Thursday, November 6, 2014

Cornel Ban on doctrine shift in the IMF

In a new Working Paper, GEGI's co-director Cornel Ban discusses recent shifts in IMF doctrinal policy as a result of the financial crisis. He argues that well-informed countries now have more ability to negotiate their fiscal policies and dictate their own terms while utilizing IMF funding. 

These policy shifts are of critical importance to emerging economies that seek to maintain their autonomy while engaging with international 
institutes of finance.


Executive Summary

During the 1980s the IMF emerged as a global "bad cop," demanding harsh austerity measures in countries faced with debt problems. Has the Great Recession changed all that? Is there more room to negotiate with the Fund on fiscal policy?

The answer is yes. If we take a close look at what the IMF researchers say and what its most influential official reports proclaim, then we can see that there has been a more "Keynesian" turn at the Fund. This means that today one can find arguments for less austerity, more growth measures and a fairer social distribution of the burden of fiscal sustainability. The IMF has experienced a major thaw of its fiscal policy doctrine and well-informed member states can use this to their advantage.

These changes do not amount to a paradigm shift, a la Paul Krugman's ideas. Yet crisis-ridden countries that are keen to avoid punishing austerity packages can exploit this doctrinal shift by exploring the policy implications of the IMF's own official fiscal doctrine and staff research.  They can cut less spending, shelter the most disadvantaged, tax more at the top of income distribution and think twice before rushing into a fast austerity package.

This much is clear in all of the Fund's World Economic Outlooks and Global Fiscal Monitors published between 2009 and 2013 with regard to four themes: the main goals of fiscal policy, the basic options for countries with fiscal/without fiscal space, the pace of fiscal consolidation, and the composition of fiscal stimulus and consolidation.

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