Monday, June 9, 2014

Lagarde says IMF "Got it Wrong" on UK

This is an interesting article for a couple of reasons.  On the one hand, it is rare and commendable when a high profile official for a high profile institution admits a mistake in public. On the other hand, it also causes people to question their credibility.

This article relates to a statement by IMF chief Christine Lagarde saying that the IMF was wrong when they questioned the austerity program in the UK a year ago. 

“We got it wrong,” Lagarde told the “Andrew Marr Show” on BBC Television yesterday. “We acknowledged it. Clearly the confidence building that has resulted from the economic policies adopted by the government has surprised many of us.”

Ms. Lagarde seems like someone who is pretty open and honest for the most part. Whether you agree with her views or not, you can admire her willingness here to admit a mistake. This comes right after the election in the UK that probably was surprising to many in the EU and the UK. So perhaps she is trying to reach out to those who are skeptical of global institutions such as the IMF.

The drawback of course is that making a faulty analysis will cause many people to question why they (the IMF) got it wrong. And if they can be trusted to "get it right" the next time. 

All these issues kind of tie together because the world seems somewhat at a crossroads for its monetary system. One path seems to lead to a more prominent role for the IMF in leading a global consensus towards major monetary system change. 

Another path seems to lead towards a competitive situation where the BRIC nations go their own way setup their own institutions. 

Yet another path could lead to further decentralization if the anti-EU feelings that surfaced in the recent elections gains strength. 

In the US, the Republican party seems poised to gain some leverage in Congress making IMF reforms less likely to pass anytime soon and the US less friendly towards the IMF.

Credibility is going to be very important as things go forward in an atmosphere where trust in global institutions is low and looking after individual interests is high. It is hard to pull people together for a common cause at any time. But it is even harder when various factions are splitting power and not invested in sacrificing individual interests for a broader interest. We'll keep an eye on it to see if this leads to a lazy uneventful summer or if some unexpected event shakes things up. So far it seems pretty quiet.

A logical question to ask: 

If we are in a true recovery, why would people want anything major to change?

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