The International Monetary Fund's top economist said today that the global crisis lender is not abandoning its much-criticized neoliberal approach to boosting economic growth.
The International Monetary Fund’s top economist said today that the global crisis lender is not abandoning its much-criticized neoliberal approach to boosting economic growth.
Responding to an article by three other IMF economists that sparked widespread reports that the Fund was pulling back from a pro-markets, pro-austerity and slim-government agenda, Maurice Obstfeld said the article was “widely misinterpreted”.
Publication of the article last week by the IMF itself “does not signify a major change in the Fund’s approach,” Obstfeld said in an interview released on the Fund’s website.
He said the IMF has engaged in a reassessment of its economic and financial policy approach in the wake of the global financial crisis.
Nevertheless, he said, “that process has not fundamentally changed the core of our approach, which is based on open and competitive markets, robust macro policy frameworks, financial stability, and strong institutions.”
In their article the three economists focused on the IMF’s insistence on austerity — tough spending cuts and other measures that can hurt incomes — for financially troubled governments seeking a bailout from the Fund.
“Instead of delivering growth, some neoliberal policies have increased inequality, in turn jeopardizing durable expansion,” they said.
“Increased inequality in turn hurts the level and sustainability of growth.”
The article offered support to critics in countries like Greece and Portugal that have endured tough IMF-designed austerity programs to straighten out their finances.
But Obstfeld argued that austerity is necessary in many cases.
“Nobody wants needless austerity. We are in favor of fiscal policies that support growth and equity over the long term,” he said.
“Governments simply have to live within their means on a long-term basis, or face some form of debt default, which normally is quite costly for citizens, and especially the poorest.”
“This is a fact, not an ideological position,” he added.
But Obstfeld said the IMF had already embraced another point of the article by the three economists, that the neoliberalist advocacy for free capital movements can damage weak developing economies.
“This is a great example of our trying to learn from experience and let our thinking evolve accordingly,” he said.