Yesterday, with most of the world already in weekend mode, the IMF website carried a link to an item entitled Fiscal Safeguards. There is no explanatory text with the link. Going into the very brief main document is slightly more informative:
The pilot exercise stems from the Executive Board’s 2010 review of the
Safeguards Assessment Policy and its 2011 update.1 The review suggested possible
approaches for identifying fiscal safeguards risk in those member countries with Fund
programs with high levels of budget financing …The 2011 Update concluded that in many cases, available reports would have to be complemented by additional information. Available ROSC and PEFA reports do not cover all countries systematically, and/or in sufficient detail, to help identify fiscal safeguards risks. Moreover, for the largest recipients of recent Fund’s direct budget financing, there are neither any ROSCs or PEFAs nor any other up-to-date diagnostics. PEFAs are typically not conducted for European countries; only one country out of those with the largest stand-by arrangements (SBAs) has carried out a fiscal transparency ROSC in the last five years.
Translated into English, they appear to be saying that the Fund (which technically lends foreign exchange to central banks) is actually lending huge amounts into budgetary systems about which it knows quite little because the recent batch of borrowers has been outside the usual discipline of budget scrutiny for developing countries. And as if the intended focus was not clear enough already:
The pilot aims at covering about six large budget financing cases over the next twelve months. The pilot countries will be selected in consultation with FIN/SPR, and the relevant area department. Most cases are likely to be countries under extended arrangements in Europe. Greece, Ireland, and Portugal are potential early candidates, while some middle and low income countries in other regions will also be invited to participate.
Now the exercise appears to be both voluntary and confidential, but they’ve gone ahead and named the most likely suspects anyway. Of course this can always be pitched as a boring accounting exercise, but would any large bank these days be allowed to get away with saying we’re thinking of taking a look at our borrower’s financial management systems — after having given them a huge loan? The possibility is that at least some at the Fund are asking the old Talking Heads question: Well, how did we get here?