Why the IMF peddles bad policy

It's not just the Left which should have a gripe with the IMF, writes Dan Mitchell from the Cato Institute.

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IMF HQ in Washington
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Daniel J. Mitchell
On 26 June 2011 06:14

As a general rule, the bureaucrats at the International Monetary Fund are not awful people or fire-breathing leftists. But they are voices for the establishment. And, at the upper levels, IMF staff seem overly solicitous of the views of the big nations, which means that they are indirectly attentive to interest groups (such as big banks) that have political power in those big nations.

This helps explain why the IMF is so intent on providing bailouts to Greece when it would be far better in the long run to cut the country loose and force the Greek people to realize that there is not a never-ending supply of subsidies to support statism.

But it’s not just in Greece where the IMF peddles bad policy. I wrote back in 2009 about the IMF’s efforts to repeal the flat tax in Latvia. And I’ve posted about the IMF’s support for anti-tax competition schemes that would enable bigger government.

I guess we need to give the bureaucrats credit for being consistent. The IMF is now pushing Albania to increase its flat tax rate. Here’s an excerpt from the Albanianeconomy.com website.

“The flat tax can be raised to 12-15 percent, [from the current 10 percent] as a way to cut the deficit and the stock of public debt,” IMF representative Gerwin Bell said on Thursday in a joint press conference with Albania’s Minister of Finance Ridvan Bode and the Governor of Albania’s Central Bank, Ardian Fullani.

To reiterate my earlier point, however, the IMF produces muddled advice, not bad advice. The bureaucrats also are recommending some budgetary restraint for Albania. The problem, of course, is that politicians often accept the suggestions for higher taxes and never bother with fiscal restraint. Indeed, IMF bailout funds for places such as Greece are substitutes for fiscal restraint.

Daniel J. Mitchell is a Senior Fellow at the Cato Institute, the free-market, Washington D.C. think tank. This piece is cross-posted by agreement on his blog.

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