Posts Tagged ‘IMF’


As if to confirm my view yesterday, that the recent paper on neoliberalism by Jonathan D. Ostry, Prakash Loungani, and Davide Furceri, published in the IMF’s Finance and Development, does not signal a new, non-neoliberal set of IMF policies, here’s an extract from an interview with IMF Chief Economist Maury Obstfeld:

IMF Survey: Do you agree with some who have argued that a recent article in F&D (“Neoliberalism: Oversold?”) signifies a major change in Fund thinking? For example, is the IMF now saying that austerity does not work and, indeed, that it exacerbates inequality?

Obstfeld: That article has been widely misinterpreted—it does not signify a major change in the Fund’s approach.

I think it is misleading to frame the question as the Fund being for or against austerity. Nobody wants needless austerity. We are in favor of fiscal policies that support growth and equity over the long term. What those policies will be can differ from country to country and from situation to situation.

Governments simply have to live within their means on a long-term basis, or face some form of debt default, which normally is quite costly for citizens, and especially the poorest. This is a fact, not an ideological position.

Our job is to advise how governments can best manage their fiscal policies so as to avoid bad outcomes. Sometimes, this requires us to recognize situations in which excessive budget cutting can be counterproductive to growth, equity, and even fiscal sustainability goals.


A new paper on “Neoliberalism: Oversold?” by Jonathan D. Ostry, Prakash Loungani, and Davide Furceri (pdf), is attracting a great deal of publicity these days.

It’s not really because of the arguments in the paper, which are basically some pretty mild criticisms of some aspects of neoliberalism. It’s only because of where the paper appeared— in Finance and Development, a quarterly magazine published by the International Monetary Fund.

But it’s a mistake to assume the IMF has rejected neoliberalism.

Ostray et al. begin by defining what they mean by neoliberalism, in terms of two main dimensions:

The first is increased competition—achieved through deregulation and the opening up of domestic markets, including financial markets, to foreign competition. The second is a smaller role for the state, achieved through privatization and limits on the ability of governments to run fiscal deficits and accumulate debt.

They then proceed to show that, while in their view, “there is much to cheer in the neoliberal agenda. . .there are aspects of the neoliberal agenda that have not delivered as expected.” In particular, removing restrictions on the movement of capital across borders and fiscal consolidation have not, in general, increased growth—but they have led to increased inequality, which in turn tends to hurt the level and sustainability of growth.

There’s nothing earth-shattering there. In fact, you don’t have to use heterodox economics to arrive at those conclusions. It’s pretty much the Keynesian critique of “hot money” and austerity, which (as Paul Krugman will tell any and all) is standard macroeconomics (except, as I have shown, Krugman doesn’t put much stock in the idea that inequality hinders capitalist growth).

Rather, the reason the Ostray et al. paper has garnered attention in many quarters is the fact that it names neoliberalism and it was published in an IMF-sponsored journal.

However, to keep things in perspective, the publication of the article doesn’t mean there’s a fundamental change in IMF policy in the works. As Myles Udland argues, while the authors may offer “a stunning argument against what has been the prevailing conventional wisdom among many in the international political and economic elite for a generation,”

This paper. . .reinforces the divide, at times, between the IMF’s “house view” on policy and the views of its research staff with regard to how that policy may actually work.

Last summer’s report from the IMF’s research arm that Greece’s creditors needed to take a haircut while IMF officials were working to secure Greece additional bailout funding is a prime example of this tension playing out in public.

Even more succinctly, Peter Doyle,

an economist and former senior manager at the IMF who resigned from the lender in protest in 2012 over its handling of Greece, dismissed the paper as nothing more than “what three guys at the IMF think.”

“This has no broad sanction. It has no status,” he said. “Three different guys might have produced a different article.”

So, yes, neoliberalism was definitely oversold (to an all-too-willing “international political and economic elite”) but don’t expect IMF policies—or, for that matter, the neoliberal approach of the other two members of the European troika—to change anytime soon.


