International Monetary Fund. Independent Evaluation Office

IMF Independent Evaluation Office

Kevin Barnes

International Monetary Fund, Independent Evaluation Office

Shinji Takagi

Benjamin H. Cohen

Ali M. Mansoor

The report focuses on the role of the IMF in three recent currency crises in Indonesia (1997-98), Korea (1997-98), and Brazil (1998-99). The evaluation examines the internal processes by which important decisions were made by IM. In the case of Indonesia, IMF surveillance did identify vulnerabilities in the banking sector, but underestimated the potential macroeconomic risks posed by them. In Korea, IMF surveillance failed adequately to identify the risks posed by the uneven pace of capital account liberalization and the extent of banking sector weaknesses, owing to the adoption of a conventional approach that focused on macroeconomic variables.In Brazil, IMF surveillance was successful in identifying key vulnerabilities, in part owing to the fact that they were largely macroeconomic in nature. However, it progressively downplayed the scale of overvaluation, and had little impact in persuading the Brazilian authorities to take sufficient corrective action even in areas where the diagnosis was correct. This report also includes recommendations on how IMF can improve its procedures.

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