How much clown can you be? It looks as if “clownessness” has no limits. Three years after the loan agreement with Greece, the clowns of International Monetary Fund are still puzzled about the causes as to why the Greek fiscal adjustment program did not work and that recession grew much bigger than expected.
In a 31-page working document “Assessing the Impact and Phasing of Multi-year Fiscal Adjustment: A General Framework” issued on Thursday, the IMF attempts to approach with scientific tools the impact of stabilization programs in indebted countries.
Not our fault, OK?
Important part of the report is devoted to the case of Greece as a country in which the initial estimates of the program, particularly as regards the size of the recession dashed as the recession was much bigger, reaching even 7 percent.
IMF-technocrats Ran Bi, Haonan Qu, and James Roaf do not blame the wrong applied multipliers for the wrong forecasts for growth in Greece, but the fact that the reform program was not implemented adequately.
In fact it was the “political and social dislocation” that hindered the correct implementation of the program the IMF technocrats stress. Probably still wondering about the human behavior that does not conform with their computerized mathematics.
A few excerpts form the IMF report:
The actual GDP projection shown by the thin blue line was clearly at the optimistic end of this spectrum (implicitly assuming a significant private sector boost in outer years even with a low multiplier assumption). However, moving to a higher multiplier assumption would have done little to improve the accuracy of the GDP projections.
Instead, by far the more significant factor was the dramatic revision to potential growth, both to
its original level and its projected growth. This reflected a number of developments, including
large data revisions following the start of the program, weaker than anticipated programimplementation and payoffs from reform, political and social dislocation, and other factorscontributing to a far weaker underlying economic performance than hoped for in the original program.
Finally, the application to actual country examples casts doubt on claims that very large multipliers have been operating.In particular, based on plausible potential output assumptions, multipliers significantly exceeding unity would imply a large positive contribution to growth from purely private-sector factors in Greece in 2010-11, which seems counter-intuitive. As this assessment could be sensitive to the potential output assumptions, alternative potential output paths are tested, all pointing to the same conclusion. A closer look using thisframework suggests that GDP forecast errors for Greece were due more to over-optimism on potential growth than to underestimating fiscal multipliers.Full report here in PDF, starting page 20 onwards
The IMF staff – head Christine Lagarde incl.- is probably still wondering about human behavior that does not conform with their computerized mathematics.
Claims that behind the clown costumes is a bunch of IMF staff are not confirmed.
IMF uses the euphimism “unpredicted human behaviour” to refer to the existing customer relations among ruling parties and rich Greek oligarchs that hinder any reform attempts for the last 30 years.
one of the many IMF euphemisms
It remains to be explained why the adjustment failed not only in Greece, but everywhere else.
It seems IMF operates under the assumption that its national counterparts would be responsible individuals willing to do what it takes, no matter how painful, to actually fix the dysfunctions in their country for the common good.
Of course this is very naive once you factor in that you are adressing politicians, and not a bunch of benevolent do-gooders. And I cannot imagine anything more remote to a benevolent do-gooder than a Greek politician.
It seems IMF never looks at “second-best” solutions.
yes, IMF deals with elected politicians and not with hired technocrats. grave mistake, no?