IMF policies deepened financial crisis, says CEPR

Policies implemented by the International Monetary Fund (IMF) during the global downturn further exacerbated the crisis in many countries, a leading thinktank said today.

In a paper analysing the IMF's agreements with 41 borrowing countries during the crisis, the Washington-based Centre for Economic and Policy Research (CEPR) found that 31 of the agreements contained so-called "pro-cyclical" macroeconomic policies, which – in the face of a significant slowdown in growth or in a recession – would be expected to exacerbate the downturn.

"In many cases the fund's pro-cyclical policies were based on over-optimistic assumptions about economic growth," said the thinktank. This means the measures proposed were too restrictive for the countries involved and did not produce the longer-lasting economic growth predicted.

In nearly half of the countries that have had at least one review, the IMF's analysts had to lower their previous forecasts of real GDP growth by at least three percentage points, and in a few cases they had to correct forecasts that were at least seven percentage points overestimated. "Most likely there will be more downward revisions to come," the CEPR said.