Schizophrenia at the IMF
At long last, the International Monetary Fund has begun to recognize that the best way to reduce sovereign debt is by boosting economic growth, rather than insisting on fiscal retrenchment. But this new understanding is being undermined by a lingering adherence to growth-inhibiting austerity policies.
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NEW DELHI – It has taken far too long, but it seems that the International Monetary Fund has finally internalized some hard truths about sovereign-debt reduction. Chief among them is that growing economies have an easier time repaying. As such, fiscal consolidation – the organization’s favored strategy – undermines efforts to reduce debt-to-GDP ratios because it inhibits economic growth.