Subbarao on IMF tailoring advice

The RBI chief believes that the IMF needs to be more consultative

The Reserve Bank of India (RBI) feels there is a lot of scope for improvement in the International Monetary Fund (IMF) when it comes to tailoring advice to different economies. “According to the Independent Evaluation Office survey, authorities of many large emerging market economies found the surveillance process added little value and offered very limited perspectives and that their advice failed to take into account country-specific factors,” said D Subbarao, governor, RBI, at a seminar on strengthening IMF surveillance, at the IMF spring meetings in Washington DC on Tuesday.

According to Subbarao advice by the Fund should stem from a complete understanding of not only macroeconomic, but also social and political settings of a country. Subbarao also believes that the IMF needs to be more consultative. “There has been a lot said and written about how the IMF economists must be more open minded, less ideological, be bold enough to question orthodoxies and brave enough to differ from established wisdom. One important condition for this to happen is that IMF economists should talk to people beyond governments and policy institutions,” said Subbarao. Besides that in federal systems, they must talk to state governments. They must talk to non-state actors such as NGOs, self help groups, chambers of commerce,” added Subbarao.

It is agreed that global inter linkages have become stronger, more complex and potentially more disruptive. But according to Subbarao IMF needs to be ahead of the intellectual curve in understanding these linkages.

Subbarao also opined that IMF’s advice should be founded on hard evidence and driven by facts. Ideology should not play any role in analysis of facts. “The Fund also needs to exercise extreme caution when it gives advice based on models. This is because in many cases even small changes in model specifications, definitions of variables used, and time periods used in estimation can lead to significant differences in the results,” he said.

According to Subbarao in a recent IEO report on ‘Role of IMF as a Trusted Advisor’, it has been brought out that there is a perception among some country authorities that the IMF is dominated by the interests of its largest shareholders. Surveys have shown that about a third of country authorities and half of the mission chiefs did not believe that the IMF has become more even handed since the onset of the global crisis. Lack of even handedness can undermine the IMF’s ability to perform both its global watchdog and trusted advisor roles. There is a need to strike an optimum balance between these two objectives which will give a boost to the IMF’s credibility, said Subbarao.

The issue of even handedness is inextricably woven into the IMF’s governance structure. According to Subbarao modernising surveillance must flow from and cannot precede reforms in governance. “As governance reforms progressively reflect the changing global economic realities, so also will the IMF’s surveillance gain legitimacy, incisiveness and traction. It is only by this that the IMF’s surveillance will remain meaningful and responsive to the rapidly evolving needs of an integrated global economy,” he said.