IMF: A Demon or a Saint?

14. janvāris, 2010


Vjačeslavs Dombrovskis

This post is inspired by yesterday's conference "Latvija uz Sliekšņa" (Latvia on the Verge) organized by a somewhat mysterious National Resources Institute (NRI). The keynote speaker was Mark Weisbrot of a Center for Economic and Policy Research (CEPR), which, according to the conference invitation, is "one of Washington's two most cited think-tanks" (wow! I will get to this later). The opening speech was given by noone less than Prime Minister Dombrovskis. Let me make two observations here.

My first observation is about the degree of provincialism in this country. What is this CEPR, that was presented to us with such a great pompousness? Some made a mistake of confusing this Washington-based think-tank, founded in 1999, with London-based Centre for Economic Policy Research, a network of European economists founded in 1983. This latter CEPR is often viewed as Europe’s NBER, a very well known and respected institution. So, Mark Weisbrot is of www.cepr.net and not www.cepr.org. Needless to say, I am a bit suspicious of an institution that names itself after a well-known institution. So how reputable is Washington-based CEPR? Hard to say, but that “one of Washington’s two most-cited think tanks” stuff is, at best, a huge typo. According to Wikipedia, “CEPR ranked first or second for cost effectiveness in 2004-2008 among the 25 most widely-cited think-tanks, in terms of media citations and web traffic per dollar of budget. On its 2006 budget of $1.3m, CEPR achieved 197 media citations.” [emphasis mine]. What does this mean? Its efficiency notwithstanding, CEPR is fairly small for a U.S. think-tank. For comparison, Cato Institute’s (another think tank) 2008 budget was $24 million. Brookings institution’s (a more well-known think tank) 2009 budget was $80 million. Further, CEPR is also known to regularly criticize IMF. How do I know this? I googled it in less than five minutes! Now here comes the question. Would Prime Minister Dombrovskis agree to give an opening speech at a conference organized by an obscure, almost never previously heard of National Resource Institute and a tiny Washington think tank known for its proclivity to bash IMF policies? I doubt it. Couldn’t anyone at his office make an elementary background check? I also wonder how many journalists would connect the dots in their reporting of this event.

My second observation concerns the IMF-bashing itself. I am not really talking about Mr. Weisbrot. His major criicism of IMF’s policy in Latvia was leveled at allowing to keep the exchange rate peg. That’s kind of funny, because it’s quite obvious that IMF never wanted to keep the peg in the first place. It (grudgingly) agreed because the Latvian government and the European Commission were so keen to keep the peg. But lets leave Mr Weisbort alone. What I am really talking about is the demonising of the IMF that seems to be so popular in Latvia these days. For example, today’s Dienas Bizness featured a cartoon with IMF being a horned demon. Is IMF really engaged in a vast conspiracy against developing countries and Latvia specifically? Lets examine this Second addendum to the Memorandum of Understanding between European Community and the Republic of Latvia (which is probably largely drafted by the IMF) that is so much talked about lately. What is it that the IMF wants from us? Well, there is a whole list, actually:

  • Their main demand is that we live according to our means! How very wicked! How dare they tell us we can’t pile ourselves up with more debt and run around with budget deficits of around one tenth of GDP??!
  • They want us to “put in place effective sanction procedures for individual misuses of public funds” by public officials. How cruel! Doesn’t IMF have any pity of our bureacrats?
  • They want us to prepare “a new Fiscal Responsibility Law”, and “perform analysis of all functions and services provided by the public institutions…”. What? They want us to perform an “analysis”, like to actually start thinking? How fiendish…
  • They want us to “improve effectiveness and scope of public procurement, including by applying standardized methodologies and guidelines… centralizing public and municipality procurements….”. Wait a second! How do they think our businessmen and public officials are supposed to rig public procurement contracts??! How mischievous!
  • They want “the Government… to discontinue interest payments on subordinate debt contracted by Parex Banka prior to the government’s entry into the bank’s capital.” Oh no… They can’t mean those Mr. Kargin’s and Mr. Krasovickis’ deposits at Parex, can they? Well that would be really evil! How dare they impoverish our oligarchs?!
  • There are many more monstrous strings attached to the IMF/EC loan. Help for the unemployed, effective absorbtion of EU funds, help for the small businesses,fighting shadow economy, reducing administrative barriers to businesses, etc.
  • But let me stop fooling around and summarize my thoughts here. I think IMF’s presence is a blessing for us. IMF knows that the best way to get their money back is to put a country on the fast track to growth and this requires reforms. Sometimes these reforms can be quite painful – often not so much to the general population as to some elements of the political elite, which find the old ways extremely lucrative. When Latvia would return to the sustainable economic growth path, it would be largely thanks to the IMF dragging us through the reforms, while we are screaming and kicking and cursing like children caught up in a nasty tantrum. The truth is that this is as close to good governance as we would get in the near future. Too bad we can only get these guys at a price of a nasty economic crisis. They should visit more often.

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