IMF

[Bradford DeLong]

>Brad DeLong wrote:
>
>>Michael Mussa has some interesting reflections on how the IMF 
>>operates and ought to operate, in the context of the collapse of 
>>the neoliberal model in Argentina...
>>
>>http://www.iie.com/papers/mussa0302-1.htm
>>http://www.iie.com/papers/mussa0302-2.htm
>
>Mussa: "I shall argue that the Fund did make at least two important 
>mistakes in Argentina: (i) in failing to press the Argentine 
>authorities much harder to have a more responsible fiscal policy, 
>especially during the three high growth years following the tequila 
>crisis of 1995; and (ii) in extending substantial additional 
>financial support to Argentina during the summer of 2001, after it 
>had become abundantly clear that the Argentine government's efforts 
>to avoid default and maintain the exchange rate peg had no 
>reasonable chance of success." So the whole problem was they didn't 
>squeeze Argentina hard enough? This, after having praised their 
>fiscal management throughout the 90s?
>
>Doug

Yes, indeed. Mussa believes that (i) if Argentina was going to 
maintain its peg to the dollar, then (ii) the IMF should have forced 
it into budget balance in the late 1990s even in recession: deficit 
spending is too dangerous for a country on the dollar standard.

The lesson I draw from this is that exchange rate pegs are simply too 
dangerous in the modern world...

Brad DeLong