Ilene Grabel: Internal report critiques IMF methods and analysis as IMF relationship with developing world changes
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I’m Paul Jay in Baltimore. And we’re continuing our discussion with Ilene Grabel, who now joins us again from Denver.
Ilene’s a professor of international finance at the Josef Korbel School of International Studies at the University of Denver.
Thanks for joining us again.
ILENE GRABEL, PROF. INTERNATIONAL FINANCE, UNIV. OF DENVER: Thank you.
JAY: So we were talking about the IMF and this internal report that critiqued the IMF, essentially for being hypocritical criticizing China, particularly, some other countries, developing countries, for trying to keep theirâ€”manipulating their currency rate to keep it lowâ€”they are accused of doing thatâ€”and not saying any critical words about other countries, for example the United States, who did exactly the same thing with quantitative easing.
But there are some other interesting things in the report. So what else is there?
GRABEL: Well, something else which is really fascinating about the report is that the report indicts the technical capabilities of IMF economists in one particular way. Since 2011, during the time when the IMF became really obsessed with this matter of excess reserve accumulation, its staffed developed a metric, essentially a measurement to tell them when countries have too many official reserves. And the new Independent Evaluation Office report indicts the quality of the IMF’s own measurement techniques, suggesting that there is no academic basis for the measurement techniques that the IMF actually uses in order to make a case that countries have accumulated official reserves.
That’s something which is not terribly surprising to a lot of IMF critics, who have on many different occasions over the last many years indicted the IMF’sâ€”just the quality of its work and whether its economists really can measure the kinds of things that they say that they can measure and develop policy advice on the basis of those metrics.
JAY: Right, ’cause you’re going to use the word excessive, you’ve got to have some measurement what’s excessive. And if the math don’t work, then it’s just some opinion, their saying it’s excessive.
GRABEL: Exactly. Exactly. And it takes away the claim that this excess reserve accumulation is something that could really be objectively measured by the IMF. They don’t actually have a metric that allows them to do so, even though they pretend that that’s the case.
JAY: And I guess part of the reason the IMF doesn’t like this is these countries don’t have to borrow any money from the IMF, so they don’t have to listen to whatever the IMF says anyway.
GRABEL: Exactly. And some of these same countries now have actually come to lend money to the IMF during the crisis. There have been two occasions during the global financial crisis when developing countries for the first time in the history of the IMF have actually started to lend money to the IMF rather than borrowing money from the IMF. And that’s really shaking things up at the institution.
JAY: Well, in that case they probably weren’t so concerned about those excessive reserves.
GRABEL: That’s right. That’s right.
JAY: Now, how was this report met with within the IMF? I assume not with open arms.
GRABEL: Right. I think things have probably gotten a bit chilly in the cafeteria at the IMF. Indeed, right after the independent evaluation report came out, the IMF’s managing director, Christine Lagarde, issued a really blistering written indictment of this report. And then a group of IMF staff also issued a blistering indictment of the report, arguing that it wasn’t evenhanded, that it didn’t take into account certain things that the IMF thinks of as important.
And I think really this kind of firestorm that the report has created at the IMF is an indication that its own internal auditing department put its finger on a very important problem at the fund.
JAY: Was there any legitimate critique of the report by the IMF leadership?
GRABEL: No. To my reading of the two responses to this report, there’s a real defensiveness in the IMF’s response. Managing director Christine Lagarde goes out of her way to thank the IEO for its work and for raising important issues, and then proceeds to dismiss the report and the motivations behind the report. And she suggests, as does the IMF staff response, that the report has other motivations. It’s just referenced obliquely in their responses, but they suggest that some countries may have had undue influence in the IEO report.
JAY: So what are they getting at?
GRABEL: Well, I think they’re getting at the fact that some developing countries really have taken on new roles at the IMF as lenders to the IMF as countries that have really done very well during the global financial crisis, and they’re starting to stretch their legs a bit and challenge the IMF. And I think the IMF’s response to this report is suggestive of the discomfort with what’s starting to look like a changing balance of power in the global economy, and something that we’re seeing also playing out within the IMF itself.
JAY: And just to be clear, who commissioned this report? Like, who did this? Is this a third party or not?
GRABEL: No, it’s actually an independent unit within the IMF that’s called the Independent Evaluation Office. It’s physically housed within the IMF, but it conducts independent evaluations. And over the last many years, this office has issued many reports which have been very critical of the IMF’s own research. There was a [incompr.] on the quality of the IMF’s advice in the years leading up to the global financial crisis just about a year ago. There was [incompr.] IMF’s work in Sub-Saharan Africa; another about the consistency or lack of consistency in the IMF’s work on capital account liberalization in developing countries and post-communist countries. And all of these reports have been very refreshing for their honest and critical evaluation of the IMF’s own work.
JAY: Can we back up to one other issue? I just want to back up to sort of the overriding big issue here. Is any of the critique that comes from the United States of China legitimate, the critique that China is deliberately keeping their currency lower than it should be if it was a fairâ€”I don’t knowâ€”whatever market value would be?
GRABEL: Well, you know, I think it’s undeniable that China does manage the value of its currency with the goal of keeping it depreciated so as to promote exports and employment in China. That’s clearly been a big feature of China’s economic policy for several decades.
Now, over the last few years, China has started very, very gradually to allow its currency to appreciate. It’s appreciated by about 15Â percent over the last two years. So in fact some of the concerns that the U.S. Treasury has long had about China’s currency are actually starting to be ameliorated by China’s own very gradual movement toward currency appreciation. It’s been a very slow process.
JAY: Does that mean that China buys a little less U.S. dollars than it might have otherwise?
GRABEL: Yes, and that it’s buying a little bit more of some other countries’ currencies. It’s cut back a bit on its purchases of U.S. dollars and U.S. Treasury bonds and has started to purchase some other currencies, like euros, like yen, for example. So it’s diversified its currency holdings a bit.
JAY: This isn’t because they have lack of confidence in the U.S. dollar; this is to take off some of the pressure from the U.S. that they’re keeping their own currency too low.
GRABEL: You know, that may be part of it. And I think part of it may well have to do with some well-founded concerns about the future of the U.S. economy. Chinese economic officials are very cautious in general, and they have some good reason to worry about the U.S., with all of our different rounds of the fiscal cliff negotiations, the sequestering discussions, the potential to really downgrade U.S. government bonds. It may be the case that some of this is motivated by worries about getting stuck with a huge pile of dollars and Treasury bonds that in the future might be worth at least a little bit less.
JAY: Right. And that may be partly what the U.S. wants is to make sure that they’re worth a little bit less, ’cause President Obama, you know, in his various speechesâ€”the last one not so much, but previous ones, it’s all about promoting U.S. exports.
GRABEL: Yes, exactly. Exactly.
JAY: Alright. Thanks for joining us, Ilene.
GRABEL: Thank you.
JAY: And thank you for joining us on The Real News Network.
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