Benevolent lying...

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A wonderful observation by Dan Murphy about the IMF and World Bank:

Over the years current and former employees of both groups have explained that bias is down to the belief inside the financial institutions that their rosy projections can take on a life of their own by inspiring that elusive beast "investor confidence" and unleashing a deluge of cash upon their clients. They see it as a form of benevolent lying.

I find this a fascinating take on the problem of these international - and essentially unaccountable - organisations. I recall being taught - back in the early 1980s - that the two babes in the Bretton Woods were essentially superior bodies since they didn't suffer from the self-interest or realpolitik of bilateral interventions. Now it seems that the truth is sneaking out - their guesses are just as self-serving as the guesses of political leaderships in client countries. And the prescriptions - based on these optimistic guesses - have dreadful consequences:

"However, not tackling the public debt problem decisively at the outset or early in the program created uncertainty about the euro area’s capacity to resolve the crisis and likely aggravated the contraction in output. An upfront debt restructuring would have been better for Greece although this was not acceptable to the euro partners."

However Murphy suggests we shouldn't be surprised:

In the middle of that decade (1990s), the so-called Asian financial crisis hit much of the region, with capital flight threatening private banks, government coffers, and project finance alike. Thailand and Indonesia accepted IMF loans in exchange for "structural adjustment programs" (government spending cuts, foreign investor friendly legal changes, promises to have fully convertible currencies), while Malaysia, against dire warnings from the IMF, imposed currency controls and sought to stimulate the economy out of the downturn with an expansive government budget. The results? Malaysia weathered the crisis better than its neighbors, with fewer job losses and much less political turmoil.

Perhaps the time has come for politics to reassert its ascendancy over the cosy internationalist boondoggle. It seems that, whatever the choices made, it is better for them to be made by politicians we can kick out rather than on some distant scapegoat of an international institution. Especially one with as lousy a record as the IMF!

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