Fatih Özatay, PhD - [Archive]

Things the meeting made me think 10/09/2009 - Viewed 1276 times

I was trying not to write about the top-topic IMF issue as it became highly boring and unpleasant. But, today I will write about the IMF. The reason is: On Monday, I participated in a limited-attendance face to face discussion meeting in Brussels on behalf of TEPAV. Around the rectangular tables, academics, some press members, EU and IMF representatives, some old central bankers and representatives of think-tanks were sitting. Majority of the participants were from Central and East European countries.

I cannot give names due to the meeting rules. However, I am free to convey and interpret the context of discussions. Let me put this first: There was high IMF participation. IMF president and two senior executives were present. Title of the seminar was 'Early lessons from IMF programs implemented in emerging European countries'. There were four main titles: 'Program design and results in general terms'; 'Fiscal policy', 'Monetary, exchange rate and financial sector policies' and 'What is next? Results and exit strategies'.

Meeting was organized like this: first a short presentation, that criticism of the presentation by two debaters, delivering of opinion by the participants around the table and the responses of people delivering the presentation and the debaters. So, this one-day seminar was quite lively.

After the crisis, 15 countries in the region have signed an agreement with the IMF. There is also couple of countries out of the region that signed an agreement, like Pakistan. But a substantial proportion of the countries are European and the majority of these are EU members. This was reflected into the discussions very interestingly: How would the EU and the IMF share the responsibility? What would the EU  if some countries allowing limited fluctuation in their currency unit to enter the Euro zone had to implement flexible exchange rate regime? In fact what did EU say?
But this is not the reason why I opened the IMF issue again: the main theme of the meeting was to what extent the programs implemented after the crisis are flexible and to what extent the criticisms directed to the IMF about the agreements signed in previous crises (particularly in Asian crisis) are taken into account. I would like to underline that the main issue discussed was flexibility; in other words that traditional IMF conditions are not valid in particular considering structural reform. This is clear and striking in new programs. First, when the programs implemented in previous crisis are considered as a whole, countries that signed agreement started to have primary budget surplus after the program. With new programs however, they start to have significant primary deficit. That is, in countries where domestic demand has come to a halt and the economy contracts considerably, the IMF does not ask those countries to tighten the budget immediately. Of course there is a small fiscal tightening in countries with already disrupted budgets compared to the 'without the IMF' case, but consequently budget deficit are still present after the implementation of the project. Second, in old programs, nominal interest rates would increase after the implementation of the problem. However, this is not observable in the case of new programs.

What is more, in the meeting these two features were discussed in the form of 'what is the case in emerging market economies that does not have a program', and of course with evidences. The interesting thing is, both interest rate and budget deficit have evolved almost the same in countries that implement and does not implement the new programs. So, the questions that come to mind are: Why did not Turkey choose to benefit from the flexibility the IMF provided for this crisis? Would Turkey perform better if this way was chosen?


This commentary was published in Radikal daily on 10.09.2009