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Delusional IMF in the dark

Confusion and disarray is apparent in every national and global capitalist institution – and nowhere more so than in the corridors of the International Monetary Fund. Despite access to confidential data, they don’t really have a clue as to what’s going on.

When Olivier Blanchard, the IMF’s director of the research, introduced its latest World Economic Outlook (WEO) with sombre demeanour and measured words, he wasn’t pulling his punches:

"The global economy has entered a dangerous new phase. The recovery has weakened considerably and downside risks have increased sharply,” he announced. "Fear of the unknown is very high. Stock prices have fallen. These will adversely affect spending and growth in the months to come.”

Blanchard added: "Markets have clearly become more sceptical about the ability of many countries to stabilise their public debt.”

Bad enough.

But in the first paragraph of his foreword to the WEO, in which he calls himself “economic counsellor”, he makes an astonishing admission:

Relative to our previous World Economic Outlook last April, the economic recovery has become much more uncertain. The world economy suffers from the confluence of two adverse developments. The first is a much slower recovery in advanced economies since the beginning of the year, a development we largely failed to perceive as it was happening. The second is a large increase in fiscal and financial uncertainty, which has been particularly pronounced since August.

To repeat – “a development we largely failed to perceive as it was happening”.

With all the resources they have at their disposal, how did they get it so wrong? It surely does no good at all for the reputation of counsellors of all kinds.

With their oft-repeated mantra of a recovery, of a return to growth, the IMF has consistently underestimated the scale of the crisis, and overestimated the ability of governments and central banks to do anything about it.

They have deluded themselves, and they have deluded governments and central banks. In 2008, for example they forecast that the UK economy would fall by 0.1 per cent in 2009 but it actually fell by almost 5%.

Now that the necessity of a global contraction is evident to anyone with even a smattering of an understanding of the limits to growth, the IMF both continues on its delusional path, but is simultaneously forced to change tack.

It has downgraded its economic outlook for the UK, the US and Europe through to the end of next year, effectively pulling the rug from all the deficit reduction plans in the world.

It now predicts that UK gross domestic product will grow just 1.1% in 2011, compared with its April prediction of 1.7%. The US, it says will grow by just 0.4% more than the UK and may already be in recession.

But at the same time it warns that “if growth threatens to slow down substantially”, if activity were to undershoot current expectations, countries like the UK and Germany should “consider delaying some of their planned adjustment”.

Which means, says the IMF, that the UK Coalition, adamant that its brutal austerity programme must stand, will have to think again. Government spending cuts may have to be delayed to avoid a greater catastrophe.

If you or I put up a piece of work like the WEO we’d be out on our ears, but the IMF is accountable to no-one. Its enforcers are due back in Athens next week checking on the government’s progress with cutting wages, putting people out of work, selling off national assets etc etc.

So now it’s time to build alternative, revolutionary governments everywhere, with the power to implement the May 27th vote of the People’s Assembly of Syntagma Square which ends:

We will not leave the squares until those who compelled us to come here, leave the country: the governments, the Troika (EU, ECB, IMF), banks, the IMF Memoranda, and everyone who exploits us. We send them the message that the debt is not ours.

Gerry Gold
Economics editor
21 September 2011

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