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Greek workers have begun a 3-day general strike in protest against further austerity measures that are being proposed in return for more bailout money from their European creditors.

Even the Wall Street Journal admits that the proposed package of fiscal retrenchment measures is unsustainable, as it could come to 5 percent of Greece’s gross domestic product.

Eurozone finance ministers are holding a special meeting on Monday to debate the problem. Few expect a solution. One is needed at the latest by July, when Greece will default on bond debts unless a deal unlocks fresh bailout aid. The number causing the most grief is 3.5% of GDP: the primary-surplus target written in last year’s Greek bailout agreement. “The IMF thinks the primary objective should be lower. That would help Greece,” says David Mackie, chief European economist at J.P. Morgan.

Aiming for a smaller surplus would allow for less austerity, and for the Greek economy to breathe, IMF officials have argued for months. But it would also entail restructuring European loans to Greece, so that its debt doesn’t spiral ever higher. At a minimum, the IMF wants Europe to postpone Greece’s payment obligations by decades.

Eurozone governments led by Germany don’t want to take a hit on their Greek bailout loans, which total €205 billion ($234 billion) so far. Berlin is insisting the primary-surplus goal can’t be changed.

The fact is, since 2010, a succession of Greek governments have enacted spending cuts and tax increases worth a total of 32.3 percent of GDP, “a scale of austerity far beyond that seen in any other European country during the financial-crisis era.”

Greek workers are saying no more—and even the Wall Street Journal, which still considers the previous austerity measures to have been “inevitable,” can’t find a policymaker or economist who “argues that further belt-tightening on that scale is what Greece’s economy needs at this point.”


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Trust this!

Posted: 15 July 2015 in Uncategorized
Tags: , , , ,

Simon Wren-Lewis gives the lie to the idea that Europe’s lack of trust in Greece is responsible for the current crisis.

But does this help explain why other Eurozone countries keep going on about how Greece has lost their trust? I think the answer is a clear no. In fact I would go further: I think this talk of lost trust is largely spin. The issue of trust might have explained the total amount the Troika lent from 2010 to 2012. However, as I have said often, the mistake was not that the total sum lent to Greece was insufficient, but that far too much of it went to bail out Greece’s private sector creditors, and too little went to ease the transition to primary surplus. . .

The narrative about failing to deliver is just an attempt to disguise the fact that the Troika has largely run the Greek economy for the last five years and is therefore responsible for the results.

If anything, the Greek people are the ones who have learned they can’t trust the governments in power in the rest of Europe to do anything other than extract an enormous tribute—in the form of “extensive mental waterboarding” and continued austerity measures—in order to come up with the necessary funds to restore the banking system and give the country some breathing room.

So, who can they trust? They might be inclined to lend credence to the IMF, which has now acknowledged in an update (pdf) to its recent debt sustainability analysis (pdf) that Greece needs significant debt relief.


Just two weeks ago, the IMF argued that the peak in debt (at 177 percent of GDP in 2014) was already behind us and that gross debt financing would remain below a safe (15-percent) threshold. Now, its estimates are much higher: debt would peak at close to 200 percent of GDP in the next two years and gross debt financing levels would exceed 15 percent and “continue rising in the long term.”

The problem is that the IMF blames the dramatically revised scenario on events in the past two weeks. No Greek should accept (nor should the rest of us) that two weeks of capital controls could alone raise the debt ratio by 28 percentage points of GDP a full seven years later. The IMF is simply unwilling to accept the fact that its own analyses and policies—alone and in conjunction with the other two members of the troika—have gotten it terribly wrong.

The result has been an economic depression and social crisis unseen in Europe since the 1930s.

That just leaves the Greeks themselves, who need to trust they can buy themselves some time to enact the anti-austerity structural reforms necessary to dig themselves out of the current crisis. That’s probably going to mean confronting not only the elites in Europe that are pushing the current bailout plan, but also eventually its own elite that has put the country in such dire straits in the first place.