RBI Governor D Subbarao has said the International Monetary Fund (IMF) should look into socio- political set-up before suggesting country-specific steps for the improvement of macroeconomic situation.
"Advice by the (IMF) Fund should stem from a complete understanding of not only macroeconomic, but also social and political settings of a country," he said at a seminar on Strengthening IMF Surveillance here.
He added that the advice should be founded on hard evidence and driven by facts.
Ideology, he said, should not play any role in analysis of facts. The Fund also needs to exercise extreme caution when it gives advice based on models.
"This is because in many cases even small changes in models specifications, definitions of variables used, and time periods used in estimation can lead to significant differences in the results. At times, models are also not amenable to country-specific factors," Subbarao added.
On the critical issues for IMF Surveillance in the next 3-5 years, Subbarao said global inter-linkages have become stronger, more complex and potentially more disruptive. The IMF needs to be ahead of the intellectual curve in understanding these linkages, he said.
"The change in our world view on capital account management is by far one of the most remarkable intellectual shifts brought on by the crisis," he added.
When asked how well the Fund is now handling linkages and spillovers in today's interconnected world, the RBI Governor said the IMF needs to put in "greater effort" at being even handed in both its policy advice and in working towards its acceptance.
"This has to be done both at country and global levels," he said.
There has been a lot said and written about how the IMF economists must be more open minded, less ideological, be bold enough to question orthodoxies and brave enough to differ from established wisdom, he added.
"One important condition for this to happen is that IMF economists should talk to people beyond governments and policy institutions. In federal systems, they must talk to state governments," he said, adding that the economists must talk to non-state actors such as NGOs, self-help groups, chambers of commerce.
