[stop-imf] CEPR: IMF's Overly Optimistic Growth Projections

[Robert Weissman]

September 17, 2003
The Real World Economic Outlook
"Too Sunny In Latin America?
The IMF's Overly Optimistic Growth Projections and Their Consequences"
by Dean Baker and David Rosnick

The Center for Economic and Policy Research is pleased to announce the
release of a new paper, entitled "Too Sunny In Latin America?: The IMF's
Overly Optimistic Growth Projections and Their Consequences" by
economist
and co-director Dean Baker and research associate David Rosnick. We
would
like to share our findings with advocates and policy analysts working on
international finance issues, particularly in light of the IMF's fall
meeting and the release of their World Economic Outlook on September 18, 2003.

This paper examines the track record of the IMF's growth projections for
Latin America over the last two decades and its implications for policy.
The paper finds that The IMF's spring projections for the following
year's
growth in Latin America have been too high in 13 of the last 17 years.
There is very low probability of overstating growth with this frequency
due
to random chance  rather than a systematic bias.  The average
overstatement
of growth during this period is 1.6 percentage points.  An overstatement
of
growth of this magnitude can have serious consequences in both the
short-term and long-term, if it provides a basis for policy. It means,
for
example that if a country can expect 2.0 percent growth in the following
year, then the IMF is likely to project its growth rate as 3.6 percent.

In the short term, the IMF's overly optimistic growth projections may
lead
countries to raise taxes or interest rates, or cut spending, more than
would be appropriate given their actual growth paths.  In the long term,
overly optimistic growth projections may lead countries to follow paths
that they would recognize as unfeasible, if they had more realistic
growth
projections.  In the case of Brazil, the country's current debt burden
is
likely to prove unsustainable if its growth rate ends up being off by
the
IMF's average overstatement for the period examined.

Given the evidence of a systematic upward bias in IMF growth projections
for Latin America, the paper recommends that governments adjust IMF
annual
growth projections downward by 1.6 percentage points in planning policy.
This should provide a more accurate basis for designing macroeconomic
policy.


The full paper is available at: http://www.cepr.net/IMF_Growth.htm

Or in PDF format at: http://www.cepr.net/IMF_Growth.PDF


Please feel free to contact the authors at baker@cepr.net or
rosnick@cepr.net with your questions or feedback.
If you are interested in scheduling a briefing with the authors, please
contact Todd Tucker at tucker@cepr.net or 202-293-5380, ext. 213.


The Center for Economic and Policy Research is an independent,
nonpartisan
think tank that was established to promote democratic debate on the most
important economic and social issues that affect people's lives.