IMF report says austerity in Portugal was like “making a dog chase its own tail”

A damning report by an independent body within the IMF has likened the fund’s intervention in Portugal to “making a dog chase its own tail”.

The extraordinarily graphic condemnation will go no way towards smoothing the path of IMF boss Christine Lagarde, who is already facing criminal prosecution for over her handling of a case during her time as French finance minister.

Bloomberg has suggested the prosecution “could hamper her second term as leader of the world’s lender of last resort”.

Thus this second bombshell will add to questions over Lagarde’s performance, irrespective of what it does for the IMF as an institution.

Published today, the report from the Fund’s independent evaluation office explains that “programmes supported by the IMF in Greece and Portugal incorporated overly optimistic projections for growth. More realistic projections would have shown the probable impact of consolidation on the dynamics of growth and debt, and would have allowed the authorities to prepare adequately, and persuaded European partners to consider additional more concessional finance – preserving the credibility of the IMF as an independent, technocratic institution”.

Instead, what was pushed was “extraordinary focus” on budgetary efforts, which “were not well calculated”, writes ionline.

Ionline explains that “the economists did not find any justification for deficit targets being linked to GDP, which contracted more than expected”.

It was a “self-destructive approach, just as much as in the case of a dog chasing its own tail” and one that effectively became “prejudicial to growth and as a corollary an enemy of debt sustainability”.

Picking up the story this afternoon, the UK’s Independent added that “most significantly of all, in a clear indication that the (independent evaluation office) thinks the Fund’s economic forecasts were unduly influenced by national political concerns, it recommends the IMF’s executive board and management should develop procedures to minimize the room for political intervention in the IMF’s technical analysis”.

Reactions to this report are expected in tomorrow’s newspapers.

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