan, Raghuram, 2010, Fault Lines: How Hidden Fractures StillThreaten the World Economy (Princeton, New Jersey: Princeton University Press).

    • Search Google Scholar
    • Export Citation

  • Rampell, Catherine, 2010, “They Did Their Homework (800 Years of It),” New York Times, July 3.

  • Reinhart, Carmen, and Kenneth Rogoff, 2009, This Time Is Different: Eight Centuries of Financial Folly (Princeton, New Jersey: Princeton University Press).

    • Search Google Scholar
    • Export Citation

  • Richebacher, Kurt, 2006a, “The Richebacher Letter, Monthly Analysis of Currencies and Credit Markets,” July. Available at: www.richebacher.com.

    • Search Google Scholar
    • Export Citation

  • Richebacher, Kurt, 2006b, “The Richebacher Letter, Monthly Analysis of Currencies and Credit Markets,” August. Available at: www.richebacher.com.

    • Search Google Scholar
    • Export Citation

  • Richebacher, Kurt, 2006c, “The Richebacher Letter, Monthly Analysis of Currencies and Credit Markets,” September. Available at: www.richebacher.com.

    • Search Google Scholar
    • Export Citation

  • Roubini, Nouriel, 2006, IMF Book Forums & International Seminars: Lecture and Discussion with Nouriel Roubini, September 7 (Washington).

  • Shadow Financial Regulatory Committee, 2000, “Reforming Bank Capital Regulation,” Shadow Financial Regulatory Committee Meeting, Statement No. 160, March 2. Available at: www.aei.org/article/16542.

    • Search Google Scholar
    • Export Citation

  • Schinasi, Garry, 2006, Safeguarding Financial Stability: Theory and Practice (Washington: International Monetary Fund).

  • Shiller, Robert, 2005, Irrational Exuberance (Princeton, New Jersey: Princeton University Press, 2nd ed.).

  • Wagner, Nancy, 2010, “Bilateral Surveillance in Selected Member Countries,” IEO Background Paper No. BP/10/03 (Washington: International Monetary Fund). Available at: www.ieo-imf.org.

    • Search Google Scholar
    • Export Citation

  • Watson, C. Maxwell, 2008, “IMF Surveillance in Europe: Progress in Refocusing,” external consultant’s report for the IMF 2008 Triennial Surveillance Review.

    • Search Google Scholar
    • Export Citation