Should-Read: Charles Wyplosz: When the IMF Evaluates the IMF

Should-Read: Charles Wyplosz: When the IMF Evaluates the IMF: “Two critical mistakes are not mentioned…

…Debt Sustainability Analysis…. As with all compounding exercises over long horizons, the results are extremely sensitive to small changes in the assumptions. The debt path, therefore, is no more than the unstable representation of assumptions, as are the benchmarks (Wyplosz 2011)…. Zettelmeyer et al. (2017) show that the confidence intervals are very wide, casting doubt on whether any policy conclusion can be drawn from DSA. Sadly, there is no hint in the report that the Fund is ready to question this procedure….

Preventing the crisis was therefore in the interest of a large number of important countries, which raises the issue of burden sharing…. Instead, as we know, Greece was instructed to borrow, which means that the burden has fallen entirely on its taxpayers. The burden is so heavy that the IMF now calls for a debt reduction, which would be ex post burden sharing. As the world’s benevolent referee, it should have refused ex ante to be complicit and part of such an imbalanced approach. The issue of burden sharing is not even mentioned in the report….

The IMF must be commended for imposing self-evaluation reports upon itself…. The fact that self-evaluation occurs and that the report is made public deserves to be commended. The procedure should be a model for the two other Troika institutions, the European Commission and the ECB. Most regrettably, self-evaluation is not part of their institutional culture. They seem to follow the prescription attributed to Napoleon: “In politics never retreat, never retract, never admit a mistake”.