The IMF’s mea culpa about its wrong assessment of the effects of fiscal austerity in European crisis countries is nice. However, did the IMF really have a new insight? No, not at all. Indeed, already ten years ago, in 2003, the IMF’s Independent Evaluation Office (IEO) published a thorough study about the effects of the IMF’s conditions for fiscal policy in 133 adjustment programs between 1993 and 2001.
In the study, the IEO finds that targets for fiscal consolidation were mostly missed:
On average, programs achieved only about one half of the programmed improvement in overall and primary fiscal balances. […] Overoptimism about fiscal adjustment is partly caused by overoptimism about growth projections. Absolute levels of revenue respond to growth, with shortfalls in growth leading to corresponding shortfalls in revenue.”
In short, fiscal multipliers that measure the impact of fiscal policy on growth were systematically higher than anticipated by the IMF.
However, the IMF did little to adjust those projections on which their fiscal policy advice was based:
[…] programs were generally reluctant to project a slowdown in growth and very rarely projected negative growth. For example, growth slowdowns between the first and second year of the program occurred twice as often as they were projected. Negative growth for the second year of the program was projected in only 1.3 percent of cases, but in reality it happened 10 times as frequently.
Sounds familiar if one follows Greece’s, Portugal’s and Ireland’s experience with austerity, doesn’t it? So, it’s not only that the IMF could have known better; it actually did know better. However, will anybody be held accountable? Who will lose his job for light-heartedly throwing millions of people into misery? Does a “We’re sorry, guys, we actually knew better, but somehow forgot about it” suffice?
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Fabian, good point! See also: http://bilbo.economicoutlook.net/blog/?p=22303