SEPTEMBER 28, 2009
IMF Says It Battled Crisis Well
By BOB DAVIS
WASHINGTON -- The International Monetary Fund, in a broad self-evaluation, said it acted effectively in combating the global recession, especially in Eastern Europe, a finding that is bound to deepen the debate on the IMF's crisis-fighting abilities.
"Fund-supported programs are helping countries weather the worst of the crisis," the IMF report concluded, saying it was "remarkable" that countries with IMF loans have so far avoided banking crises.
The review covers 15 IMF loan programs approved since September 2008. In that time frame, the IMF said, it has made available $163 billion in financing.
The IMF has long been criticized for driving too hard a bargain for emergency loans, requiring countries to privatize industries, liberalize markets and sharply tighten budget deficits -- and for sometimes making the economic situation worse. The scars are especially deep in Asia, where few countries have turned to the IMF since the Asian crisis a decade ago. Instead, many countries have built up huge financial reserves to weather downturns.
But the report's self-congratulatory tone is likely to rankle in crisis-racked countries. A report released before the IMF study by the Center for Economic and Policy Research, a left-leaning think tank in Washington, D.C., said the IMF didn't let countries looking for loans expand their deficits sufficiently.
"The IMF, especially with its vastly expanded resources, is capable of providing the necessary foreign exchange to allow for counter-cyclical policies" -- that is, fiscal stimulus -- said the center's report.
The IMF said it has learned from its critics and now requires far fewer changes in policy, and less fiscal and monetary tightening. That's made it easier for countries to adjust to the downturn, the IMF report argued.
Nevertheless, the IMF hasn't written blank checks. While it urged the U.S., Western European countries and China to run deficits to stimulate their economies, countries in Eastern Europe were required to pull back on spending, sometimes sharply. The IMF argues that the Eastern European nations were already heavily indebted and couldn't afford to deepen their deficits as much as better-financed countries.
The current crisis challenged the IMF's traditional policy advice of boosting interest rates, slashing deficits and reducing trade barriers in an effort to devalue currencies and increase exports from developing nations to wealthier ones. This time, the economic problems originated in the U.S. and Europe and spread to Eastern Europe, which suffered from a contraction in trade and foreign investment. So helping developing countries make their export sector more competitive wasn't sufficient.
This time, in large measure, the IMF has tried to help developing nations weather the global economic storm. So it has been less tough than in the past on fiscal and monetary matters.
The IMF said Latvia, Iceland and Ukraine "face the greatest difficulties going forward" of countries in Europe for different reasons. Latvia keeps its currency tightly linked to the euro, thus ruling out devaluation as a policy choice. Iceland has a huge external debt burden, and Ukraine remains torn by political infighting.
Write to Bob Davis at bob.davis@wsj.com
IMF Says It Battled Crisis Well
By BOB DAVIS
WASHINGTON -- The International Monetary Fund, in a broad self-evaluation, said it acted effectively in combating the global recession, especially in Eastern Europe, a finding that is bound to deepen the debate on the IMF's crisis-fighting abilities.
"Fund-supported programs are helping countries weather the worst of the crisis," the IMF report concluded, saying it was "remarkable" that countries with IMF loans have so far avoided banking crises.
The review covers 15 IMF loan programs approved since September 2008. In that time frame, the IMF said, it has made available $163 billion in financing.
The IMF has long been criticized for driving too hard a bargain for emergency loans, requiring countries to privatize industries, liberalize markets and sharply tighten budget deficits -- and for sometimes making the economic situation worse. The scars are especially deep in Asia, where few countries have turned to the IMF since the Asian crisis a decade ago. Instead, many countries have built up huge financial reserves to weather downturns.
But the report's self-congratulatory tone is likely to rankle in crisis-racked countries. A report released before the IMF study by the Center for Economic and Policy Research, a left-leaning think tank in Washington, D.C., said the IMF didn't let countries looking for loans expand their deficits sufficiently.
"The IMF, especially with its vastly expanded resources, is capable of providing the necessary foreign exchange to allow for counter-cyclical policies" -- that is, fiscal stimulus -- said the center's report.
The IMF said it has learned from its critics and now requires far fewer changes in policy, and less fiscal and monetary tightening. That's made it easier for countries to adjust to the downturn, the IMF report argued.
Nevertheless, the IMF hasn't written blank checks. While it urged the U.S., Western European countries and China to run deficits to stimulate their economies, countries in Eastern Europe were required to pull back on spending, sometimes sharply. The IMF argues that the Eastern European nations were already heavily indebted and couldn't afford to deepen their deficits as much as better-financed countries.
The current crisis challenged the IMF's traditional policy advice of boosting interest rates, slashing deficits and reducing trade barriers in an effort to devalue currencies and increase exports from developing nations to wealthier ones. This time, the economic problems originated in the U.S. and Europe and spread to Eastern Europe, which suffered from a contraction in trade and foreign investment. So helping developing countries make their export sector more competitive wasn't sufficient.
This time, in large measure, the IMF has tried to help developing nations weather the global economic storm. So it has been less tough than in the past on fiscal and monetary matters.
The IMF said Latvia, Iceland and Ukraine "face the greatest difficulties going forward" of countries in Europe for different reasons. Latvia keeps its currency tightly linked to the euro, thus ruling out devaluation as a policy choice. Iceland has a huge external debt burden, and Ukraine remains torn by political infighting.
Write to Bob Davis at bob.davis@wsj.com