IMF provided "few clear warnings" about economic vulnerabilities before the 2008 global financial turmoil and paid little attention to spillover risks from a crisis in advanced nations, an independent evaluation report has said.
These observations have been made by IMF's Independent Evaluation Office (IEO) that looked into the agency's performance in the run-up to the financial turmoil.
Pointing out that the multilateral lender's banner message was one of continued optimism, the report said, "IMF provided few clear warnings about the risks and vulnerabilities associated with the impending crisis before its outbreak".
Moreover, IEO pointed out that IMF largely endorsed policies and financial practices in the US and the UK that were seen as fostering rapid innovation and growth.
"The IMF's ability to correctly identify mounting risks was hindered by a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely and inadequate analytical approaches," the report released on Wednesday said.
As per the IEO, the belief that financial markets were fundamentally sound and that large financial entities could weather any likely problem lessened the sense of urgency to address risks.
"Weak internal governance, lack of incentives to work across units and raise contrarian 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.
Meanwhile in the wake of the financial meltdown, IMF has emerged as a prominent player and helped Greece in fighting the debt crisis.
IMF chief Dominique Strauss-Kahn said it was a humbling fact that the entity was frank in acknowledging the failure.
"The failure of the Fund to warn about a systemic crisis in a sufficiently early, pointed and effective way is a humbling fact that the institution has been frank about acknowledging and prompt about responding to," he said.
