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IMF – Greece’s program: Lagarde admits “Mistakes in Fiscal Multipliers”, no consideration of Human Factor & Elections

For one more time, the International Monetary Fund admitted that it has made mistakes in its program for Greece. This time the mistakes admission came by the Managing Director of the Fund, Christine Lagarde. “We have acknowledged one mistake, which had to do with the fiscal multipliers,” Lagarde told Bloomberg Markets in an interview made public on Monday. She added that the IMF and the Europeans had both underestimated the contracting impact of some of the recommended measures, as they were unable to take into consideration the Human Factor that led to multiple changes of the government in Greece since 2010.

“We overestimated the ability of Greece to actually endorse and take ownership of measures that were needed, because we moved from one government to another to another to another, and it was always, ‘It’s not really our program, it’s not really our reforms, it’s not really our measures. It’s imposed by the Troika putting all members in the same bag.’ So I think that was overestimated,” Lagarde said.

She stressed it was the responsibility of the IMF to assess the gauge the potential impact of economic reforms and to reestablish the credibility and the economic sovereignty of the country under the program.

Despite the IMF’s mistakes, Lagarde urged the Greek SYRIZA-led government to “take more ownership” of reform measures.

“Greece cannot just continuously tag along and expect that things will be sorted out. The Greek leaders will need to take more ownership of reestablishing their country,” Lagarde said adding that she saw no risk of Greece leaving the euro area.

I suppose, Lagarde did not give any explanation as to why the IMF does not correct its wrong fiscal multipliers but it kept applying the same old wrong program.

I can only imagine how saddened the Greek voters are to have prepared a bad surprise party for Lagarde & the IMF with 5 elected governments PASOK, ND/PASOK/DIMAR, ND/PASOK, twice SYRIZA/ANEL, one appointed (Papadimas) and 4 transitional governments (2 in 2012 & 2 in 2016) since 2010.

I only hope, that the next IMF program will not include a sentence about “the necessity of dictatorship for a stable government for as long as the IMF program runs.”

lagarde

There must be a balance between our program & politics

BTW: Nobody talks about the some 3,000 suicides anymore.

PS I lost control of how many times I wrote from 2010 until 2015 that the IMF zealously designs its programs without taking into consideration the Human Factor.

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10 comments

  1. Why does the IMF pay Lagarde? There were certainly many other people who knew these “human factors” would be a problem. She did not listen to any of them. Nor did her horny predecessor.

    Until the IMF fuxes their instututionalized blindness to HF, they are the ones who need reform, they should refrain from pushing reform on others.

  2. The IMF and its various programs have, over the years, devastated developing counties in Asia, Africa and South America by forcing them to adopt policies that give priority to debt repayments to creditors (debt that was largely created by the IMF itself) over the provision of basic social services that would secure minimum living conditions for their populations. These policies – which include the privatization and downsizing of public services as well as the opening internal of markets to imports and the relaxation of labor law – have crippled these countries’ capacity to achieve any kind of internal development and have turned them into debt colonies dependent on the whim of the IMF and other international funding agencies.

    Why would anyone expect the IMF not to continue to pursue in Greece, and elsewhere, policies that it has engaged in for decades with the full political support of the “developed” world?

  3. Somehow, the following sentence got a little buried among the anti-IMF hype:

    “Greece cannot just continuously tag along and expect that things will be sorted out. The Greek leaders will need to take more ownership of reestablishing their country”.

    Put differently, Lagarde’s view is – and she has been involved from the start – that Greece has continuously tagged along and expected that things will be sorted out (by others). I guess the IMFs mulitplier assumed that Greece would pick up the ball and start running with it. If the latter does not happen, then no program will work.

    • I don’t even know where to start with this comment.

      “Lagarde’s view is – and she has been involved from the start – that Greece has continuously tagged along and expected that things will be sorted out (by others).”

      Great! Lagarde said so… quick like bunnies, we need to kowtow and agree. Talk about passing the buck. Those damn Greeks! How dare them! Refusing to take ownership for things that make no sense!

