IMF spokesman officially admits wrong calculations on Greece’s program

Posted by in Economy

One after the other officials at International Monetary Fund admit that the strict austerity program imposed to Greece was based on wrong assumptions, calculations, estimations, forecasts, multipliers and predictions  A ‘mistake’ that cost Greek households billions of euro. How many? Nobody dares to calculate or say exactly….

During the regular IMF press briefing on Thursday, Gerry Rice, External Relations Department of International Monetary Fund, made the following statement:

QUESTIONER: How are things going in Greece? What information do you have, if you could tell us?

MR. RICE: We just had the Board meeting two weeks ago, the approval of the next tranche of the loan to Greece, and the commitment by the Greek authorities and the partners to Greece, including the IMF, to move forward with that program. So that was just two weeks ago. I think we should give some time now for implementation to take place. Going back to what you asked earlier, the next mission will be assessing where we are. So I think at that time we’ll be able to go into a bit more detail with you.

QUESTIONER: I want to ask about this report by Mr. Blanchard on January 3rd, if you remember. According to many media around the world, what he wrote — and I quote — “it’s an amazing mea culpa.” The Washington Post even went further — and I quote again — The Washington Post said that, “the IMF’s top economist acknowledged that the Fund blew its forecast for Greece and other European economies because it did not fully understand how government austerity efforts would undermine economic growth.” I know that Mrs. Lagarde spoke about it. But, can you tell us what is the IMF position on this report? Because Mr. Blanchard is the leading economist in this building.

MR. RICE: Thank you for the question. And you’re right that both Olivier Blanchard and Christine Lagarde have talked about this issue at length. Let me set it in a bit of context for you: going way back to 2010, if we can cast our minds back, I think it’s fair to say everyone was a bit too optimistic on forecasting Greece’s recovery. Why? I think, as was explained — including in last week’s interviews — there were a number of reasons. These included, the depth and the protracted nature of the European crisis itself, and the political crisis in Greece, which severely affected economic confidence, and delayed the implementation of reforms. So that was very important context for the way that people were thinking about the Greek program back in 2010. And this was the context that was emerging.

When it became apparent that the underlying conditions were different to what had been assumed, we certainly moved as fast as we could to update our multiplier assumption. I think Olivier Blanchard has explained this far better than I just have. It’s all on the record.

But maybe just one other point: there’s been a lot of discussion of this fiscal multiplier, which is probably something very few people had heard of until some months ago. And that’s because the fiscal multiplier is only one dimension, one component of how a determination is made on a country’s fiscal policy stance. There are a lot of other factors that go into that. It’s not just some mathematical regression that then, in some mechanistic way, determines the fiscal adjustment that needs to be made in every country. And every country is very different.

So that’s the context. I think it’s a very healthy thing that the IMF and Olivier Blanchard have been completely transparent in how this was done, what the whole context was. I think that’s the basis we want to move forward on.

So the fiscal multiplier, of course, has been adjusted on an ongoing basis since 2010. That’s where we are.

(official transcript by IMF – full press briefing here)

Rice said further that Poul Thomsen and the rest of the Troika will come to Athens in late with the purpose to assess progress on the implementation of measures in the program. The visit is expected to conclude around mid-March.

IMFs wrong fiscal multipliers

Gerry Rice Video interview here.

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