By: Zach Wojtowicz
The IMF released this report just as Romanian Prime Minister Emil Boc resigned over irrepressible riots:
Feb. 6, 2012 – “Staff teams from the Wold Bank (WB), European Commission (EC) and the International Monetary Fund (IMF) visited Bucharest from January 24 until February 6 for the regular review of Romania’s economic program… The teams’ assessment is that the program remains on track. All IMF quantitative performance criteria for end-December were met.”
These protests, which were sparked by government pay cuts and tax increases, quickly grew into a full scale uproar. Marchers threw bricks and stones at police, actions that led to the use of suppressive tear gas and other measures. Several protesters were injured, but, for their efforts, they achieved a collapse of the government.
But consider the a fundamental disconnect between the IMF’s report, which was issued by a special committee in a well-paneled board room, and the sentiments of the Romanian people, which were issued by way of projectile in the streets of Bucharest. Yes, the financial report addresses the “current account deficit”, “average capital adequacy ratio”, “cash deficit”, and other economic indicators. These are all fine and well, they represent important tools of assessment, but “quantitative performance criteria for end-December” cannot possibly hope to fully reflect the country’s prospects.
For one, they are trailing indicators, which inherently means they reflect past performance. An effective forecast requires consideration of all available information, even present political events. No one thought this recent but severe popular reaction to IMF austerity measures would catch fire so quickly, and the collapse of the sitting government was even more surprising. These political developments are as critical to macroeconomic performance as past macroeconomic performance. Think about it: will the economy move forward if workers are in the streets instead of at their jobs? The IMF should taken into account the political repercussions of their actions as they evaluate their success, even if politics cannot always be measured with a ruler.
When asked about this discontentment and political volatility, Romanian IMF liaison Jeffery Franks commented that he “is confident that economic reforms the fund demanded in exchange for the loan would continue, even if the current government steps down.” In this assertion, he is correct. Emil Boc’s successor, former intelligence services head Mihai-Razvan Ungureanu, has promised to “continue the unpopular economic reforms”. However, Franks fails to comment on the beneficence of the policy in a comprehensive manner.
His statements reflect a general tendency to ignore the blatant fact that social affairs such as protests are indicators of severe pain in the populace. By failing to consider both sides of the tradeoff between current pain and the prospect of future GDP growth, international loan agencies such as the IMF often take myopic stances which earn them little trust from the people. If the IMF hopes to gain the cooperation of the working people in countries where it operates, the Fund should recognize their effect on politics. A good start would be to include out-roar from the people in their analysis of the success of their programs. While contemplating all of this they might recall, if just for one moment, the crisp statement of Edward Abby: “growth for the sake of growth is the mantra of a cancer cell.”