      So, the IMF and the Troika can design programs based on (1) wrong (not to say false) data and (2) promote policies that are designed to save their own own banks and economies from their own follies and, according to you, Greece is supposed to “pick up the ball and start running with it” even if it means driving its population over the cliff in a never-ending fall in support of these fantasy programs and policies.

      With that kind of logic, I’m surprised you didn’t blame the Greeks for the refugee crisis as well. After all, if they simply had bombed Assad instead of sitting it out, we wouldn’t have any refugees at all today.

    • I’m sorry Klaus, but Lagarde’s view of economics is that of an amateur. Why should we pay any attention to such crude political nonsense, merely because this woman was once finance minister in France? As for being “involved from the start”, are you referring to the incompetent economic model that the IMF used to predict the direction of the Greek economy? — a model that contradicted the Greek models of the economy, which turned out to be correct. Or are you referring to the outrageously foolish neoliberal instructions to liberalise everything — including things that needed regulation — such as taxis, peripteros and pharmacies? The evidence here is that freeing up the market to allow unlimited new entrants has created a massive oversupply and massive underemployment — as opposed to unemployment.
      ~
      Sorry, but your comments are just conformist nonsense — and a belief in the value, completely disproven, of neoliberal policies for the world. The only thing that the IMF has got right — mainly because it is required by their constitution — is that bankrupt countries cannot be financed. Even this, Lagarde chose to ignore for political reasons, and they are now regretting. She is a calamity of the first order, and it is a disgrace that her appointment was renewed.

    • Klaus- For starters, the IMF’s multiplier was blind to the peculiarities of the Greek economy. Unlike much of Europe, many, many more of Greece’s workforce in 2010 was self employed or employed in small businesses. Some 46% of Greeks fell in this category of wage earning as compared to 13% in Germany and some 16% for the EU overall. While large employers can “contract” (delay investment, lay off workers, etc) to weather an economic contraction, the self employed/small business simply goes out of business. While the large business can retain its capital investments to expand again when economic activity increases, the self employed lose their capital investments, however small, when going out of business, and thus have to accumulate capital to start up again.

      One would think, that when developing “fiscal multipliers, the IMF et. al. would have noticed that Greece’s economy was 3X more dependent on the self employed tha, is the norm, and at least pondered whether this might require an hour or two of proper investigation. Rather, they applied a “one size fits all “program” and then were baffled when it didn’t work out as predicted. Even more indicative of their poor grasp of the situation and principles, it took some five years before they admitted that their figures might have been “off”, but still took no ownership of the disastrous results.

      Greece is definitely not squeaky clean in all of this, but that does not in any way negate the incompetence of the IMF et. al. in developing the economic model for recovery.

  4. This words of Lagard are not intended for the wide public audience. Just trying to calm down different members of IMF, angered by his investment jeopardizing multiplyer.
    The remainning part of this story is full well known: all was made on purpose, no errors there, as the action plan was never financial but political instead (like in Ukrain).

  5. “Lagarde did not give any explanation as to why the IMF does not correct its wrong fiscal multipliers but it kept applying the same old wrong program.”

    Interesting that Greece is criticized for “not taking ownership” of reform measures, but the IMF and Troika never took ownership of their use of wildly inaccurate fiscal multipliers. If their estimates of GDP contraction and unemployment had been, let’s say, 20 – 25% off, perhaps they could minimize their role in collapsing the Greek economy. Instead, Greece suffered double the GDP contraction and unemployment the IMF and Troika predicted. And now, after the economy has been profoundly disrupted, they speak of their error as if it was within the normal margin of error.

    As to the “program”, I am still at a loss to come up with the logic that drove redefining “fresh milk”, along with “liberalizing” pharmacies, bakeries, taxis and lawyers as some magic silver bullets vital to economic growth and debt repayment. What the “Program” did was destroy the capital investments of the self employed and small business owners who accounted for over 45% of the work force. All that “liberalizing” is not going to generate the capital necessary to return some 600,000 unemployed people from that sector of the work force to jobs.

  6. I thought she was in prison.