IMF downplayed economic risks ahead of 2008 crisis official report finds

An investigation into the International Monetary Fund (IMF) has said that the agency downplayed the UK’s economic risks ahead of the 2008 financial crisis.
The organisation provided few clear warnings about the risks, the study found.

The IMF’s ability to identify risks was hindered by “group think” and a belief that a crisis in developed economies was unlikely.

The IMF’s own Independent Evaluation Office carried out the inquiry.

The report includes some striking criticism of the IMF’s performance ahead of the crisis.

“Weak internal governance, lack of incentives to work across units and raise contrarians views, and a review process that did not ‘connect the dots’ or ensure follow-up also played an important role, while political constraints may have also had some impact,” the report said.

It also highlighted the view that the risks associated with complex financial products linked to the then-booming US housing market – subsequently called toxic assets – were downplayed.

The IMF has had a central role in responding to the financial crisis, with emergency loans and other assistance for some countries – such as the Republic of Ireland and Greece.

Its member governments have trebled the resources available for financial assistance to struggling countries.

Mr Strauss-Kahn noted in his reponse to the IEO report that the agency had put in train reforms since the crisis which would “go a long way to enhance the candor and traction of surveillance, and arguably already have done so”.

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