A new paper by Mark Weisbrot and Helene Jorgensen of CEPR have managed to unearth a dirty little secret: the IMF doesn’t just prescribe broadly similar policies in its Article IV consultations, it looks like its hands out the same medicine. We’ve used the metaphor of breaking countries on the rack, but cutting them to fit a Procrustean bed might be more apt.
Their new paper describes the scope of their review:
The IMF makes policy recommendations to European countries through its Article IV consultations and resulting papers. These are the bilateral part of the IMF’s surveillance responsibility…The IMF’s Article IV consultations provide recommendations on a broad range of issues including fiscal, monetary, and exchange rate policy; health care and pensions; labor market policy (including wages, unemployment compensation, and employment protections); and numerous other policy issues.
This paper examines the policy advice given by the IMF to European Union countries in 67 Article IV agreements for the four years 2008-2011
Part of what they found is unsurprising: the IMF loves telling client states to shrink spending and government overall, and they are particularly keen on cutting social safety nets. But their advice is even more cookie-cutter than you might anticipate (emphasis ours):
Fiscal consolidation is recommended for all 27 EU countries, and expenditure cuts are generally preferred to tax increases. In some cases there are targets or limits on public debt/GDP ratios or fiscal deficits that are below those of the Maastricht treaty. There is repeated emphasis on cutting public pensions and “increasing the efficiency” of health care expenditures. Raising the retirement age is a standard recommendation, without any correlation to a country’s life expectancy. Although slowing population growth can have important benefits (not the least of which is reduced pressure on the world’s resources and climate change), an aging population is seen throughout these agreements as a threat to the fiscal sustainability of government expenditures. This is not demonstrated through empirical evidence, for example, which might take into account productivity growth that would support a rise in the ratio of retirees to workers, while allowing for rising living standards for both, as has been the case in prior decades. There also appears to be a predilection for increasing labor supply, irrespective of unemployment or labor force participation rates. This includes such measures as reducing eligibility for disability payments or cutting unemployment compensation, as well as raising the retirement age.
Th article recaps the recent embarrassment of the IMF having to admit that it got its fiscal multipliers all wrong. If you believe austerity works, you have to think fiscal multipliers are lower than one, meaning cutting expenditures won’t shrink the economy even more than the reduction in spending. But whoops! They ‘fessed up they are typically bigger than one. But have they changed course as a result? Not really. They now simply think their clients have to be tortured a tad less savagely.
It also appears the IMF sucks at forecasting, beyond what can be explained by wanting to believe in the fiscal multipliers that justify its policy stance, rather than ones that might be a smidge more reality based. Again from Weisbrot and Jorgensen:
For example, in September 2010 the IMF projected GDP growth in Greece of -2.6 percent for 2011 and +1.1 percent for 2012. The actual results were -6.9 percent for 2011 and – 6 percent (October WEO projection) for 2012 (Weisbrot and Montecino 2012). Similarly, in Latvia the IMF projected, in January of 2009, -5 percent growth for 2009; the actual decline was 18 percent (Weisbrot and Ray 2010).
The paper also points out what other economists have mentioned about the IMF: it’s research staff does better work on this topic that its policy side appears to ignore.
The paper is accessible and useful, and I encourage you to read it in full.