The organisation's analysts do not care about listening to the opinions of others, regardless of their stature, knowledge, or impartiality. This comes even as their decisions are full of contradictions, and while they claim to be above politics. And all the time, it is evident that politics plays a significant role in approving, withholding, or even terminating loans.
And the IMF's plans are not always sound. They have sometimes led to further indebtedness and the enrichment of elites, demonstrating that good policies cannot be bought. Sometimes, its reports can feature sections copied from previous documents on other countries without being properly adjusted.
Lebanon redaction and lack of transparency
The crisis in Lebanon has drawn international attention to the issue of a lack of transparency at the IMF.
According to the Swiss newspaper Le Temps, an IMF representative from Spain, Faro Perez, opened a meeting with the Governor of Lebanon's central bank by saying, "You are on the edge of the abyss."
The newspaper also reported that Riad Salameh, the former governor of the Banque du Liban (BDL), managed to ensure 14 pages were deleted from an IMF document that could have warned of the extent of the financial crisis was about to go through.
The document – on the country's financial sector and published in January 2017 – was redacted on the pretext that it would undermine financial stability.
The redactment hid the assessment that the BDL was struggling with a net deficit of $4.7bn — an amount worth about 10% of the nation's gross domestic product. It also said that national banks lacked the liquidity necessary to deal with any crisis. It would have revealed significant distortions in lending, showing that 43% of total lending was going to the real estate sector.
If the IMF had revealed this information, Le Temps concluded, it could have resulted in a far less devastating financial crisis in Lebanon. At the very least, the Lebanese people would have received prior warning.
Two days after the Swiss revelations, Salameh denied the allegations. He said the rules were followed as the document was prepared, including how issues between the IMF team and the relevant parties in Lebanon – not just at the BDL – were raised as it was drafted.
After that, the comments made to the IMF may or may not be taken into consideration as the IMF's board approves the final report of directors.
In response to Le Temps' reporting, an official said the IMF had issued an early warning and possible solutions in the report to strengthen the financial system, according to a summary from Reuters.
The IMF emphasised the need to reduce economic and financial risks, including relying on new deposit inflows to cover the large fiscal and external deficits. The official also mentioned that substantial resources are required to ensure the bank is adequately capitalised in the event of a severe shock.
The official also said countries are not obligated to disclose their net reserves, even though many do. Responding to a question, he said the IMF could proactively push for the disclosure of the net reserve deficit in line with the "IMF's transparency standards," which allow a country to request the removal of elements from an initial report if the publication of those elements would have a negative impact on the market.
The official declined to comment on whether Lebanon had specifically made such a request. Nor did he comment on whether there is an official threshold for the size of net reserves.
IMF fails to sound the alarm
Some clear points about what happened with the IMF's oversight of Lebanon reveal how the organisation works and its priorities.
The IMF report was conducted under the Financial System Stability Assessment (FSSA) programme, which aims to comprehensively evaluate the financial sector and its resilience through stress testing. It became mandatory following a decision taken by the IMF's executive board decision in 2013.
Such a report is only effective if all relevant factors are clearly disclosed, including the accurate and transparent alignment between the central bank's assets and its foreign currency liabilities.
Transparency and accountability are, in theory, requirements just as important to the BDL as its independence. That is clear in Article 13 of the Code of Money and Credit. Writings by specialists, including the "Central Bank Transparency Law" enacted in June 2020, underline and defend these principles.