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In a review of the IMF’s response, the independent evaluation office praised the fund’s international lending role but attacked the policy advice it gave in 2010 for governments to start cutting their budget deficits.
The criticism revisits one of the most controversial episodes of policy during the crisis: the decision to withdraw fiscal stimulus from the global economy in 2010 when unemployment was still very high. Critics blame the withdrawal of stimulus for slowing the recovery.
The new debate is crucial, because the policy consensus on what happened in 2010 will affect whether and how fiscal stimulus is used in future recessions.
The IMF called for a large, global fiscal stimulus in 2008-09 and its advice was heeded. In the US and UK, governments ran budget deficits larger than 10 per cent of gross domestic product in 2009.
The fund then changed tack and became an important voice validating the UK’s new austerity measures in the summer of 2010 and US moves toward tighter policy that ended in the showdown over the debt ceiling in August 2011.
“IMF advocacy of fiscal consolidation proved to be premature for major advanced economies, as growth projections turned out to be optimistic,” said the evaluation office. It attacked the IMF for worrying about a debt crisis in the US or Japan “even as these countries’ bond yields were falling to historic lows”.