A Covid-19 Checkup: How the IMF’s Transparency Measures Have Fared So Far

With a trillion dollars in lending capability, the International Monetary Fund (IMF) is one of the best-equipped institutions to deal with the Covid-19 public health and financial crisis. Since March, the IMF has met an “unprecedented number of calls for emergency financing” with “unprecedented speed and magnitude,” through renegotiations of rapid credit facilities, refinancing initiatives, and debt relief assistance for more than 100 countries, totaling over $100 billion in disbursements so far. In the early days of the pandemic, there was a great deal of concern among anticorruption advocates over the way these emergency funds would be monitored (see collections of pieces here and here). The IMF’s initial approach generally did not impose formal transparency or governance requirements as a condition for receiving emergency Covid relief funds. Rather, the IMF chose to rely more on after-the-fact safeguards: recipient countries were told to spend as needed but to “keep the receipts.”

The IMF’s approach is understandable. As Jason Keene argued on this blog, the IMF at that early stage faced a trade-off between speed and transparency, and may have reasonably concluded that it would not be advisable to bargain over transparency measures if doing so would slow the deployment of much-needed funds. This conclusion, as a May 2020 IMF publication revealed, was influenced by the IMF’s experience with the 2014-2016 Ebola outbreak in West Africa: Many, including a prominent public health journal, blamed the IMF for the lethality of the Ebola epidemic, provoking a backlash against what was seen as unduly burdensome loans, a focus on austerity, and the underfunding of medical systems in vulnerable countries (see here, here, and here). Given this background, it’s understandable that the IMF might, on balance, favor speed over transparency, providing loans for Covid-related public health and budgetary shortfalls without much conditionality.

This approach, however, attracted considerable criticism from anticorruption advocates. Notably, a group of 97 civil society organizations (CSOs) sent an open letter criticizing the IMF’s reliance on a “retroactive” approach, and calling for more proactive loan conditions that would require governments to (1) receive all IMF funds in a single Treasury account, (2) conduct independent audits and publish procurement plans, and (3) repeal or amend laws that impede civil society groups’ monitoring of government spending. The IMF appears to have taken these criticisms seriously. Following the open letter, the IMF implemented a transparency monitoring procedure pursuant to which every country receiving emergency financing must commit to undertaking a “safeguards assessment.” This assessment is supposed to provide reasonable assurance to the IMF that a central bank’s framework of governance, reporting, and controls is adequate to manage IMF disbursements. As of September, at least 75% of the IMF’s Covid loans included at least some transparency measures.

Nonetheless, anticorruption CSOs have continued to criticize the IMF’s pandemic response. Most notably, a six-month stocktaking by Transparency International concluded, based on an analysis of 19 reports of Covid-linked corruption, that an astonishing $1.1 billion in Covid-related emergency funding has already been corruptly diverted. TI concluded from this that the IMF ought to increase its anticorruption efforts by (1) making certain key transparency measures mandatory, (2) dedicating funding for domestic anticorruption capacity development, and (3) empowering civil society.

While some reforms along these lines might be helpful, the suggestion that corrupt diversion of emergency IMF Covid funding is rampant seems overblown, or at least unproven. Of the 19 instances of corruption analyzed by TI in its stocktaking, only seven were in countries receiving IMF loans (accounting for $18 million of the $1.1 billion lost). Furthermore, in at least one case discussed by TI—involving diverted funds in Uzbekistan—the agency that uncovered the corrupt diversion of public resources was a domestic anticorruption agency specifically created to fulfill Uzbekistan’s commitment to the IMF and other lenders that it would “combat[] corruption and improve[e] the efficiency of its anti-corruption efforts,” and more generally ensure transparency, in the context of the Covid relief loans. When the national anticorruption agency in Uzbekistan announced in August it had discovered more than $170,000 had been embezzled by employees with the health service, it had been in existence for less than two months. So while country commitments to the IMF to improve transparency and anticorruption are sometimes characterized as “lip service” by organizations like TI, TI’s own reporting proves that at least some of those commitments are translating into concrete action.

To be sure, it is likely that some IMF funds are being corruptly diverted. Also, while many countries receiving IMF funding have bolstered their anticorruption laws (like Uzbekistan), the strains of the pandemic on routine budgeting processes have caused some countries to fall out of best practices, for example by establishing extra-budgetary funds—something that has occurred in at least 40 countries. And it may well be that some of the solutions advanced by the TI stocktaking would be (or would have been) helpful in preventing some diversion. For instance, amending the 2011 Policy on Liquidity and Emergency Assistance to include mandatory governance measures that are consistent across countries would be useful both for emergency lending and in the transition from emergency lending to the regular disbursement program. But with over 100 countries already engaged with the IMF, the time for that change seems to have passed, at least for the current pandemic. Other recommendations advanced by TI, like empowering civil society, read more like platitudes, especially given that commitments made to the IMF are catalyzing new anticorruption legislation. As for the increased use of extra-budgetary funds in many countries, critics might argue that the IMF should have prohibited countries from establishing such funds, which are often subject to less oversight and have higher corruption risk. But the costs (in both financial and health terms) of the delays associated with redoing the budgeting process of the middle of the year may have been too great.

In short, it seems that the IMF—in part due to the prodding and pressure from civil society—has struck roughly the right balance between speed and transparency. Now that Covid vaccinination has begun, anticorruption officials ought to turn towards making sure the IMF checks the receipts that countries have been told to so diligently keep and works with countries to return to their pre-pandemic budgeting practices. That, too, will be quite a task.

2 thoughts on “A Covid-19 Checkup: How the IMF’s Transparency Measures Have Fared So Far

  1. Thank you for this rather kind view of IMF performance so far (which is of course appreciated!). It would be interesting to know if any research and/or studies are ongoing to assess possible effect of the economic packages on the financial flows from developing countries to secrecy jurisdictions/ “tax havens”, ref. the World Bank Group report “Elite Capture of Foreign Aid” which was published earlier this year: Report available here: http://documents1.worldbank.org/curated/en/493201582052636710/pdf/Elite-Capture-of-Foreign-Aid-Evidence-from-Offshore-Bank-Accounts.pdf

  2. Hi Clay, thanks for this fascinating blog. Let me share a recent working paper with you in which we show that elite capture makes countries more likely to submit to IMF programs — even when those programs entail harsher conditionality. Transparency is absolutely key given the limited extent of even powerful international organizations like the IMF to control foreign aid capture. You can find our paper here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3765874

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