IMF challenged by lending to euro zone countries

Fund actually had to impose extensive structural conditions on euro zone countries, where deep labor & mkt reforms are needed

The International Monetary Fund acknowledged on Monday it faced "serious challenges" in designing bailout programs for troubled euro zone countries mainly because it was restricted by the rules of the 17-member currency zone.

Analysts and some IMF member countries have expressed concern that the Fund has compromised on tough conditions in its bailouts in Europe where it has been part of a "troika" of international lenders in Greece, Ireland and Portugal.

But the IMF preliminary assessment found that the Fund actually had to impose extensive structural conditions on euro zone countries -- where deep labor and market reforms were needed -- compared to programs elsewhere.

"While it is difficult to judge whether all the conditions were critical, the increase in the number and depth of (Euro Area) conditions warrants scrutiny," according to the review, which analyzed conditions attached to 159 IMF programs in the decade to September 2011.

Greece for one has struggled to stay on track with the terms of its IMF-European Union bailout after a deeper-than-expected recession and political challenges.

The IMF said extensive reforms and large loans to the euro zone were necessary because of the systemic risks in the region, such as the spreading of the euro debt crisis to more countries.

However, the IMF needs to develop better tools to assess this risk of contagion, said Ranil Salgado, division chief of the IMF's Strategy Policy and Review Department.

"This is clearly important because as we have more programs that could have contagion risk, we need to ensure we're even-handed across countries," he said in a press briefing.

IMF loan conditions have long been a sore point for many governments and grassroots groups and often have led to violent protests in countries where they have been seen as excessive and harmful to the poor.

Many governments have complained that IMF conditions are not adapted to a country's circumstances and political constraints and often focus on unrealistic deadlines. They also argue that conditions reduce a country's ability to effectively "own" its economic programs.

However, the Fund's review found that overall conditions tied to its recent programs have worked well, with narrow macroeconomic objectives tailored to local country needs and with an awareness of the programs' impact on vulnerable people.