IMF – Oops! We Got It Wrong!

By Shlomo Maital  

IMF

 

 The International Monetary Fund (IMF) was invented at Bretton Woods, NH, in July 1944.  It is headquartered in Washington, DC and its task is to bail out companies that get into financial trouble, overspending, overborrowing, etc.   And this happens often.

   The IMF is an exemplary organization. It has among the world’s best economists (its former deputy director was Stan Fisher, formerly head of Israel’s Central Bank, now Vice Chair of the U.S. Fed), and it even has an independent evaluation board that checks whether it has acted correctly.

   Now, this independent board has reported that..the IMF erred.  Ooops.

   Initially, when the global crisis broke out in 2007-8, the IMF recommended that governments support the economy, and indirectly its banks and financial institutions,  by using fiscal policy, i.e. deficit spending.  But then, the IMF switched direction, under pressure perhaps from capital markets, and said that governments should impose AUSTERITY,   cut spending, cut borrowing.

    Bad idea.  The independent IMF board said:  the IMF erred. It recommended austerity too early.  Perhaps, it should not have recommended austerity at all.

    It is sad when the world’s fireman, the world’s Mother Hen telling its chicks what the right thing to do is,  admits it blundered.  And sad when economics makes a mistake that is costly for hundreds of millions of people. 

It will be hard for even a serious body like the IMF to regain its credibility in future.