Austerity and the IMF

In his recent Richard H. Sabot Lecture, Ken Rogoff addresses the question of whether the IMF is guilty of imposing excessive austerity as part of a bailout.  The paper is here.  A summary quote:

I will argue that the simplest and perhaps most cutting version of the IMF austerity charges is simply confused. IMF loans typically relieve austerity; they do not make it worse. IMF support helps a country engage in less procyclical budget contraction than it might have been forced to do otherwise. That said, the IMF’s judgments in calibrating programs involve a huge range of subjective decisions about politics, psychology, and economics, judgments that are difficult to get “right” consistently. Toward the end of my remarks, I will argue that in many respects, the greatest problem with IMF programs is not excessive austerity with debtors but excessive generosity toward creditors.

4 replies on “Austerity and the IMF”

I haven’t read the paper yet, but the excerpt is telling.

The likely outcome of any “bail-out” is that the taxpayer will be saddled with even more debt and that that creditors (the ECB and European banks) will be not be touched.

The debts of our banks should have been restructed two years ago, or at the very least at the beginning of 09, after the Lehman induced crisis had subsided and the full horror of our banks became apparent.

Instead the can was kicked down the road (via NAMA and a refusal to renegotiate any part of the bank guarantee) and here we are again addressing the same crisis.

Now our banks will be bailed out again via overcapitalisation that will be wiped out when mortgages start to hit the fan. The taxpayer will be saddled with even more debt and will either have to endure generations of high taxes and poor services or else there will be another (sovereign) crisis in 3-4 years.

Yesterday’s FT editorial should be heeded – our bank debt should be restructured now and the EU/ECB made to face up to the reality of the situation.

Before people accept austerity – they need to understand why we need to accept less consumption, increased work and a shorter lifespan.
The IMF represents bankers who require interest on loans to live the life they are accustomed too.
Your austerity will not build capital – that is not the IMFs goal , your sacrifice will merely sustain the consumption of other men.
This is a form of hidden slavery – these men merely see us as Gerbils on a great debt wheel – and indeed that is what we are if we accept these men as our saviours.
They are the modern slave masters of our age.

One pungent observation on p17 says it all:

“One final point: the IMF’s arrival means that bond holders are off the hook.”

Investors who fail to price risk properly should never be left off the hook. If it looks to good to be true, it is – and these guys are paid enough to know the difference.

The IMF is walking a fine line in Ireland as allowing the bond holders off the hook will be seen as kicking the Irish in response to Franco-German (and possibly UK) pressure to protect their banks. But it could burnish its reputation by ripping into the inefficient and burdensome non-traded sectors – and gain the respect and gratitude of most Irish citizens.


I agree with you. I examine the perils of IMF involvement here:

If banks are not restructured eg Anglo should have been allowed to fail 2 years ago, and the IMF is put on tap for further bank losses, this may indeed be a pyrrhic victory for the EU and IMF, allowing bondholders off the hook may indeed ensure the collapse of the euro through contagion.

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