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CEPR Responds to IMF's Defense of Questionable Policies During World Recession
WASHINGTON - October 22 - The Center for Economic and Policy Research (CEPR) released a response today to the International Monetary Fund (IMF) as part of a continuing discussion of CEPR's recent paper: "IMF-Supported Macroeconomic Policies and the World Recession: A Look at Forty-One Borrowing Countries." James Roaf, Deputy Division Chief in the Emerging Markets Unit of Strategy, Policy, and Review Department (SPR) for the IMF, responded to CEPR's paper at an event last week in Washington in his remarks and a power point presentation. The CEPR paper examined IMF agreements with 41 countries during the current global recession and found that 31 of the 41 countries had implemented pro-cyclical policies - for example cutting spending or tightening monetary policy -- that would be expected to exacerbate an economic downturn.
CEPR's new discussion paper takes issue with the IMF's claims that its policies during the current downturn have been "counter-cyclical, not pro-cyclical" and that countries with IMF agreements "expanded fiscal deficits in 14 of 15" cases. CEPR found that the IMF reached its conclusions in part by ignoring agreements signed in 2008, and by overlooking agreements with overly tight monetary policy.
"We are all using the same data," said Mark Weisbrot, Co-Director of the Center for Economic and Policy Research and author of the new discussion paper. "So the IMF's response, while putting a different spin on their agreements, does not contradict our findings."
CEPR's response states that the "IMF is ignoring its agreements that were signed in 2008, when the world economy was sliding into recession. This is when most of the 31 agreements with pro-cyclical policies were signed. As we acknowledged in our paper, in many cases the pro-cyclical policies, such as reducing the fiscal deficit, were later loosened. However, since there are four to six months, and sometimes longer, before such agreements are reviewed, the decision to tighten fiscal and/or monetary policy during the downturn can still be expected to cause damage."
CEPR also notes that "the IMF's response to CEPR's paper, as well as its papers such as its September 14 'Review of Recent Crisis Programs,' did not deal with monetary policy, but instead was limited to fiscal policy."
"The IMF is correct to point out that its policies during the current downturn are not as bad as those implemented during the Asian economic crisis twelve years ago and other previous crises," said Weisbrot. "However, this is too low a bar. In at least 31 countries, there were serious policy mistakes. This shows that the Fund still has a long term policy bias toward overly restrictive fiscal and monetary policies, for which it has received much criticism - including from its own Independent Evaluation Office - over many years."