I love it, open hunting season on the IMF!
http://www.ft.com/cms/s/0/0e32e292-3092-11e0-9de3-00144feabdc0.html#axzz1DYr8spgZ
Lessons from IMF’s Egypt blunder
By John Dizard
Published: February 6 2011 09:41 | Last updated: February 6 2011 09:41
Some people in Frankfurt and Brussels have greater faith than I in the value of multilateral oversight of stressed euro area countries. Let’s consider how well the International Monetary Fund did on predicting the current toxic mess in Egypt.
By now we have heard enough street interviews with articulate Egyptian rebels to know they are driven to desperation by economic and social stagnation. The last straws were, apparently, the recent rise in food prices, and the example of their Tunisian neighbours.
The risk of a social explosion would have been obvious to educated observers with inside knowledge of the local economy, right?
Not to the IMF. Take a look at its last Country Report on Egypt, published in April of last year. Strictly speaking, it is a “staff report” on the Article IV annual consultations with the Egyptian authorities that had ended on February 16, rather than an opinion of the IMF’s executive board. So it is both authoritative-sounding, yet deniable at any convenient point in the future, the ideal for an international bureaucratic statement.
The first point the report makes is that “Sustained and wide-ranging reforms since 2004 had reduced fiscal, monetary and external vulnerabilities, and improved the investment climate. These bolstered the economy’s durability, and provided breathing space for appropriate policy responses”.
In the previous year, the staff collectively goes on, “economic performance was better than expected, although headline inflation remains elevated . . . as the recovery gains strength, the focus of policies can shift back toward fiscal consolidation and other growth-oriented reforms”.
Not that the all-seeing Fund didn’t anticipate some possible future problems. As the report cautions: “Capital inflows, if continued, will complicate monetary policymaking.” This “real appreciation driven by short-term capital flows could weaken medium-term growth prospects”. Somehow, I think, Egypt is going to avoid the problem of excessive capital inflows in the short term. But thanks for the thought.
These aren’t quibbles about minor inaccuracies, or arguable ideological differences. There were imminent, overwhelming problems that either evaded the IMF’s attention, or that it chose not to report. So European leaders might want to reconsider whether they can depend on the IMF to act as a monitor, let alone arbiter, of good macroeconomic policy for member states.
