A Word Of Thanks To The IMF

That was the week that was, it’s over, let it go…….

Well I don’t suppose it’s that often that people get the opportunity to enthuse about the International Monetary Fund. Normally you find people like Joseph Stiglitz, or Naomi Klein, who are bitterly critical (often for many of the wrong reasons, here, and here). But I would like to express my gratitude to the Media Relations department of the Fund (and in particular to Mr Murphy – I think I have the name right), for enabling Landon Thomas to have access to the members of the Spanish team to talk about my role, which hasn’t been, let’s be clear, that earth shattering – don’t believe everything you read in the press: it is certainly ridiculous to suggest, for example, that I actually wrote the last report. All I have done is provide some analysis, for consideration, on the evolution of the current account deficit, some opinions over the actual levels of bad debt in the banking system, and some data on off-balance sheet public sector debt.

Anyway, it can’t be that easy for a major multilateral organisation to handle a sensationalized “IMF turns to blogger for advice on Spain” type story sweeping the globe. So I am grateful for the mature and intelligent way they handled a tricky situation which landed in their intray.

Of course, let’s be clear, offering advice does not mean 100% agreement. Evidently the Fund do not (at this point anyway) share the opinions of people like myself and Paul Krugman that growth will only be restored on Europe’s periphery by a series of substantial internal devaluations. They have confidence that a combination of fiscal restraint and long term structural reforms should be sufficient to do the trick. And they surely would in no way contemplate my “plan B” option, which is that if wage and price competitiveness is only returned slowly, then the only realistic way to “unblock” the situation may be to encourage Germany to temporarily return the Deutsche-mark.

In fact, my differences with the Fund over this sort of issue have been on record for some time now, as in the case of the amicable but clear debate I had with IMF Regional Representative for Central Europe and the Baltics Christoph Rosenberg about the desirability, or otherwise, of Latvian devaluation at the time when the IMF programme was initiated there (see my original argument here, Christoph’s reply here, and my response to Christoph here). Or again, take the Hungarian situation, where I have been arguing there will be no solution to the problems that country faces without biting the bullet of converting the Swiss Franc loans to forint. Back in January I warned that the way the programme was being applied was leading to a build up in fiscal liabilities which the incoming government would need to face up to (Hungary Isn’t Another Greece…. Now Is It?), and on this occasion the ongoing IMF Programme was defended by the then Finance Minister, Peter Oszko.

And, coming right up to date, it is hard to be in agreement with the assessment of the stresses the Spanish banking system is under which is made by former Bank of Spain deputy governor Jos̩ Vi̱als and his team in their recent Global Financial Stability Report. My view Рwhich I communicated to the Spanish team Рis that their evaluation substantially underestimates the likely extent and duration of the Non Performing Loan problem in the Spanish financial system.

Yet despite these ongoing differences, I still favour IMF interventions here in Europe, as in the Greek case, where I was arguing in favour of what eventually became the adopted solution from the begining of January. I think IMF involvement in resolving the problems facing many peripheral Eurozone economies is desireable given the Fund’s accumulated expertise, and relative political distance. On the other hand, it is unrealistic to expect the Fund to take a radically different policy stance from the one determined in Brussels, whose attitudes and opinions must always condition IMF involvement in Europe. So if policy changes are needed, then it is in Brussels and not Washington that these must be initiated.

And nowhere are the insights the Fund can offer going to be more important and useful than here in Spain, where, if the recent leaks to the Financial Times Deutschland are accurate, a call for intervention may not be that far off. Certainly everyone who I have talked to recently is very nervous about the severity of the financing problems currently facing the public and private sector. This week’s decision by the ECB to extend the short term financing operations for another three months, and to continue the programme of buying government bonds will buy time, but that is all. Strategic decisions have now to be taken, the Spanish economy may well be on the point of slipping back into recession in the second half of the year, and the two steps forward, one step back pace of the reforms being implemented by the current administration is painfully slow. So let’s here it for them then, what about a round of applause for all those boys and gals over in Washington who tirelessly labour, day in and day out, in their constant effort to keep Europe’s troubled economies from going “belly up”.

And now, as far as I am concerned, it’s high time life got back to normal.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

8 thoughts on “A Word Of Thanks To The IMF

  1. A most gracious note by you. IMF staffers are generally smart and competent – but in the original fallacy of composition, this doesn’t mean “The IMF” is.

    Blaming the IMF is just a tad nuts – although perhaps less barking mad than accusing it of infinite power and complete inability to accomplish its goals of wanton destruction.

    It’s like the United Nations generally: if it’s blandly consensual and lacks the capacity to accomplish its stated goals, it’s because its members want it that way.

    In the specific case of the Euro, the Eurozone countries know that in the long run they need chastity, Maastricht and all that. And they know in the short run, it’s either massive deficits, internal devaluation, or real devaluation.

    They just hope to be able to make the difficult choices according to the incrementalist logic of the ‘acquis communautaire’ – when they wish to, and not when forced to.

    Unfortunately, the acquis does not extend to making difficult decisions when times are good and there is no pressure.

    And so the decisions will be made under pressure, unless incrementalism works and they can fudge solutions for a good while longer.

    And I think you have done an excellent job in pointing out that even if incrementalism works, the ‘decision by default’ that results is not necessarily optimal or beneficial, and certainly not to large groups of society in many countries.

  2. The IMF, of all institutions, ought to remember that the leader in an n+1 currency union may have to run a CA deficit as a matter of policy in order to avoid deflation at the systemwide level.

  3. Pingback: Fiscal Austerity: The cases of Ireland and Spain | afoe | A Fistful of Euros | European Opinion

  4. I think that the IMF deserves credit for demonstrating that in this period of crisis that they are consulting non-conventional sources for ideas as they consider how to proceed. A key is that Edward provides the detailed data to back up his policy recommendations; so one can point to the data and indicate that while the recommendations may not be politically palatable they are based on facts.

  5. I find hilarious that the IMF asks Edward about his opinion on Spain.
    How bent can he be when writes moronic statements like this one:

    ” …having lived in Spain now for twenty years (in fact I am Catalan) I am pretty used to this way of doing things. Maybe that is why the country is so unproductive, since people spend so much of their time buying lottery tickets and sounding off about things they know little about.”

    Then again it is the IMF and they always need reasons to get it wrong time after time.

  6. Of course spanish economy is in danger of slipping back into recession! and so are all european economies! What would anyone expect after taking restrictive fiscal policies?

    Anyway, I do look forward to an IMF intervention on the UK; after all it has more debt than Spain, it has higher deficit, and it has grown less than Spain in the last eight years. The UK GDP was 2.1 times the Spanish GDP in 2004, today it is less than 1.5 times. I do not expect the FT will print any rumours/leaks in that direction though nor the IMF will ask any spanish journalist to give their bent opinion.

  7. Take it easy Jeronimo,

    This is a race to the bottom between The United States of Debt, The United Queendom of BP and The European United Salad, all of them rushing for money, leaking rumors to move markets end so on.

    Mr. Hugh is a contrarian indicator.

    Most western bank are debt-roten, and now is the time for chastity for everyone, sinking nations to save banks if necessary.

    Let’s see how this ends and let’s be far from IFM.

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