www.imf.org/external/pubs/ft/scr/2013/cr13156.pdfI linked this paper in the Greece thread as well, because it is important to that country. It is yet another self serving bit of nonsense from an organisation which is utterly blinded by ideology or is completely corrupt. Whichever is true that organisation should be disbanded immediately and all its personnel made to go and look for work in a world where their occupation has been rendered redundant because it is no use to man nor beast in the real world. In that real world professionals who are so incompetent that they harm their clients are sued and they are struck off. That is true if a doctor kills someone through negligence or if a lawyer writes a contract which harms his client's financial interest through incompetence. The IMF and their economic model have killed lots of people in many countries and they have harmed the financial interests of millions of their clients: yet they suffer no consequences at all. They even use their incompetence as a justification for their failure, which is odd if considered from the point of view of professional ethics. Either the whole "profession" is incompetent, as they seem to claim: which is the same thing as saying they are members of the "Confederation of Snake Oil Salesmen" with the professional standards to be expected from such a body; or they are saying that they are members of the "Institute of Homeopaths and Humour Rebalancing Practitioners" in which case they should be dealt with as unscientific woo merchants, and thrown out of a profession which is otherwise evidence based. Either way we should not listen to these charlatans, ever.
The paper is there for you to read, but it is worth looking at some of its statements in detail, I think. It is quite instructive from some points of view
In the first place: one of the questions which any professional needs to keep hold of is "who is your client?" The reason you have to do that is that although it looks simple on the surface it is subject to a lot of pressure in the real world where other interests abound. For example, a doctor's client is his patient. He will be subject to pressure from financial interests such as drug companies who wish to sell their products; and from governments or insurance companies, who wish to cut costs of treatment. If the doctor loses sight of his purpose those other interests will lead to harm for his patient, and the line is fuzzy because financial constraints are real. This is true for all professions, I think, and so that central precept is fundamental to them all. If a profession is worth anything it is worth it because the practitioner has skills you do not have: but equally because that practitioner can be trusted to put the interests of the patient or client first and last.
So who is the IMF's client? On the face of it they are there to help individual countries deal with economic problems through direct assistance and impartial advice and recommendations. It is perfectly obvious from this paper that that is not true. The IMF was not working on behalf of Greece: it was working for the EU and the global economy: for which read the financial and corporate interest.
QUOTE
moving ahead with the Greek program gave the euro area time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy.
Would you go to a doctor who was working for a "for profit" blood transfusion service if you had anaemia? That is what Greece was forced to do.
If there was no other doctor in town you might decide that any doctor was better than no doctor, and you would rely on his professional ethic to ensure that he would do the best for you, as patient, if he agreed to treat you. But you would presume that he would openly disclose the treatment options open to you and the risks and benefits of each, honestly. That is a minimum requirement of professional behaviour. The IMF admits that it did no such thing in the case of Greece
QUOTE
There were occasionally marked differences of view within the Troika, particularly with regard to the growth projections. However, the Troika in general seems to have pre-bargained positions so that differences were not on display to the authorities and did not risk slowing the program negotiations.
So far as I can tell that means that the risks of "treatment" were not disclosed to the patient, and the reason for the non-disclosure is contained in the previous quote: it was not in the interests of the EU and financial institutions for Greece to choose euro exit at an early stag,e and so the information was withheld.
As ever the IMF blames everyone but themselves. It is not convincing: but even if it were true that their own assessment was correct but was overridden by other interests who had less expertise and experience (as they claim) did they say so? That is the minimum one would expect from a professional. If the blood transfusion service they work for denies their diagnosis of anaemia and demands a blood donation from that patient the answer from a respectable doctor is not to go to the patient and say: "the best treatment for you is blood letting". It is rather, at a minimum, to say, "I am required by my employer to tell you that blood donation is the right treatment for you: but it is likely you will die if you take that route, and I do not recommend it". Better yet that doctor should resign and give his reasons publicly. But no. The IMF gives the patient the story from the transfusion service and then, when the patient dies, considers it adequate to disclose the conflict of interest and opinion after the event. It is never their fault and never their responsibility to be honest.
Nor is it possible to argue that nobody could have predicted the effects: for the IMF has an outstanding record of being wrong about its projections: and always in the same direction. This is because their economic theory is wrong. But don't let the evidence get in the way of a self serving agenda, will you?
In this paper the IMF does the balance thing: it claims some notable successes and some notable failures.
Successes are said to be:
QUOTE
Strong fiscal consolidation was achieved and the pension system was put on a
viable footing. Greece remained in the euro area, which was its stated political
preference. Spillovers that might have had a severe effect on the global economy were
relatively well-contained, aided by multilateral efforts to build firewalls.
1.You will note that fiscal consolidation is taken as a success without any justification at all: that is because it is an axiom of their approach and they do not think to justify it.
