Den uavhengige ‘vaktbikkja’ til det internasjonal pengefondet, IMF, lanserte sin internrapport nylig, og her noen kommentarer:
Free Exchange, The Economist – The warning signs they missed
LIKE most other government and multilateral agencies, not to mention economists in academia and elsewhere, the IMF entirely failed to see the global crisis coming. This is hardly news, so you might think that yesterday’s internal report into the fund’s performance in the period leading up to the global crisis might have little to offer (unless it tried to whitewash the fund’s failure, which it doesn’t).
Indeed, the report doesn’t offer any particularly startling revelations or novel reasons for why the fund so completely failed to spot any warning signs in its regular surveillance of major economies during 2004-07. But its willingness to provide a list of the (often pretty embarrassing) things the IMF’s reports said in that period still make for pretty interesting—and occasionally, cringe-inducing—reading. Here are some of my favourite bits.
On the American housing market:
In the United States, for example, it did not discuss, until the crisis had already erupted, the deteriorating lending standards for mortgage financing, or adequately assess the risks and impact of a major housing price correction on financial institutions…As late as April 2006, shortly before U.S. housing prices peaked, the WEO and the GFSR explained away the rising share of non-traditional mortgages in the United States thus: “Default rates on residential mortgage loans have been low historically. Together with securitization of the mortgage market, this suggests that the impact of a slowing housing market on the financial sector is likely to be limited.
On the overall message of the fund’s flagship World Economic Outlook:
According to the WEO, the world economic outlook was “among the rosiest” in a decade (April 2004); expected to be “one of its strongest years of growth” unless events take “an awful turn” (September 2004); in the “midst of an extraordinary purple patch” (April 2006); and “strong” (September 2006); all the way up to April 2007 when the report forecast that “world growth will continue to be strong” and opined that global economic risks had declined since September 2006.
Public pronouncements by officials were equally behind the curve:
(A)late as August 2007, Management considered the global economic outlook to be “very favorable.”…Meanwhile,…(in) July 2008…the message was that “risks of a financial tail event have eased.
Even when some of its officials had different ideas, the fund’s management seemed not to be listening. Its then chief economist, Raghuram Rajan, concluded a presentation at the annual Jackson Hole conference of central bankers in 2005 by arguing that “we should be prepared for the low probability but highly costly downturn”. But the IMF now admits that:
Despite the importance of the Economic Counsellor’s position, there was no follow up on Rajan’s analysis and concerns— his views did not influence the IMF’s work program or even the flagship documents issued after the Jackson Hole speech.
In 2006, the fund formed a task force to examine how it could strengthen its financial sector analysis and better integrate this into its annual economic surveillance of individual economies. The report of the task force provided some examples of best practices. Of these, the new report says that “in retrospect, (they) appear completely off the mark”.
Exhibit A: Iceland. The 2006 task force report said that Iceland’s developments from 2003–06 “provide a useful illustration of the importance of a proper analysis of the relationships between financial markets, the financial sector, and the broad economy”. It concluded its discussion of the country by saying, “(I)n Iceland’s case … hedging behavior and generally sound balance sheets and asset-liability management made the financial system relatively robust to the recent shocks.”
The new report blames a number of factors for the fund’s poor surveillance record. Again, these are all things that commentators have identified before, still, here they are from the horse’s mouth: “a high degree of groupthink, intellectual capture, a general mindset that a major financial crisis in large advanced economies was unlikely”.
As the fund’s economists know, incentives matter, and incentives seem to have engendered a general unwillingness to stick one’s neck out and rock the boat.
Staff reported that incentives were geared toward conforming with prevailing IMF views. Several senior staff members felt that expressing strong contrarian views could “ruin one’s career.” Thus, views tended to “gravitate toward the middle” and “our advice becomes procyclical.” Staff saw that conforming assessments were not penalized, even if proven faulty.
Why? One senior staff member asserted that area departments were “unduly captured by countries” that they worked on. Analytical work was geared to “justify” the authorities’ policy proposals. All this was “driven by the agenda of getting on well with” country authorities.
Of course, there was a particular squeamishness when it came to criticising big rich countries:
On financial sector issues, the IMF largely relied on the assessments by the U.S., U.K., and euro area authorities, who were confident about the capacity of their respective financial sectors to absorb the shocks that could arise….Indeed, the IMF often seemed to champion the U.S. financial sector and the authorities’ policies, as its views typically paralleled those of the U.S. Federal Reserve.
Why? Not surprisingly, political capture played a role. The report may provide cause for reflection to those who doubt that the fund’s shareholding structure, with a few big economies in control, makes a difference to its staffers’ recommendations and what they are willing to say.
Self-censorship appeared to be a significant factor even in the absence of overt political pressure. Many staff members believed that there were limits as to how critical they could be regarding the policies of the largest shareholders—that “you cannot speak truth to authorities” since “…you’re owned by these governments.