IMF DOWNPLAYED RISKS AHEAD OF 2008 CRISIS, SAYS REPORT

Washington, February 10- An investigation into the International Monetary Fund (IMF) has said that the agency downplayed 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.

Fund failure

The IMF's managing director Dominique Strauss-Kahn said the report was "humbling".

"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”.

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.

Report recommendations

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".

However the IEO said measures should be taken to encourage alternative views and diverse opinions both within the IMF and from outside experts.

The report concluded that such reforms were needed to ensure that the organisation "speaks truth to power".

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