IMF needs to see the bigger picture - that debt can choke off growth
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Version 0 of 1. One moment the International Monetary Fund is a thinktank, musing on economic problems such as the entrenched slow growth that could face developed nations – as it did on Tuesday in some early releases from its spring forecasts (full publication next week). The next moment its role as lender of last resort takes the spotlight – and in that capacity another crunch moment arrives on Thursday when Greece either pays or reneges on €450m (£330m) it owes the Washington-based organisation. This debt, dating back to the highly contentious bailout of Athens by the IMF and Brussels in 2010, is one of a series of payments the Greeks will make with money borrowed from other sources as it rolls over and re-finances €320m of loans to public and private institutions. IMF boss Christine Lagarde would like us all to think that a Venn diagram of these two jobs as thinktank and lender would show little crossover. There are designated teams for each job and each has its own agenda. The crack team of auditors checking that pension payments to retired workers in Greece are valid is, literally, continents apart from the deep-thinking economists on Pennsylvania Avenue. Yet the remedies outlined by the IMF to counter the threat of persistent low growth in Britain and other developed world economies, as documented in that report, show that debt influences growth and in extremis can choke it off. The links need to be made, even if the IMF refuses to do so. In the report - Where are we headed, perspectives on potential output - the IMF says the world’s major economies risk a long period of low growth unless governments do more to overcome the after-effects of the financial crisis and the longer-term problem of ageing populations. Looking forward, the IMF said potential growth in advanced economies was expected to increase slightly from an average of about 1.3% a year in the last six years to 1.6% until 2020, but not reach the 2.25% average seen between 2001 and 2007. Without a switch to policies that spur growth, it argues, governments would struggle to shift their debts. Among the list of policy reforms are demand-side measures such as greater spending on research and development, much–needed infrastructure projects and a greater emphasis on workers’ skills. On the supply side, tax reforms that make work pay. But growth is not the only way to diminish or pay back debts. Cancelling them is another. Banks do it with their worst performing customers. Unfortunately for Greece, the IMF refuses to use the same criteria as Lloyds or RBS would when confronted by a failed business. A couple of years ago the IMF admitted it made mistakes during the Greek bailout and hinted that it would have accepted weaker terms and possibly a debt write off. Now it’s up to its neck in the EU’s austerity politics, it cannot budge. |