Alphaville CommentChristine Lagarde has urged countries to put a brake on austerity measures amid signs that the IMF is becoming increasingly concerned about the impact of government cutbacks on growth. Ms Lagarde, IMF managing director, cautioned against countries front-loading spending cuts and tax increases. “It’s sometimes better to have a bit more time,” she said at the annual meetings of the IMF and the World Bank on Thursday.The fund warned earlier this week that governments around the world had systematically underestimated the damage done to growth by austerity.
That’s from Thursday’s front page story on FT.com. To say it’s a big deal is possibly understating matters. Though, obviously, we had inklings that this sort of thing was to come as soon as the IMF released its latest World Economic Outlook this Tuesday, which highlighted the organisation’s disappointment with the fiscal multiplier effect being larger than previously anticipated.
The fact of the matter is that the IMF has played bad cop to the global economy for generations now, enforcing austerity, conditionality and accountability wherever it goes. And, for the most part, it’s the emerging world that’s suffered most.
Recanting on some of these closely held beliefs, especially now that the bitter medicine is predominantly being applied to the developed world, is awkward to say the least. Some might even say it’s as close to an admission of past wrongs as you will ever get