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Wednesday, April 21, 2010
Chris Giles thinks that we should feel sorry for the International Monetary Fund. When countries can't agree about a contentious macroeconomic issue (like a bank tax), the IMF is asked to study the problem and report back with its findings. As Giles explains, the IMF then "takes it in the neck" for writing a report that (surprise!) some countries don't agree with.
If that weren't bad enough, the IMF is also taking criticism for things that are entirely imaginary. For example, this morning's FT features a comment piece by Kevin Gallagher, entitled "Would the real IMF please stand up?," in which the author takes the IMF to task for endorsing capital controls in a February report, and then changing its mind in an April report. I am toying with the idea of writing Gallagar a letter later today that will read thusly:
"Dearest Mr. Gallagher,
Prior to criticizing the IMF in an internationally-respected newspaper, it would assist your cause if you actually read the $#%*ing reports.
Yours,
IPE Journal"
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Let us break down Gallagher's argument into its component pieces. He begins with the following statement:
"In a landmark report in February the IMF broke its longstanding fixation on capital account liberalisation. In a staff position note the IMF found that temporary controls on capital inflows have been effective and should be an essential part of a nation’s macroeconomic toolkit."
Two problems. First, the position note states explicitly - on the title page - that the views expressed are those of the authors of the note, and not of the IMF or its Executive Board. Surely, Gallagher at least read the title page. Second, the note does not come even close to stating that capital controls are an essential part of the toolkit. The Feb report:
"A key conclusion is that, if the economy is operating near potential, if the level of reserves is adequate, if the exchange rate is not undervalued, and if the flows are likely to be transitory, then use of capital controls—in addition to both prudential and macroeconomic policy—is justified as part of the policy toolkit to manage inflows."
So yea, controls are a justified option so long as you meet a laundry list of other criteria first. Despite what Gallagher suggests, this is a qualified endorsement:
"A significant caveat, however, to the use of capital controls by individual countries, relates to the potential for adverse multilateral consequences. In the present circumstances, global recovery is dependent on macroeconomic policy adjustment in EMEs, which could be undercut by capital controls, notably in cases where currencies are undervalued. Widespread adoption of controls by EMEs could exacerbate global imbalances and slow other needed reforms"
By contrast, Gallagher argues that the April IMF report is "driven more by ideology than rigorous research. The GSFR says capital controls are inefficient, but fails to acknowledge that controls, when designed properly, are seen as second-best instruments to make markets more efficient by correcting distortions." This is, in a word, poppycock. An excerpt from the April report:
"When the available policy options and prudential measures do not appear to be sufficient or cannot provide a timely response to an abrupt or large increase in capital inflows, capital controls may be a useful element in the policy toolkit. However, if the inflows are not temporary, but are driven by more fundamental factors, policymakers should adjust their macroeconomic policies to address the root causes, instead of mitigating the effects of inflows or attempting to limit them through various measures."
There's plenty more in there. Indeed, a careful reading of both reports suggests no difference in the IMF's view of capital controls, which is approving but qualified.
In sum, Gallagher has managed to get himself all worked up over something which is entirely the figment of his own imagination. He provides links, in his own article, to reports that he clearly has not read. And he got published in the FT, to boot.
It really pulls at my heart strings to think of the poor IMF staffers who are subject to such constant abuse. I mean, what good is all that tax-free income if you have to spend it on anti-depressants and alcoholic escapism?
Labels: Blistering Bombast, economia, The Fourth Estate