2. The pension system was put on a viable footing: means that support for the elderly was reduced, as is always the aim of these people so far as I can tell. It is a "success" if you drive the elderly into poverty, apparently. Well it is a success when you drive the majority into poverty because that is what is meant by fiscal consolidation and structural reform. Shame it doesn't work, even in their own terms. This, too, is because their economic theory is wrong
3. Greece remains in the euro area, as was its stated preference. A stated preference based on the lies about the consequences, as noted above. With full information would that have remained the "political preference"? We cannot know.
4. The part about "spillover" is sometimes called contagion. Well we are having a slow car crash rather than a quick one, arguably. But to me this means that they used lies to buy time, so that the financial elites could protect themselves from the consequences of their decisions through socialising their losses. It is not what I see as "success" It is certainly not a success for Greece, the apparent patient, on this analogy. In support of that view the paper says:
QUOTE
Given the danger of contagion, the report judges the program to have been a
necessity, even though the Fund had misgivings about debt sustainability. There was,
however, a tension between the need to support Greece and the concern that debt
was not sustainable with high probability (a condition for exceptional access). In
response, the exceptional access criterion was amended to lower the bar for debt
sustainability in systemic cases. The baseline still showed debt to be sustainable, as is
required for all Fund programs. In the event, macro outcomes were far below the
baseline and while some of this was due to exogenous factors, the baseline macro
projections can also be criticized for being too optimistic
Who is your client?
The failures are said to be:
QUOTE
Market confidence was not restored, the banking system lost 30 percent of its deposits, and the economy encountered a much deeper-than-expected recession with exceptionally high unemployment. Public debt remained too high and eventually had to be restructured, with collateral damage for bank balance sheets that were also weakened by the recession. Competitiveness improved somewhat on the back of falling wages, but structural reforms stalled and productivity gains proved elusive.
1. It is a presumption of the economic theory they adopt that "market confidence" is critically important, and that it will be restored if governments surrender their sovereignty to that same market and do what it wants. That is absurd on its face and it is not true in the event.
2. Banks lost 30% of their deposits through capital flight, as I understand it. Why would you expect anything else? Why would you oppose capital controls, as the IMF routinely does in its support for "globalisation"?
3. The recession was deeper than the IMF expected: for the rest of us, not so much. This is related to their ridiculous assumptions about "multipliers" which they now admit are flat out wrong. But you do not make mistakes like that if you think instead of using models based on stupid ideas about how people behave. The IMF imagines that businesses invest and employ people when they have no customers: it is as simple and as wrong as that. They are not alone. Our own Mr Osborne thinks the same. They say:
QUOTE
Part of the contraction in activity was not directly related to the fiscal adjustment, but rather reflected the absence of a pick-up in private sector growth due to the boost to productivity and improvements in the investment climate that the program hoped would result from structural reforms. Confidence was also badly affected by domestic social and political turmoil and talk of a Greek exit from the euro by European policy-makers. On the other hand, the offset to the fiscal contraction from higher private sector growth that was assumed during the program period appears to have been optimistic …
Amazing, isn't it?
4. Public debt remained too high and eventually had to be restructured, they say. Well according to this paper they knew that in advance. It might be a failure (if you buy their nonsense) but it was one they say they predicted. They went ahead with this programme anyway: but it was not their fault, remember
5. Cutting wages, they believe, improves competitiveness. And that worked, they claim. But it did not improve the economy. However that is not because the theory is wrong: it is because it was not accompanied by productivity gains and there was not enough "structural reform". Think about that. Competitiveness means what? It is not clear. Prices can fall if the same number of workers produce more stuff, for the same capital investment: that is a productivity gain. Prices can fall if fewer workers produce the same amount of stuff for the same capital investment: that is a productivity gain as well. Prices can fall if wages are cut and there is no other change: that is not a productivity gain but if competitiveness is taken to mean lower prices it has the same effect. So why the juxtaposition of better competitiveness but no improvement in productivity, as a source of the problem? Surely it should mean that improvement would be slower, perhaps, but not absent? Yet it is absent. If we are talking about international competitiveness (ie cheaper exports) then the claim of some improvement is a flat out lie, in any case. This is demonstrated by Bill Mitchell, who has looked at the evidence (something which the IMF seldom bothers to do) from the Bank of International Settlements which monitors the Real Effective Exchange Rate: the standard measure of international competitiveness.
QUOTE
the real effective exchange rate for Greece was higher in April 2013 (Index value = 101.6) than in January 2008 (Index value = 100) as the crisis was developing.
A higher rate indicates a loss of competitiveness. What is the evidence which leads the IMF to conclude there has been improved competitiveness in face of this? Listen to the crickets...
The IMF does not alter its view, however. According to them Greece is going to return to "growth" next year. Just like it was going to have better "growth" every year since the intervention. It has not materialised. Indeed it cannot materialise if the IMF believes its own tale: because they forecast that Greek debt to GDP will stay over 100% for the foreseeable future: and as we all know, if that ratio is above 90% growth is damaged. But the IMF can believe any number of inherently contradictory things: like any faith based system.
