February14,2011 Mr.DominiqueStraussKahn ManagingDirector InternationalMonetaryFund 70019thStreet N.W. WashingtonD.C.

D.C. 20431 DearSir, Re: Report by the Independent Evaluation Office on IMF Performance in the RunUptotheFinancialandEconomicCrisis I have read with interest the IMF Performance in the Run-Up to the Financial and Economic Crisis Report published on 09 February 2011, which examines IMFs surveillance performance in the run-up to the global financial and economic crisis. It is commendable that the IMF commissioned an independent evaluation and hopefully lessons will be learnt and the reforms advocated by the Independent Evaluation Office (IEO) would be implemented to reduce the chances of a repetition of the crisis. In chapter four of the report, the IEO identifies several reasons for IMFs failure to identify risks and failure to give clear warnings in the run up to the crisis namely analytical weaknesses, organizational impediments, internal governance problems, and political constraints. Furthermore, the IEO makes five recommendations to help improve IMFs surveillance ability namely: Creation of an environment that encourages candor and considers dissenting views; Modification of incentives to speak truth to power; Better integration of macroeconomic and financial sector issues; Elimination of the silo mentality and insular philosophy Delivery of a clear, consistent message on the global outlook and risks

While the above-mentioned causes and recommendations from the report are relevant, the report fails to mention IMFs advanced economy paradigm as a major cause of its ineffective surveillance performance. While the report highlights the high regard that IMF has for the advanced economies, it does not establish the linkage between IMFs current advanced economy paradigm and its surveillance ineffectiveness. Furthermore, the report does not advocate a shift from the current IMFs advanced economy paradigm towards a more global economy paradigm. Since the formation of the IMF in 1945, its structure, culture, policies and strategies are modeled on and in favor of an advanced economy and more specifically Western economy paradigm. For instance, the Managing Director and First Deputy Managing Director positions have been historically assigned to individuals from advanced economies. Furthermore, 12 advanced economies account for around 47.2% of the voting rights and 54.2% of the members quota. Moreover, the US, with a voting right of 16.74% can singularly block a supermajority vote.

As the current financial crisis was triggered by the flawed economic policies of the advanced economies, the IMF due to its current paradigm was unable to quickly identify the vulnerabilities inherent in these advanced economies. I will now address certain aspects of the report. Political Constraints According to the report, IMF staff indicated that they were more comfortable in issuing out critical and difficult messages to authorities in the emerging market but were more cautious in issuing similar warnings to the large advanced economies. The report also notes that authorities in a number of large advanced economies put pressure on IMF staff to tone down on hard-hitting messages. In addition, the US authorities refused the IMFs repeated requests to carry out a Financial Sector Assessment Program. The refusal of the advanced economies and the US in particular to cooperate with the IMF is partly due to the structure of the IMF, which is heavily tilted in favor of the advanced economy. The current structure enables these economies to influence IMF policies. Increasing the emerging economies influence over the IMF, in the form of voting, quota and organizational control, should make the organization more balanced and also discourage the advanced economies from resisting IMFs reforms and criticism in future. Vulnerability Exercise Despite the presence of significant vulnerabilities such as high levels of leverage, overheated housing markets, poor regulatory framework etc in a number of advanced economies in the run up to the financial crisis, the IMF did not carry out vulnerability exercises on the advanced economies. Conversely, vulnerability exercises were carried out on emerging economies. The report also states that IMFs sent repeated warning of risk build up to authorities in the emerging markets, however large advanced economies with vulnerabilities did not receive such warnings inspite of the significant risk build up. Adopting a global market paradigm could have enabled IMF to view the advanced economies vulnerabilities in the same light as those experienced by emerging economies in previous crisis. Furthermore, it could have prevented the IMF from making the assumption that advanced countries economic frameworks were sound, resilient and immune from a financial crisis. Championing US Policies The report also indicates that the IMF often seemed to champion the U.S. financial sector and policies of the U.S. Federal Reserve. The presence of an advanced economy paradigm encourages the IMF to turn a blind eye to flaws in the economic policies of the advanced economies that threaten global financial stability. Moreover, if IMF had championed some of the sound economic policies of a number of emerging economies such as fiscal prudence, reserve accumulation, reasonable debt accumulation etc, the risk to financial stability could have been reduced.

The Way Forward With the emerging markets growing influence in the global economy, it is time that the IMF changes its paradigm from a pro- advanced market model to a more balanced global economy model that incorporates emerging market influences. Though steps have been put in place to reform the IMF based on the discussions at the G20 summit that took place in Gyeongju, however, the reforms should be implemented much earlier than the proposed October 2012 target date. Furthermore, the proposed 6% transfer of voting rights to developing economies agreed at the meeting is grossly inadequate and should to be increased. Moreover, the Managing Directorship position should no longer be permanently zoned to an official from an advanced economy. There should also be a change in the IMF culture, which currently appears to assume the superiority of the advanced world economic framework relative to other economic frameworks. It is this culture that has likely encouraged the prevalence of groupthink and a mindset bias towards the invincibility of the advanced economic framework. Conclusion While I am conscious of the fact that IMF would not be able to identify all future risks that could threaten financial stability, however a shift to a global economy paradigm could help improve the IMFs surveillance capabilities. Implementation of the recent proposal suggested by a panel of former policymakers, who advocate for the G20 to assume ultimate authority over the IMF would go a long way in eliminating the current advanced economy paradigm of the IMF and help transform the IMF to a more global economy paradigm. I hope that this response is helpful to the IMF and would be open to further discussions with the IMF about any of the issues raised. Yours faithfully,

Ahmed Olayinka Sule, CFA

CC PresidentNicolasSarkozy H.EChristineLagarde