IMF: Oops! We did it again

The IMF is increasingly becoming famous for being international monetary fools - not least for making mistakes, but for failing to learn from them. The latest of IMFs goof ups was found in Greece. "In an internal document marked strictly confidential, the IMF said it badly underestimated the damage that its prescriptions of austerity would do to Greeces economy, which has been mired in recession for the last six years," the Wall Street Journal reported earlier this week.
The fund was reportedly oo optimistic in its growth assumptions - a mistake that it has made time and again in the past. A 2002 report by independent evaluation of the IMF also observed the same. The report titled Evaluation of prolonged use of IMF resources, noted that most programmes for Pakistan, "particularly from 1993 onwards were based on overly optimistic projections as regards key elements as GDP and export growth, as well as regarding the growth of domestic saving and investment."
In the case of Pakistan, other programmes targets were reported to be unrealistically ambitious given the timeframe and the available implementation capacity. The funds programmes were also found to be lacking contingency plans to deal with lower-than-projected growth; they also lacked contingency plans in the case of exogenous factors.
One could sympathise with the IMF on the notion that it must be hard for a global body to know everything about every economy in the world - and that too with accuracy. Well, aside from the fact that the IMF pretends to be Mr. Know-it-all, the problem with the fund is that it has failed time and again in the case of developed economies as well.
Recall, when in September 2006, the famed doomsayer Nouriel Roubini warned the fund of the US-led crisis. After highlighting the loud and looming risks of housing bust, credit crunch and banking crisis, Roubini had not even stepped aside from the podium that the room full of IMFs star economists burst in smirks.
Economists at the IMF who are supposed to be among the best in the world (if not the best given the task on their tables) have also been found wanting in their policy recommendations for the US, which is one of the worlds most documented and well researched economies.
In his book called Globalisation and its Discontents, Nobel laureate Joseph Stiglitz notes that in mid-90s the IMF kept pushing the US Federal Reserve to raise interest rates in defiance of all the data and analysis to the contrary. The Fed chose to ignore IMFs advice, and rightly so as subsequent events confirmed. But, Stiglitz argues, the developing countries, especially those under the IMF programme do not have the luxury to act against IMFs wishes.
These kinds of over optimism and misdiagnosis lead to bad medicines. A 2009 study by the Washington-based Center for Economic and Policy Research discovered that "31 of the 41 agreements contain pro-cyclical macroeconomic policies. These are either pro-cyclical fiscal or monetary policies or both - that, in the face of a significant slowdown in growth or in a recession, would be expected to exacerbate the downturn".
The study titled IMF-Supported Macroeconomic Policies and the World Recession: A Look at Forty-One Borrowing Countries had looked at different IMF agreements including Stand-By Arrangements, Poverty Reduction and Growth Facilities, and Exogenous Shocks Facilities. And "in many cases the funds pro-cyclical policies were based on over-optimistic assumptions about economic growth," the report said. It is said that with age, comes the wisdom of accepting mistakes and learning from them. After nearly seven decades of existence, one would expect the IMF to take a leaf from this dictum.