IMF’s New Greek Austerity Mea Culpa



108FB41D8ED614C44EFFE6907DF818C2The International Monetary Fund, in a new working paper, has admitted again it vastly underestimated the crushing effects of austerity on Greece even as it said it’s going to insist on more.

The IMF last year tried to distance itself from a similar internal finding in the agency that said deep pay cuts, tax hikes and slashed pensions had seriously backfired and driven down expected tax revenues while creating record unemployment and pushed 20 percent of people into poverty level incomes.

But the IMF said its methods in calculating the effects of austerity was not wrong although the result was. It said an incorrect mathematical multiplier was not the main reason for a worsening recession in Greece, but that the agency overestimated the growth potential of a country whose economy was shrinking nearly 25 percent over four years. It didn’t explain the contradiction.

In the paper entitled Assessing the Impact and Phasing of Multi-year Fiscal Adjustment: A General Framework, the IMF technocrats cite a series of factors because of whom their predictions were not confirmed. They also blamed Greek governments for not pressing reforms faster as well as social unrest and political instability instead of the IMF’s formulas.

“We had more than needed optimistic about the growth prospects of Greece. This, and not to the wrong multiplier can be attributed the impact that austerity had in recession,” the paper stated without explaining why it didn’t properly factor growth estimates into its thinking.

“In our optimism for the growth prospects of Greece rather than the wrong multiplier due to an underestimation of the impact of austerity recession,” the report said while adding that using a higher multiplier would not improve the results of any growth predictions.

Critics of the IMF have said its lending programs have done more damage than good around the world and questioned why its economists and staff have been so frequently wrong.

The full paper (in English) is available here.