Given IMF’s record, should we put too much faith in the Fund’s ‘economic expertise’?

AV Rajvade has a piece on this. It is actually amazing given mistakes of IMF, it remains as prominent a body as ever.

The author reflects on a recent IMF top brass visit and setting a regional centre in India. Indian PM in his speech praised IMF and must have been music to latter’s ears:

The prime minister announced the formation of a South Asia Regional Training and Technical Assistance Centre in partnership with neighbouring countries and the IMF. He believes that “the Fund has built up an immense stock of economic expertise”, and therefore, the association of IMF in the new institution will help in the development of skills in economic policy-making in the member countries. If he was being polite to the managing director of the IMF present on the dais, it would not matter; however, if he seriously believes in the “economic expertise” of the IMF, one wonders if he needs to review his thinking. To quote a few examples:

i) Most IMF economists have studied in the US where “in a number doctoral programmes a student can specialise in macroeconomics without knowing what an exchange rate is, much less an emerging market economy” (Olivier Blanchard, IMF’s economic counsellor and head of its research department, in Finance and Development, September 2014);

ii) The ideological bias in the IMF’s research and policy stances is confirmed by two reports of its Independent Evaluation Office (IEO) in 2011. The first one from January 10 is titled “IMF Performance in the Run-Up to the Financial and Economic Crisis, IMF Surveillance in 2004-07”. To quote from it: “The IMF’s ability to correctly identify the mounting risks was hindered by a high degree of groupthink, intellectual capture…

iii) During the sovereign debt crisis in Greece, it made a huge mistake in estimating the impact of fiscal austerity on gross domestic product growth.

I could go on, but I hope our policymakers are aware of these issues before putting too much faith in the IMF’s “economic expertise”.

I am sure our PM was being polite. It is unlikely he would barely know about IMF and its work which is actually a good thing.

It is not just this. IMF has messed up on most counts. It has hyped all pre-crisis moments, failed to raise any flags even in case of obvious risks and then as the crisis started, less said the better. One is not sure which was worse, pre-crisis noise or post-crisis clean up by IMF..

Having said this, even the author is being kind and does not speak about the main issue.

The issue is  despite the mess,  The Fund and its econs only grow more powerful in both policy and polity. A job at IMF is seen equal to serving the gods and most economic policy gates open to you in future. In India, all top policy positions whether at Finance Ministry or Indian central bank are usually open for people who have served in “The Fund” or  its poorer cousin “The Bank.” It is an absolute must. It is a whole circle/network (or mafia as some call) of which one first becomes a member and then the circle takes care of you.

And why just India. I guess it is true for most parts of the world. Look around all Government economic advisers or central bankers, they very proudly display their Fund or Bank association. Post-retirement from these govt positions, one again becomes executive director/country adviser to IMF. It is actually like this revolving door mechanism  with IMF at the centre.

The media too goes crazy saying so and so person trained at IMF joins such and such place..

So whether we put faith in the fund’s economic expertise or not, their trained economists continue to run much of the economic show around the world. It does not matter whether India or anyone else chooses to hear the advice of the Fund directly, we are indirectly following the same..

2 Responses to “Given IMF’s record, should we put too much faith in the Fund’s ‘economic expertise’?”

  1. mudit Says:

    hi amol,
    well the point on credentials is also true about any job. All best companies along with best possible profiles/packages offer to IIT/IIM guys irrespective of basic foundation. If one studies in IIT/IIM or as in above case having worked in IMF does not guarantee expertise. In essence, meritocracy is defined more by which college/firm you have worked on.To be honest, there is no way out also from this mindset.

    Cheers,
    Mudit

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