An International Monetary Fund (IMF) Report Admits the Need to Rethink Some Practices

According to a recent report by three IMF Researchers, IMF policies may not contribute to growth and may increase inequality.

FYI: The IMF lends money to nations in need, following a “neoliberal” agenda, which means that the nations must adopt capitalist economic practices, specifically increase competition, deregulate financial markets, and shrink the role of the state in economic matters.

Here is an excerpt from the report:

There is much to cheer in the neoliberal agenda. The expansion of global trade has rescued millions from abject poverty. Foreign direct investment has often been a way to transfer technology and know-how to developing economies. Privatization of state-owned enterprises has in many instances led to more efficient provision of services and lowered the fiscal burden on governments.­

However, there are aspects of the neoliberal agenda that have not delivered as expected. Our assessment of the agenda is confined to the effects of two policies: removing restrictions on the movement of capital across a country’s borders (so-called capital account liberalization); and fiscal consolidation, sometimes called “austerity,” which is shorthand for policies to reduce fiscal deficits and debt levels. An assessment of these specific policies (rather than the broad neoliberal agenda) reaches three disquieting conclusions:

•The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries.­

•The costs in terms of increased inequality are prominent. Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.­

•Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.­

To read the entire report, “Neoliberalism: Oversold” by IMF researchers Jonathan D. Ostry, Prakash Loungani, and Davide Furceri click here.

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