Has the IMF really changed? Academic arm-wrestling from Washington…..

A new report from the Center for Economic and Policy Research in Washington DC tries to work out whether the IMF has really changed its thinking in response to the global economic crisis and the general perception that countercyclical responses (rather than belt-tightening austerity) are the right way to go in a recession.

After a (fairly polite) public row with Fund staff at a panel on the crisis (which you can watch on the 50 minute youtube below), the CEPR team went back and analysed IMF agreements with 41 countries. (For Fund geeks, these include Stand-By Arrangements (SBA), Poverty Reduction and Growth Facilities (PRGF), and Exogenous Shocks Facilities (ESF)). What did they find?

‘31 of the 41 agreements contain pro-cyclical macroeconomic policies. These are either pro-cyclical fiscal or monetary policies – or in 15 cases, both – that, in the face of a significant slowdown in growth or in a recession, would be expected to exacerbate the downturn. In some cases, the Fund subsequently relaxed the original conditions; sometimes (as in Hungary, Latvia, Republic of Congo, and Haiti) this appeared to be the result of social unrest or other pressures on the borrowing government.

In many cases the Fund’s pro-cyclical policies were based on over-optimistic assumptions about economic growth. IMF programmes tableThe IMF has a history of over-optimistic projections in many countries. So it is not so easy to separate forecasting errors from an underlying bias toward overly restrictive fiscal and monetary policies.

Over the past year or two the IMF has been a strong supporter of the use of government fiscal stimulus to counter-act the world recession, and it has long supported expansionary monetary policies, e.g. in the European Union, as well. It may then seem paradoxical that so many of the IMF’s agreements concluded during this recession have been pro-cyclical. But there has long been a double standard for low-and-middle income countries, in that Fund policy does not allow or encourage the same types of expansionary macroeconomic policies as it recommends for the high-income countries.

The economic argument for this double standard is that developing countries face a much more binding foreign exchange constraint… Of course some countries headed into this downturn with unsustainable fiscal or current account deficits; but even in these cases there should be a strong bias towards waiting until the world recession has passed before attempting to adjust these deficits. Other countries may have an unsustainable debt burden; in these cases there is an argument for more and speedier debt cancellation in the near future, rather than trying to improve the fiscal balance while the economy is crashing.

In some countries the rationale for tightening macroeconomic policies during the current downturn has been to restore confidence as a result of capital flight. In these cases, the IMF should be more open to capital controls, which it does not recommend in any of the agreements, and in some cases (e.g. Pakistan) it opposes these measures.’

The report was rebutted by the IMF in another one hour panel discussion (that should test your youtube stamina), and the CEPR has responded to the rebuttal with an eight page response. Also worth checking out is ‘Doing a Decent Job‘, a Eurodad report on the IMF’s alleged conversion that goes into more depth at what is actually happening at country level. This one could run and run….

Subscribe to our Newsletter

You can unsubscribe at any time by clicking the link in the footer of our emails. For information about our privacy practices, please see our Privacy Policy.

We use MailChimp as our marketing platform. By subscribing, you acknowledge that your information will be transferred to MailChimp for processing. Learn more about MailChimp's privacy practices here.

Comments

5 Responses to “Has the IMF really changed? Academic arm-wrestling from Washington…..”
  1. Claudia

    Duncan,

    yeah, it could run and run forever.

    But it remains as a shock how people can overrate damned IMF after decades of bias, wrong diagnosis, cruelty, wrong drug prescription, bad astrology and, of course, very bad economic theories. It’s been a year in rehab and IMF already has convinced some people of its good heart and promise to live one day at a time…

    Where can I call for help, where can I see hope? The Gay rights movement, please save from this IMF world.

    C.

  2. Estenieau Jean

    Nothing is impossible. It could be true that IMF has changed but how could we forget the role of IMF in the development project, the globalization project and so on.The third world countries has been suffered for decades the actions and the “I don’t care” policies of the IMF.The work has been done, millions of people enable to sustain themselves- this could be the right time to change.

  3. Saeed Aden

    The IMF’s rectless policies caused lot of suffering in the developing world. If IMF has know changed and wants to start with a clean slate, that is a great thing but the right thing for IMF to do is go back and fix their mistakes in the past by compensating the third world countries.

  4. Laura Melkonian

    The report from the Center for Economic and Policy Research effectively publicizes the disputed IMF policies with concrete and transparent evidence. With empirical data revealing that “31 of the 41 [IMF] agreements contain pro-cyclical macroeconomic policies that “would be expected to exacerbate the downturn” one needs not question the reason for the seeming paradox between IMF ‘support’ and unsuccessful development projects.

    As Mr. Green appropriately says, “In many cases the Fund’s pro-cyclical policies were based on over-optimistic assumptions about economic growth. The IMF has a history of over-optimistic projections in many countries.”

    A must-read book, “Confessions of an Economic Hit man” by John Perkins (http://www.johnperkins.org/) explains the over-optimistic growth projections that serve as a catalyst for unconstructive development projects. This true story explains the unfortunate truth behind the economists persuaded or bribed to make and justify these forecasts. These inflated economic projections are then used to convince developing countries to borrow more money than they can ever pay back for illustrious plans to attain a more innovative future (while granting all infrastructure construction contracts to U.S. companies). Thus, developing countries are forever indebted to the U.S., and are subject to dependency, and as a result, U.S. political control.

    Likewise, with its own political motives, the IMF may not want to change its policies (The IMF Headquarters is in Washington D.C.). Until the IMF is regulated by an international and unbiased court of justice, the integrity of its policies should be questioned.

  5. Mark Robertson

    As Laura points out, who the IMF really wants to help has been questioned. It’s purpose would seem clear, but has been convoluted because of it’s policies. It doesn’t seem that the IMF has really helped those that it was designed to.

    I think the need for change has been made clear and that the IMF leadership has heard the challenge. The question is if there will be continued improvement as the world comes out of the reccession, or will things go back to “business as usual”.

Leave a Reply

Your e-mail address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.