Are I.M.F. Forecasts Influenced by Politics?

Yes, according to Axel Dreher, a Swiss economist, Silvia Marchesi, an Italian economist, and James Raymond Vreeland of Yale.

Some excerpts from the conclusion of their working paper:

Following the East Asian financial crisis in the late 1990s, calls came from across the political spectrum for the IMF to get out of the lending business. The calls were heard. These days lending is way down at the IMF. Emerging market countries are finding alternatives to IMF loans that are not tied to IMF policy conditions. The IMF finds itself tightening its belt as the revenue it has generated in the past from lending is beginning to dry up. Like many times in its past, the IMF is looking for a new primary purpose...

The IMF's new raison d'etre appears to be surveillance. Already accounting for the largest part of its budgetary resources...

Past lending activities of the IMF have been plagued by political problems, both international and domestic. These problems contributed to the disappointing results that prompted calls for the IMF to cut back its lending activities. As the IMF shifts focus from "lender" to "monitor," it is important to ask whether political problems will plague this activity of the IMF as well.

Using panel data for a maximum of 157 countries over the period 1999-2005, we have empirically investigated the politics involved in IMF economic forecasts. We find a systematic bias in growth and inflation forecasts. Our results indicate that countries voting in line with the US in the UN General Assembly receive better inflation and - depending on the sample of countries included in the analysis - growth forecasts. As the US is the Fund's major shareholder this result supports the hypothesis that the Fund's forecasts are not purely based on economic considerations.

So how would this influence work? The researchers say it's an open question as to whether a powerful country is explicitly pressuring the I.M.F. or whether the Fund recognizes the powerful country's preferences and adjusts accordingly, "hoping to please the most important funders of the IMF."

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