The IMF staff’s thinly veiled shot at Europe

The International Monetary Fund has released the full text of a staff evaluation of the Fund’s extraordinary 2010 loan arrangement for Greece. Excerpts of the report were first published in the Wall Street Journal, and most accounts of the internal report have cast it as an institutional mea culpa. "IMF Concedes Major Missteps," was the New York Times‘ headline. The BBC and the Financial Times both focused on the IMF’s admission of "mistakes."

The report certainly includes elements of self-criticism. It notes, for example, that the Fund bent its own rules to extend unprecedented access to Greece. It acknowledges that the Fund underestimated the impact of drastic spending cuts and didn’t pay adequate attention to whether the program was politically and socially sustainable.

But the report is at least as much a criticism of Europe’s missteps as of the IMF’s. The staff makes clear that it anticipated the program’s flaws:

Staff made it clear that the program supported by the SBA was an ambitious program that was subject to considerable risks. The adjustment needs were huge, reforms would be socially painful, and commitment might flag.

The report notes that Europe wasn’t willing to support debt restructuring in Greece at the time the program was agreed, a move that "could have eased the burden of adjustment on Greece and contributed to a less dramatic contraction in output." It notes pointedly that "the Fund’s program experience and ability to move rapidly in formulating policy recommendations were skills that the European institutions lacked."

Perhaps most fundamentally, the report makes clear that European institutions were often focused on goals other than restoring economic growth in Greece. "From the Fund’s perspective, the EC, with the focus of its reforms more on compliance with EU norms than on growth impact, was not able to contribute much to identifying growth enhancing structural reforms."

My impression is that the IMF staff feel they were pushed into the Greece program by poweful European players (and with U.S. acquiescence), resisted to a degree, but ultimately yielded to a group of powerful countries.  Let’s not forget that the EU members constitute a very large voting bloc on the Fund’s executive board, which must ultimately approve staff recommendations. It’s understandable that the report largely skims over pressure the staff faced from key board members; international bureaucracies rarely bite the (state) hands that feed them. But this staff report at least growls in their direction.    

More: I realized late that Karl Whelan made a similar argument yesterday on the Forbes site:

The report contains two clear messages. Message One: We screwed up. (This is widely accepted outside the IMF but the admission is refreshing all the same.) Message Two: Dealing with the Eurozone countries was impossible and it’s really their fault.

Read the whole post.