By Alan Beattie in Washington, Financial Times
Without leaping to premature judgments, it seems unlikely just now that the official response to the eurozone crisis will be held up as a model for future governments to follow. The International Monetary Fund’s role got a blast of disdain last week with the publication of a resignation letter from Peter Doyle, a 20-year fund veteran, obtained by CNN, accusing the organisation of failing to warn about the crisis because of persistent pro-European bias and “analytical risk aversion”. Not only did the IMF fail to sound the alarm in advance, but the renewed turmoil in Spain and the rising probability of a full-blown international bailout lend urgency to the accusation that the fund’s financial involvement in the rescues for Greece, Ireland and Portugal have hampered its ability to speak frankly in public about the eurozone since.

It would not be the first time that the IMF has suppressed disquiet about countries whose rescue programmes are manifestly failing, the most notorious example being the fund’s disastrous lending to Argentina in the years before that country’s 2001 sovereign debt default.

The IMF’s reluctance to be blamed for precipitating a crisis encourages it to keep the money flowing even at the cost of longer-term damage to its legitimacy. On top of that are the conflicted interests among IMF shareholder countries that are political allies or financial creditors of the borrower government. Following the 2001 Argentine default, for example, a group of shareholder governments led by Spain, Italy and France bounced the IMF’s management into restarting lending to Argentina, to the private fury of some fund staff.

In theory there is a clear organisational differentiation between IMF staff and management – including the managing director, currently Christine Lagarde – on one side, and the fund’s executive board of its shareholder countries on the other. In practice, a culture of consensus often seeps across the divide. Most board votes are unanimous, and management will not propose a course of action without knowing in advance that the board will support it. Thus, consciously or not, the analysis of the entire institution can be pushed towards playing it safe.

In the case of the eurozone, the potential for institutional over-optimism is even higher, and not just because the IMF board is disproportionately dominated by Europeans. The fund is a junior financing partner in the eurozone rescues, and pulling the plug would incur the wrath of its fellow “troika” members – the EU and the ECB – as well as the borrower country.

True, the IMF did begin last year to throw its weight around more in the Greek rescue, insisting on more realistic growth forecasts and debt sustainability analyses and pushing for more EU rescue money and/or a deeper writedown for private creditors. But overall it is hard to dissent from Mr Doyle’s conclusion that “the second global reserve currency is on the brink, and that the Fund for the past two years has been playing catch-up and reactive roles in the last-ditch efforts to save it”.

Spain is a good opportunity for the IMF to find a new calling in Europe’s crisis, one involving handing out fewer financial sweeteners to governments and more unpalatable truths about banks. Given that the eurozone as a whole has no external financing constraint and does not need foreign currency, it was always debatable whether it needed the fund’s money at all. That goes particularly for Spain. Like Ireland, Spain principally has a banking problem, not a sovereign debt problem, and needs money directly to recapitalise its banks, for which IMF resources cannot in any case be used.

As it happens, one of the IMF’s moderate recent successes in speaking up involved its public warning last autumn that European banks would need a lot more capital. The warning should have come much earlier, but it was good that it came at all.

At present, the eurozone needs outside money much less than it needs an organisation with technical competence and an ability to point out unpleasant realities. If Spain asks for a full-blown international bailout, the IMF should be very wary of joining a rescue in which its private misgivings have to be suppressed for the sake of public unity.