The Grey Chronicles


The World According to IMF

International Monetary Fund issued its recent World Economic Outlook (2009) aptly titled: Crisis and Economy. The four-chapter Outlook is introduced with the following:

“Even with determined steps to return the financial sector to health and continued use of macroeconomic policy levers to support aggregate demand, global activity is projected to contract by 1.3 percent in 2009. This represents the deepest post-World War II recession by far. Moreover, the downturn is truly global: output per capita is projected to decline in countries representing three-quarters of the global economy. Growth is projected to reemerge in 2010, but at 1.9 percent it would be sluggish relative to past recoveries. . . The current outlook is exceptionally uncertain, with risks still weighing on the downside. A key concern is that policies may be insufficient to arrest the negative feedback between deteriorating financial conditions and weakening economies in the face of limited public support for policy actions.”

Chapter 1: Global Prospects and Policies

“The global economy is in a severe recession inflicted by a massive financial crisis and an acute loss of confidence. . . While the rate of contraction is expected to moderate from the second quarter onward, global activity is projected to decline by 1.3 percent in 2009 as a whole before rising modestly during the course of 2010. This turnaround depends on financial authorities acting decisively to restore financial stability and fiscal and monetary policies in the world’s major economies providing sustained strong support for aggregate demand.”

In Box 1.1. Global Business Cycles, IMF states “The global economy is experiencing its deepest downturn in 50 years. Many observers have argued that this downturn has all the features of a global recession. One problem with this debate, however, is that there is little empirical work on global business cycles.” The question is: When was IMF organized? When the world trade was globalized starting 1947, these great economists should have studied the effect of globalization to business cycles. Or is this the effect of the fact that IMF serves developed countries (lenders) more rather than others (borrowers)? Every economic downturn is incredibly different, thus what insights gained in past economic crises would not necessarily mean applicability to a future one (see Bustelo, 2000). Remember the Asian Financial Crises, it was only a decade ago, yet IMF is apparently lame in dealing with another crises. Again!

Chapter 2: Country and Regional Perspectives

“The United States is at the epicenter of the crisis, and is in the midst of a severe recession that has resulted from a squeeze on credit, sharp falls in housing and equity prices, and high uncertainty. These three shocks are to varying degrees also affecting the rest of the world. Asia had little exposure to U.S. mortgage-related assets but is being badly affected by the slump in global trade, given its heavy dependence on manufacturing exports.”

Referring to the Statistical Appendix Table A4. [p. 195], IMF projects that the Real GDP for the Philippines would be zero in 2009; 1.0 in 2010 and 5.0 in 2014. Compare these percentage changes for 2007 at 7.2 and for 2008 at 4.6. The zero means that even though Emerging Asia is projected to grow 4.8% this year, the Philippines will not be contributing to that growth!

Chapter 3: From Recession to Recovery: How Soon and How Strong?

“ . . . The results suggest that recessions associated with financial crises tend to be unusually severe and their recoveries typically slow. Similarly, globally synchronized recessions are often long and deep, and recoveries from these recessions are generally weak. Countercyclical monetary policy can help shorten recessions, but its effectiveness is limited in financial crises. By contrast, expansionary fiscal policy seems particularly effective in shortening recessions associated with financial crises and boosting recoveries. However, its effectiveness is a decreasing function of the level of public debt. These findings suggest the current recession is likely to be unusually long and severe and the recovery sluggish. However, strong countercyclical policy action, combined with the restoration of confidence in the financial sector, could help move the recovery forward.”

Although I am not an economist, but I would ask: Is the current global economic crises a ‘writing on the wall’ for a meticulous look at the monetary and fiscal policies in this era of globalization? Maybe these IMF economists should heed other alternatives suggested by those outside of IMF. Predictably, IMF would not do that! Read Hardev Kaur’s article for Business Times, Malaysia.

Chapter 4: How Linkages Fuel the Fire: The Transmission of Financial Stress from Advanced to Emerging Economies

“Crises in advanced economies have a large common effect on the banking sectors, stock markets, and foreign exchange markets of emerging economies. There is also a sizable country-specific effect, which appears to be magnified by the intensity of financial linkages. . . Given the current banking crises in advanced economies, reductions in banking flows to emerging economies could be large and long-lasting. The major negative spillovers and repercussions of this for both advanced and emerging economies argue for a coordinated policy response.”

Is this saying that globalization, particularly financial liberation, is a bad thing? And pray tell who would coordinate these policy response? It will be IMF, of course. Joseph Stiglitz comes to mind.


Bustelo, Pablo (2000). Novelties of Financial Crises in the 1990s and the Search for New Indicators. Emerging Markets Review (Elsevier), 1:3, 2000, pp. 229-51. back to text

International Monetary Fund [IMF] (2009). Article, World Economic Outlook: Crisis and Economy. Washington: International Monetary Fund, April 2009. 228pp. back to text

Disclaimer: The posts on this site does not necessarily represent any organization’s positions, strategies or opinions; and unless otherwise expressly stated, are licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 Philippines License.


1 Comment »

  1. From Keynes (New Deal), to Friedman (Neoliberalism), back to Keynes (global financial crisis)… where next?

    Comment by truthmerchant — 2009.November.3 @ 15:38 | Reply

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