CEPR Responds to IMF's Defense of Questionable Policies During World Recession

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."