07 January 2015

The IMF and Ebola

The debate rumbles on at the Monkey Cage, as Blattman responds to the response by the authors of the Lancet article to his response to their article. I find the debate mostly quite infuriating. To massively oversimplify, what tends to happen when IMF intervention is required is that;

1. Poor country governments spend more than their income for too long
2. They can't find enough people to keep lending them money
3. The IMF comes in as the lender of last resort, quite reasonably tells the government "look, we aren't a commercial lender, we're only lending because we have to, you're going to have to stop spending more than you're bringing in, because that is completely unsustainable"
4. Western academics criticise the IMF for forcing poor countries to cut their spending.

It's a bit like blaming firefighters for causing fires because they are always at the scene of the fire. The IMF isn't some kind of magic money tree. It only gets involved when countries have got themselves into a crisis. 

What complicates this narrative a little is the difference between austerity at home and austerity in poor countries, which are not the same thing. The UK can very happily carry on spending more than its income quite indefinitely, because commercial lenders continue to be very happy to lend enormous amounts at very low interest rates to the UK government, unlike the governments of very small, very poor, fragile states. It is ok and entirely consistent to rail against austerity in the West, and simultaneously support fiscal discipline (not spending more than your income) in poor countries. At least, it is odd to blame the IMF for not letting poor countries spend more than their income indefinitely, when money grows on trees for neither poor country governments nor the IMF.

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