Sunday, February 19, 2017

When the IMF evaluates the IMF

The IMF has now released its self-evaluation report on the programme for Greece between 2012 and 2016 (IMF 2017). This report admits most, if not all, of the glaring mistakes and calls for significant changes. Unfortunately, it does not always get to the bottom of why these mistakes were made.

The requirement that the IMF self-assesses and publishes its interventions in the case of programmes with exceptional access was adopted in the wake of the highly controversial East Asian crisis. Exceptional access occurs when the amounts lent by the Fund exceed the normal ceiling of 145% of the country’s quota per year, or a total of 435%. (At the time the limits were 200% and 600%, respectively). A first programme provided for 3200% of the Greek quota. As it was going astray in 2012, it was interrupted and replaced with a second programme worth 2159% of the quota. These are numbers never seen before.

What’s good
The report is candid on a significant number of mistakes. It acknowledges that its forecasts were “overly optimistic”, which justified the front-loaded and historically deep budget deficit reduction condition that created one of the longest and deepest contractions ever recorded. This, in turn, led to a rising debt to GDP ratio, the opposite of the stated goal. The IMF has already admitted this failure, based on low fiscal multipliers (Blanchard and Leigh 2012). The report further notes that export price elasticities were expected to be large and that the banking system was presumed to be healthy throughout.  The report goes further by listing the implications of this mistake, including political turmoil, the rise in non-performing loans (NPL) that undid banks several times over, and failure to meet a number of programme conditions that appear ex post as unrealistic.

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